Valuation For TDR in Real Estate: Here’s what you need to know

What is TDR in Real Estate?

TDR is Known as Transfer of Development Rights. It means, making them available and an additional amount of built-up area in place of the area surrendered by the owner of the land.

Where can the owner use the additional Built-up area?

The Owner can either use the extra built-up area himself or transfer it to another in need of money. This additional FSI or super built-up area is issued in the form of certificates, known as DCRs (Development Rights Certificates).

What is the use of DCRs?

In exchange for land acquired as compensation by the government, these certificates are issued to the land owner. These certificates carry commercial value just like land.

TDR certificates can be purchased by builders planning to build large buildings in areas where FSI is limited.

TDR utilization depends on the local civic bodies, and TDR is usually transferred between fully developed & undeveloped (other) zones & not vice versa.

In Mumbai, for example, the TDR generated in south Mumbai will be used for development in the northern suburbs.

What are the types of TDR?

1. Reserved plots TDR

The owner of the reserved land has to surrender the plot to MCGM free of cost and free of encumbrance after leveling the plot and constructing a compound wall and gate. The owner of the reserved plot is granted a printed Development Right Certificate (DRC) with FSI credit in the form of TDR equivalent to a gross area of the plot surrendered multiplied by permissible zonal FSI. 

2. Slum TDR

The Slum Rehabilitation Project (SRP) is sanctioned by Slum Rehabilitation Authority (SRA). The owner/ developer/ society is permitted additional Built Up Area (BUA) as an incentive sale area, in a specified proportion for every sq. mt. of rehabilitation BUA constructed under the project. The FSI sanctioned for the scheme is based on the total rehab & sale area.

3. Heritage TDR

The owner of the heritage building is granted heritage TDR to compensate for the loss of development rights due to restrictions imposed by the heritage committee. TDR is permitted with the sanction of the State Government. TDR can be used in the same ward even in an island city or on any plot in the suburbs. 

How can TDR be traded?

Just like the stock market, cities like Mumbai do have a huge TDR market in place. As these TDR certificates can be traded in the market for cash, most developers purchase the same and utilize them for increasing their permissible development rights. 

What factors are considered in TDR valuation?

1. Unit rate arrived from sales comparison Method 
2. Builder’s Profit
3. Cost of Construction
4. Time Factor

Also Read : The Importance of Real Estate Property Valuation in Investment Decision Making: An Analysis of Risk and Return