Former Chief Minister and the Leader of Opposition Devendra Fadnavis wrote to the Chief Minister Uddhav Thackeray stating that, government policies for helping real estate sector to mitigate COVID effect are aimed at and are resulting into windfall gains to a few real estate developers.
By Varun Singh
Leader of Opposition in the state, Devendra Fadnavis has created a storm on Sunday afternoon by writing a letter to Chief Minister Uddhav Thackeray.
Devendra Fadnavis, the former Chief Minister of Maharashtra has alleged that government policies for helping real estate sector to mitigate COVID effect are aimed at and are resulting into windfall gains to a few real estate developers.
Devendra Fadnavis has even threatened to file a PIL if no corrective action is taken to rectify the issues raised by him in the letter.
Tweet by Devendra Fadnavis, about the letter he wrote to CM Uddhav Thackeray
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Below is the letter written by Devendra Fadnaivs to CM Uddhac Thackeray.
Mumbai, 27 December 2020
To,
Shri Uddhav Thackeray ji
Hon. Chief Minister
State of Maharashtra
Subject : Govt policies for helping real estate sector to mitigate COVID effect are aimed at and are resulting into windfall gains to a few real estate developers.
A committee chaired by Shri. Deepak Parekh (co-founder of HDFC Ltd.) was formed for seeking suggestions to revive the ailing real estate sector due to the ongoing corona pandemic. The recommendations suggested by the said committee, it seems, are being implemented selectively without considering the real effect of the same.
It seems that certain vested interests have colluded for the purpose of extending benefits to a few handful parties at the expense of State exchequer. I must state here that the actions of the State Government must be free from the vice of arbitrariness and must conform to Article 14 of the Constitution of India.
At the outset, I would emphatically state that I always support steps taken to boost the demand during pandemic and decisions like rationalisation of stamp duty rates, Ready reckoner rates and Premiums is a necessary step. However, under the garb of reduction for rationalisation, windfall gains cannot be allowed to a handful few.
There seems to be a systematic method devised to give windfall benefit to said real estate developers by fragmented & prejudiced reduction of ready reckoner of some of their self-owned & interest plots to the extent of 70% of the existing ready reckoners’ rates. The said reduction leads to reduction of payments to be made to the competent authorities. The table below shows the indicative reductions in payments. Following the success of this Modus operandi, it is now proposed using the Deepak Parekh committee report to further halve the statutory payments levied by the Corporations & State Government. The same was proposed in the last cabinet meeting of the Government of Maharashtra and was kept in abeyance till the next cabinet meeting. It was brought to my notice that when only few projects of selected five developers were analysed to capture its effect, it was found out that this will lead to a windfall gain of more than 2000 crores.
These developers have large chunk of land parcels in western suburbs by the sea, eastern suburbs, and city. The following steps below shows further details and extent of the modus operandi initiated in few cases. I have many such cases in hand which I can submit to appropriate authority.
Step 1: CTS no of a land parcel in western suburbs was subdivided into 3 zones. One of the zones which comprises of premium land by sea admeasuring 200,000 Sq.mts is now defined as new zone. Earlier ready reckoner rate was Rs 1,18,000 per square meter. However, overnight it has now become ₹35,000 per square meter which is a 72% reduction.
Step 2: Cascading effect of this 72% reduced ready reckoner rate can be seen when it goes for further permissions of development as only 1 FSI zonal is free. TDR 1 FSI, 0.5 FSI by paying premium to state government. So, the total FSI comes to 2.5. Now, say the total FSI on this plot Becomes 500,000 Sq.mtrs, 35% fungible FSI is 175,000 Sq.mtrs. In total 675,000 Sq.mtrs built up area is allowed for construction & sale. This is barring staircases, floor lobbies, lift areas, which comprises of 30% of built up area which in this case comes to 225,000 Sq.mtrs, by means of paying premium i.e. 25% of the ready reckoner rate. So, before the reduction in ready reckoner rates as mentioned in step one the premium of A) 0.5 FSI amounts to a revenue of Rs 730 crores + B) staircase lift lobbies
Step 3: Premium before reduction amounts to Rs 663 crores i.e., total A+B = 1393 crores. Now after reduction in ready reckoner rate the revenue to be paid will be 390 crores. Thus, it is clear that a wind fall gain of 1000 crores goes straight to the developer.
With the new proposed 50% reductions in premiums by GOM the payment of 390 crores will become 185 crore. Thus, the Windfall gain to the developer now stands at 1185 crores. Fungible FSI (as mentioned is step 2) is 35% of 175000 Sq.mtrs @118000 = Rs 722 crores. With new ready reckoner rate as mentioned in step one the payment becomes 204 crores which leads to a gain of Rs 518 crores to the developer. With new 50% reduction in premiums the payment will become 102 crores. So finally, developer gains Rs. 620 crores.
Total Windfall gain in one big premium land parcel is Rs 1185 crores + Rs 620 crores = Rs 1805 crores to one developer owning 2 lakh metres of land parcel in western suburb.
This is just one example and there are many such cases which are brought to my knowledge.
If the policy of 50% reduction comes into effect the midsize developers of Mumbai who undertake standalone redevelopment projects and SR Schemes would loose the competitive edge.
SR schemes won’t be financially viable. This would militate against the topmost priority of the government of Maharashtra which should ideally be to have a slum free Mumbai.
The cabinet proposal also says that in lieu of the 50% rate cut, the developers will have to bear the stamp duty on selling of an apartment. Looking at the windfall gain any developer stands to receive, he will happily do that.
Every cabinet agenda is to be kept secret until a decision is taken but to my surprise the entire cabinet agenda with note and draft GR is in circulation and available with all developers and on social media and if rumours are to be believed some people are also doing some resource collection.
I am sure that you will take corrective action and won’t allow the state resources to be exploited and squandered for private gains especially when day in and day out the government expresses its worry about its financial position. It is surprising that on one hand we are not able to help our farmers and ‘bara balutedars’ and on other hand we are allowing windfall gains to private people.
I once again reiterate that I am not against the rationalisation of govt charges to boost the demand, but my worry and concern is about the blatant misuse of power under the garb of reforms.
I am therefore purposefully writing this letter to you in English because in case no corrective action is taken by you despite being made aware, I will be compelled to file a PIL in the Bombay High court at Mumbai.
You can ask all further details from me anytime.
Yours Sincerely,
Devendra Fadnavis
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