What is TDR in Real Estate?

What is the Full Form of TDR?

The full form of TDR is Transferable Development Rights. According to this concept,  landowners can transfer the unused building rights of their land to another location. As a result of this, there is more effective land utilization and even better planning. With expert-level guidance from a real estate consulting firm, transfers like this can be executed very strategically to maximize profit. In addition to this, the process of land acquisition is simplified, and this concept ensures that landowners are compensated fairly for their properties.

In short, TDR offers a win-win solution. If you look at it, landowners receive their fair pay. The developers also gain additional Floor Space Index (FSI) rights in specified areas.
 

What is the Need for TDR?

As urban areas grow, more space is needed for amenities like parks, schools, hospitals, and other amenities. In the past, land used to be forcefully acquired by the authorities, which would cause disagreements and unrest among landowners. People were looking for a fairer and more sustainable alternative. This led to the emergence of TDR. With TDR, landowners can hand over their land for the benefit of the public. They are also rewarded with transferable building rights.

This model saves the expenditure from the government’s end and provides landowners with fair value through development rights based on the market scenario. It helps cities to grow in an organized way, especially in urban zones facing density constraints.

Advantages of TDR

Let us look at the comprehensive benefits of the TDR system-

1. Fair Compensation: Landowners are often left uncompensated for giving up land. The TDR system ensures that landowners are rewarded with tradable development rights.
2. Maximized Urban Growth: TDR encourages the rise of high-rise development. In these zones, roads and other utilities can support dense populations.
3. Cost-Efficient Public Projects: With TDR, the authorities can avoid heavy land acquisition costs. This makes public infrastructure projects more affordable.
4. Environment Preservation: Sensitive and protected areas like wetlands and forests can be preserved better by shifting the building rights to other locations.
5. Urban Renewal and Slum Redevelopment: Slum rehabilitation is facilitated by this method as developers get incentives through TDR to invest in the same. Even city renewal projects like the upkeep of heritage buildings become easy.

Some Important Terms Related to TDR

Let’s now take a walk through some of the major words associated with TDR-

• FSI (Floor Space Index): This is the ratio that determines how much plot you can utilise for building purposes. With the help of TDR, you can extend that limit in certain cases.
• TDR Certificate: This is a document provided to the landowners. It shows how much extra space they have been rewarded with the virtue of TDR.
• Receiving Zone: This is the area where developers can use TDR to construct buildings beyond normal limits.
• Sending Zone: This refers to the plot that was given up for public use in exchange for development rights.
   

Types of TDR in Real Estate

Understanding the different types of TDR is important if one truly wants to appreciate the role of the tool in urban planning. Let’s take a look at the different categories-

1. Road Widening TDR: This is granted to landowners who voluntarily relinquish their properties for road widening.
2. Slum Rehabilitation TDR: This is the kind of TDR that is issued to landowners when they help in the redevelopment or relocation of a slum area.
3. Heritage TDR: Instead of redeveloping a heritage building, if a land owner decides to preserve it, he receives the heritage TDR.
4. Reserved Land TDR: When land meant for public use, like gardens or schools, is given up, this TDR is provided.
5. Forest or No Development Zone TDR: This category of TDR helps in preserving nature. It is issued when forests and sensitive areas are given up.

The TDR Market

TDR works just as a marketable right. Once a landowner obtains a TDR certificate, they can use the same to build their project elsewhere. Other than that, they can sell it to builders who are looking for extra building space.

TDR Calculation Example:

Let us understand this with an example. Suppose a person surrenders 1000 sq. meters of land. The local Development Control Regulations (DCR) then allow a TDR of 1.5 times the surrendered area. As a result of this, the landowner will get development rights for 1500 sq. meters. He can also sell these rights in the TDR market.

The price of TDR depends on several factors, like the demand and supply dynamics, the location of the property, and permissible FSI in the receiving zone.

Legal and Regulatory Frameworks

The rules of TDR are not uniform and vary from one state to another. The rules regarding TDR are governed by the local urban planning bodies. If we look at realistic examples, the Development Control and Promotion Regulations (DCPR) in Maharashtra and the Unified Development Control and Promotion Regulations (UDCPR) ensure the consistent usage of TDR.

In Delhi NCR, the TDR mechanism is a little more complex. For example, the DLF group uses bonus FAR and opts for an incentive related to redevelopment. This process has been applied to recent projects like DLF Crest, DLF Magnolias etc.

GST on TDR on Real Estate

GST was introduced in India on the 1st of July, 2017. New questions started emerging regarding how TDR would be taxed post this. According to the current GST regime:

• The developers are required to pay GST when they acquire TDR from a landowner.
• There are many affordable housing projects. In those cases, TDR transfers are not taxed under GST.
• In case of rights issued after July 1, 2027, the developers are required to pay GST under the reverse charge method.

In order to avail the best compensation and fair deals, understanding this regime is important for both landowners and the developers who indulge in TDR transactions.

What is the TDR Rule for Building?

Local municipal bodies have set specific rules on how much extra building space (FSI) can be added through TDR. The exact rules regarding TDR depend on a number of factors, like where the TDR is being applied, how much the local infrastructure would be able to support the same, and also the category of TDR being applied.

Generally, TDR is allowed only in the same city or zone. The developers and the landowners need to abide by the local building laws. There’s also a maximum limit on the amount of TDR-based construction that is allowed on a plot.

What is TDR Return?

TDR return refers to the profit or the construction advantage that one gains by using or selling development rights. Investors earn by trading FSI in prime locations. In those areas, the demand for extra FSI is very high. More construction means more flats or commercial units. This helps developers maximize their profits.

TDR in Construction

In the construction industry, TDR enables developers to increase buildable space. This is crucial, especially in urban crowded areas. TDR allows builders to expand their projects without breaking the Floor Space Index (FSI) rules. There are certain cities like Pune, Bangalore, and Mumbai that rely heavily on TDR. This is mainly due to two main reasons- limited living space and sky-high land prices.

How Does TDR Work in Real Estate?

Let us look at a common flowchart that represents how the TDR mechanism works in real estate.

Criticism of the Concept

Despite its many advantages, TDR has some criticisms:

• Biased Compensation: The TDR mechanism often favours big builders. The smaller players often don’t get to avail any of its benefits.
• Speculation: The buying and selling of TDR can give rise to market speculation. And, this can cause artificial hikes in the prices.
• Complex regulations: With TDR, the complicated rules and vague policies can often be very confusing for the landowners and the developers.
• Infrastructure Stress: Excessive use of TDR leads to traffic congestion, and it can overwhelm public amenities like roads and water systems.

Final Words

If there’s one tool that aligns urban expansion with the needs of the infrastructure and industry, then it’s TDR. As the population density of cities continues to increase, TDR becomes all the more essential. However, in order for the mechanism to function properly, a few things are necessary. These include open policies, strong planning systems, and public understanding. 

No matter what your role is- be it landowner, developer, or even an investor- knowing about TDR can help you contribute to the construction of a smarter city.