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Gaurav Srivastava | 15 Mar 2022

TDR in Real Estate - Everything You Need to Know

TDR in Real Estate - Everything You Need to Know

TDR stands for Transfer of Development Rights. The concept of TDR typically means making a certain amount of additional built-up area available in a preference of the area surrendered by the landowner, so that he/she could use the additional built-up area either by himself or transfer it to any other person in need for an agreed amount of money. In other words, we can say that the Transfer of Development Rights is a crucial raw material in the real estate segment as it allows the real estate developer to build over and above the permissible Floor Space Index under the pre-existing rules of the respective locations. 

On the back of heightening urbanisation and lack of space availability, TDR assumes higher importance, especially in urban regions of the cities. When the Government undertakes obligatory acquisition of an individual’s land parcel for creating high-end infrastructural projects, it is needed to compensate the owners of the land. Here, one thing to note is that the compensation paid by the Government is generally lower than the market rate, and hence the concept of Transfer of Development Rights was introduced. These rights are obtained in the certificate form, which the property owner can use himself or trade for cash in the market. 

For your information, based on the development stage, a city is divided into multiple zones, i.e., fully developed, sparsely developed, and moderately developed. The Transfer of Development Rights or TDR is transferred from the fully developed zones to other zones but not vice-versa. 

TDR can also be used as a zoning tool that urban local authorities utilise to preserve areas of historical and cultural importance and farmlands by allowing real estate developments in some other regions. At times, the development rights are transferred because the population density is low in sending area and high in the receiving areas. However, when implemented perfectly, the Transfer of Development Rights allows urban density to increase while preserving the historical and cultural spaces and farmlands. 

Types of TDR (Transfer of Development Rights)

Talking about the types of TDR or Transfer of Development Rights, predominantly, there are 4 types of TDR that are stated below:

1. Road TDR

2. Slum TDR

3. Reserved plots TDR

4. Heritage TDR

In most cities, a maximum number of construction activities take place with the help of Slum TDR. 

General Points Relating to Transfer of Development Rights

Some of the general points regarding TDR are as follows:

1. It is a certificate obtained from the Municipal Corporation that the property owner obtains where his/her property is reserved for the main purpose of public utilities. Such public utilities may include roads, schools, gardens, etc. The certificate obtained by the owner is equal to the reserved rights obtained by the owner on surrendering his real estate to the Municipal Corporation. 

2. It means making a specific amount of extra built-up area in place of the area surrendered by the property owner so that the additional built-up area can be used by him/her in an optimum manner.

3. In Mumbai, these rights are generally transferred from fully developed zones to other zones.

4. The main motive behind this transfer is to facilitate the development of underdeveloped areas.

5. TDR has come up as an urban development tool that has ultimately resulted in congestion in an unplanned manner.

6. As per explanation, 1 to Rule 5 of the MAHA RERA Rules, 2017, the TDR Acquisition Cost is involved while calculating the cost of land; therefore, it finally increases the prices of property. 

7. The concept of TDR or Transfer of Development Rights came into existence when Government authorities used to acquire the land for the formation of civic amenities, roads, etc. This certificate reduces the time needed and helps in the acquisition process as the landowner can transfer his/her rights by using this certificate. 

Benefits of Transfer of Development Rights

When the Transfer of Development Rights (TDR) option is effectively used, it offers a wide range of benefits that involve:

1. Everybody Wins

The most important and notable benefit of TDR is that everybody wins in the following ways

-  The developer makes a profit by taking maximum advantage of the regulatory flexibility of a Transfer of Development Rights receiving area. 

-  The owner of the land receives market-determined financial compensation for conserving their plot of land.

-  The public enjoys many health, environmental and economic benefits of conserved land, like clean drinking water and reduced flooding. Citizens also benefit from the potential for more budget-friendly and diverse housing options made possible by higher-density development.

- Land trusts, country farmland preservation boards, and municipal open space programs can use their limited money in order to protect other crucial properties. 

2. Flexibility

TDR is a flexible tool that can easily be made to fit multiple different growth management and land preservation scenarios. For instance, development rights can transfer to non-residential as well as residential developments. Non-residential developments using TDRs take benefit from increased floor area allowances or maximum building height allowances. On the other hand, residential developments using TDRs involve added uses like townhouses in addition to single-family detached units, increased density like more dwelling units per acre, etc. 

3. Taps into Private Capital

To put it simply, there is not enough local, state, or federal conversation funding in order to protect all the land that needs protection. And, the little funding that exists is often in danger. Unlike conservation techniques which depend solely on scarce public funding, TDR conserves land by tapping into the wide amounts of private capital flowing into real estate development projects. 

Critisism to TDR Concept

Are you wondering about what’s the criticism of the TDR concept? If yes, then we have got an answer. Have a look!

On a conceptual level, the Transfer of Development Rights seemed to be an excellent urban development tool as it has facilitated the development of suburban regions. However, most real estate developers used it as a tool to maximise the saleable area in prime locations. This resulted in excessive construction that ultimately led to congestion in the suburban areas, unplanned development, and pressure on infrastructure. 

Besides this, another criticism of the TDR concept is that it has resulted in an increase in real estate prices. Since the TDR Acquisition Cost is involved in the real estate project cost, the real estate developers increase the final project pricing. In order to curb this, the Government must have some mechanism to keep an eye on the quantum of Transfer of Development Rights available in the market and the trading price. This will definitely help in controlling the real estate price in India

This is all about the Transfer of Development Rights TDR. We hope this guide has cleared all your doubts about TDR in a more practical way. In case you still have any doubts or queries, you can ask by commenting below. We will be happy to answer them all. 

Also read: Documents to check to prevent real estate fraud


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