How Tweaked TDR Norms May Impact Real Estate in Bengaluru

When authorities in Bengaluru recently announced they would make changes to their transfer of development rights (TDR) scheme, many were left wondering how this would affect the city's real estate market. PropGuide looks at what this scheme meant and how a tweak would affect property owners in the Karnataka capital.

What is TDR?

TDR is a way of compensating land owners as they relinquish or surrender their property titles to authorities. Authorities provide them an additional built-up area that can be used by owners or transferred to others. TDR comes handy in case of land acquisition in urban areas, where land might be required for public purposes like widening of roads, parks, play grounds, etc.

Also called development rights certificate (DRC), TDR has made land acquisition cost-effective and simple for government agencies in Bengaluru. A DRC needs to be utilised within 10 years from the date of issue.

The Karnataka Town and Country Planning Act, 1961, empowers local bodies to grant additional floor area ratio (FAR) in lieu of land handed free of cost. Since 2006, the Bruhat Bengaluru Mahanagara Palike (BBMP) has been using this method to compensate land owners. Though BBMP authorities have issued TDRs in excess of 2 million sq ft, less than half of this has been used to date.

TDR calculation

Suppose you own a 500 square metre (sq mt) plot in Bengaluru. According to the permissible norms, the floor area ratio allowed is 1.5. Based on that calculation, you will be allowed to build 750 sq mt. Now if the authorities acquired 100 sq mt of your land, they provided you with an additional floor area of 150 sq mt in the form of TDR. This would bring up your total floor area to 900 sq mt.

The earlier policies

Under the earlier policy, areas in Bengaluru were divided into a number of zones by the intensity of development. Intensively developed areas were classified as 'A-Zone', moderately developed as 'B-Zone' and sparsely developed ones as 'C-Zone'. Under the TDR plan, beneficiaries were allowed to move from a high-intensity zone to a low-intensity zone, and not vice versa. The objective was to reduce the stress over highly populated zones and transfer the future development to under-developed zones.

However, the Bangalore Development Authority (BDA) notified Zonal Regulations, 2015, which allowed free movement of TDR across categories. This meant that TDR from a low-value property could be used in a high-value property. The motive behind creating zones was to decongest the busy zones, but the recent regulation will do the opposite. People will find it profitable to utilise their TDR in high-value properties.

Also, people whose land was to be acquired had the option of either accepting TDR or demanding monetary compensation under the Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement Act, 2013, a central government legislation. The monetary compensation was determined at twice the guidance value of properties. In such cases, the cash-strapped urban local bodies (ULB) find themselves in a tight spot.

The proposal

Authorities have proposed to link TDR with the guidance value of the acquired land. According to the guidance value of the property, the notional built-up area will go up or down. The State Urban Development Department has in the proposed new TDR scheme suggested that people relinquishing the land be given twice the guidance value of the land acquired as TDR. However, if market value or guidance value is used for arriving at the notional land, this will cause confusion and ambiguity. The market value of land is a subjective thing; if that is adopted for grant of TDR, it will result in frequent litigation. The old TDR holders will be at a loss because the utility of their TDR will be reduced.

The right direction

The previous system made the calculation of TDR easy, while the new system will be prone to manipulation at the hands of developers. Linking TDRs to the market value of land will make them less attractive for owners. Speculators may gain, if the guidance value used by the authorities is not in consonance with market rates prevalent at the ground level.