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A year ago a software firm approached the owners of Millennium Apartments in Anna Nagar with an offer to buy 48 of their flats facing the Kolkata High Road for Rs 24 crore.
The offer was a whopping Rs 50 lakh per apartment. Till two months before that, the flats could not have fetched more than Rs 15 lakh each. These low income group (LIG) flats are 550 sq ft each and enjoy an equal area of undivided share of land too.
“The initial reaction of our owners, as the broker offered the rate, was one of disbelief. As it sank in, we got to know that the mediator was working on behalf of an IT firm,” said T Chandran, the owner of one of the LIG flats.
“As we worked out the economics, we found that as against a floor space index (FSI) of just 1.0 that we were enjoying in the old building, the new builder would be able to achieve 2.5 FSI because our land faces a 120-ft road. The builder would also be able to convert the land into commercial or IT space without any difficulty as buses ply on the adjoining road. We got down to bargaining and demanded Rs 80 lakh per flat. It got dragged and finally, when the buyer agreed for Rs 80 lakh per unit, some owners raised the demand to Rs one crore,” Chandran, told The Times of India.
The deal did not happen as the IT firm backed out after much haggling. Still, the owners have nothing to lose as they are sitting on a gold mine of 11 grounds (one ground is 2,400 sq ft). What the IT firm offered then was an astronomical price, almost twice that of what prevailed in the region.
“Taking into account the commercial value of the land (it is located right opposite to Metro Zone, an integrated township jointly promoted by the Reliance, Ozone Group and the HDFC), it would sell like hot cakes once the owners form a consensus,” noted Chandran, who had paid only Rs 60,000 for his house in 1984.
Chandran is one among the many retired government employees who just about managed to buy their own houses in the city, thanks to the Tamil Nadu Housing Board (TNHB) initiatives in the last few decades.
It is immaterial as to whether they own low income group (LIG), middle income group (MIG) or high income group (HIG) flats. All their houses are in prime residential and commercial areas, adjoining many arterial roads, and hence potential properties for exploiting to the full potential the underutilized development rights.
While the old LIG flats have an average FSI of 1.0 and MIG and HIG flats ranging from 0.5 to 0.8 FSI, once they are pulled down, the builder can achieve an FSI ranging from 1.5 to 2.5, depending on the width of the adjoining roads.
Places like Anna Nagar, Mogappair, Besant Nagar, K K Nagar and Ashok Nagar in the city have several thousand TNHB apartments, which have huge potential for re-development.
It is estimated that Chennai and its outlying areas have close to 50,000 TNHB apartments which are more than 25 years old, according to a senior official of the board.
At a time the real estate sector is going through a softening phase, these TNHB flats fetch more money than their private counterparts in the region.
In Santhi Colony in Anna Nagar, where private builders sell new flats at Rs 8,000 per sq ft, the 860-sq ft MIG apartment of T Gopalan has an offer of close to Rs 15,000 per sq ft.
Obviously, the builder, who is eyeing his two-bedroom flat, is looking only at the undivided share of land, measuring 1,800 sq ft, held by Gopalan. Compared to the rate at which one of his neighbours sold his flat in the same MIG building last year, the offer made to Gopalan is 30% more.
Allaying fears in the minds of residents about redeveloping old Housing Board apartments, a senior official of the Chennai Metropolitan Development Authority (CMDA) said, “There is no restriction on pulling down old Housing Board flats and constructing high-rise buildings. The normal development control rules are applicable to them.”
In 2004, the Housing Board had introduced a condition that whenever a builder promotes a project by demolishing TNHB flats, the builder will have to pay 10% of the market value of the additional floor space index he gets, to obtain a no-objection certificate from the board.
This NOC was made mandatory for getting project approvals from the CMDA and Directorate of Town and Country Planning. However, the TNHB order has been challenged in the court.

Redevelopment: The pros and cons

Housing Board flat owners enjoy extra development rights, which can be leveraged either by joining hands with other neighbours and extending the area or by selling it to builders.
While only end customers show interest in purchasing private apartments, builders buy Housing Board apartments as they can be pulled down to construct upmarket skyscrapers.
Builders provide owners new flats and also some cash, depending on the market price of new apartments in the locality. Owners are also provided alternative space to stay till the project is completed.
Housing Board apartments abutting bus routes fetch very high price. Builders pay a premium for such buildings as they can be converted into commercial establishments without much hassle.
Bringing together all the owners in a housing board complex to fully exploit the development rights is a laborious task. Even if one owner puts spanner in the works, the project gets stuck.
There would be conflict of interest between the elderly and the younger lot. While the youngsters would want to go in for a modern building, the oldage people would mostly prefer their old homes.
If builders do not show interest in purchasing or redevelopment, housing board flats will not fetch attractive rates. Ordinary buyers will not pay a premium as they will not be attracted by the unexploited development rights.
Builders seldom provide alternative accommodation (while constructing the new building) in the same locality. Relocating to far-off places can be problematic for office-goers and schoolchildren.