Luxury real estate consultant India Sotheby’s International Realty on Saturday pitched for a sharp cut in charges levied for converting leasehold properties in Mumbai into freehold to unlock value of housing, commercial and industrial assets. India Sotheby’s International Realty (ISIR) has urged the Maharashtra government to rationalise conversion charges, it said in a statement.
The consultant has come out with a white paper titled ‘Why Leasehold Property is Shackling Mumbai’s Real Estate Potential’. The consultant pointed out that conversion charges to change property rights from leasehold into freehold are as high as 60-70 per cent of the property value, which are typically paid by sellers. Landowners often defer paying this charge to the next generation.
Samir Saran, managing partner, ISIR, said: “Mumbai’s real estate market is not only the most expensive in India, it is also among the top few real estate markets that command such high capital values in the world. In fact, in some localities, the per square feet rate has crossed the Rs 1 lakh figure.” One of the reasons behind such an exorbitant pricing is government fee and charges associated with the real estate, he said.
“It is surprising that subsequent governments have shied away from unlocking the true potential of Mumbai’s real estate by easing the leasehold to freehold norms.” He said some serious rethinking is required to create a more robust and equitable housing market in Mumbai.
The white paper noted that property ownership in Mumbai is largely in the leasehold format. Residential, commercial and industrial land have all been leased on varying tenures. As the lease periods come up for renewal or are at the tail end of the lease, the current lessors, mostly government agencies, demand conversion charges for change to freehold status.
“Today, sellers are required to either take permission from the lessor authorities for changes in individual ownership or pay conversion charges of 60-70 per cent,” the paper said. There are nine types of leases available in Mumbai at present. The white paper has focussed on collector’s land given on lease between 1950s and 1980s for development of housing societies and for commercial and industrial development.
These are mostly located in Central and Western Suburb localities such as Bandra, Versova and Chembur. Besides high conversion charges, the white paper talked about other practical problems in undertaking conversion of leasehold to freehold properties.
In order to unlock the value of properties in Mumbai, ISIR has suggested that the Maharashtra government should come up with a long-term policy initiative to facilitate property owners who wish to convert their assets from leasehold to freehold. The consultant has urged that the conversion charges should be significantly lowered for a longer period.
The conversion rates and FAR (floor area ratio) should be attractive enough for land owners and developers to go for redevelopment, the paper said. It also stressed on the need to liberalise stringent societal norms (like castes and reservation) to facilitate redevelopment.