Transferable development rights – the concept and benefits

Transferable development rights – the concept and benefits

When we decide to purchase a house, we tend to take a lot of things in consideration. We begin by deciding the type or size of the house, and the neighbourhood, we’d prefer to live in. Another point of focus is choosing a good lender to get our home loan approved as well as a realtor who has a good market reputation. We research the various projects completed by different realtors before choosing one. However, to be able to hold your own in a negotiation with your realtor, you need to be well informed about your rights as a customer and home buyer. To this end, it’s important to understand the various real-estate terms. One such term is transferable development rights. Let’s find out it means.

What is transferable development rights?

Transferable Development rights, often abbreviated as TDR refers to the zoning technique used to protect plots of land that have a conservation value on a permanent basis. These spaces include farmlands, natural resources, cultural resources as well as open community spaces among other things. As a result of TDR, such spaces of land are protected by the government, redirecting development occurring on this land. Instead, the government focuses on developing areas that actually need growth and development.

In terms of real estate construction, transferable development rights, refer to the rights that enable builders to construct over and beyond the permitted floor space index (FSI), on the basis of the rules prevailing in a given area or neighbourhood, in which construction is carried out.

How does TDR benefit land owners?

Transferable development Rights programs offer financial compensations to landowners who choose not to develop a part or all of their land. Such owners are provided with the option of legally severing their development rights under municipal zoning in return for a fair compensation. Land owners can also sell their rights to real estate developers or other owners. The piece of land from which the rights for development are severed, is protected permanently through a restrictive covenant or conservation easement. Furthermore, the development value of such pieces of land where transferable development rights are applicable is enhanced. Without the TDR option it becomes almost impossible to use the piece of land for redevelopment and growth in a manner that proves beneficial to society in general and the land owner in particular.

Understanding TDR with an example

Now that we know what is transferable development rights in India, Let’s look at it with the help of an example.

In a city like Mumbai, the neighbourhoods of Colaba, Juhu and Bandra are among the ones that boast of maximum development. These are also densely populated neighbourhoods, as opposed to say, Mira Road in Northern Mumbai. Mira Road does not boast of high real estate rates, nor is it regarded as one of the most developed neighbourhoods with great public and civic amenities. It is, at best, moderately developed.

Now, what happens is that to make the most of available land space, TDR is transferred from well-developed zones to those that could benefit from development. Well-developed zones already have all amenities while those undergoing development can benefit from these amenities. TDR also helps distribute the population evenly, instead of having only a handful of densely populated regions. As development increases in under-developed areas, the population begins to consider such localities and the available land resources are well utilized.

Final Thoughts: Real estate developers are obligated to confirm with various laws and rules laid down by their state government and city corporation before they begin the construction of any kind of project. They also need a lot of raw material to begin the construction. In a sense, transferable development rights, serve as raw materials that builders need towards construction because TDR specifies how construction should commence as well as the rules builders need to follow while construction is underway, without obstructing or flouting any laws.