The Hindu Business Line : FSI hike breaks no new ground in Mumbai

Investment World - Real Estate & Construction
Industry & Economy - Real Estate & Construction
States - Maharashtra
FSI hike breaks no new ground in Mumbai

Increase in floor space index could mean a decline in the price of Transfer of Development Rights (TDRs).

Vidya Bala

The Maharashtra State Budget’s announcement of an increase in the floor space index (FSI) in suburban Mumbai to 1.33 from 1 may provide a higher incentive for owners to part with their land for redevelopment work. Whether this move would really help increase housing stock, however, remains in doubt as the overall cap on developable area remains unchanged at 2.

The increase in FSI would now bring FSI allowed in suburban Mumbai on a par with the Island city (southern Mumbai).

Floor Space Index is the ratio between the built-up area and the area of plot available. An FSI of 1 indicates that the built-up area can only equal the area of the plot. The increase in FSI has now increased the developable area allowed by 33 per cent. For instance, in a plot of land of 10,000 sq ft, a built-up area of 13,300 sq.ft can now be developed as against 10,000 sq.ft earlier.

The increase in FSI is, however, not devoid of riders. Developers seeking the additional FSI of 0.33 would have to pay a premium based on the market value mentioned in the State Ready Reckoner (table providing zone-wise valuations).

The practice so far

Until recently, developers in Mumbai were able to build an FSI of over 1 (the cap being 2) by procuring their additional requirement through Transfer of Development Rights (TDRs) sold in the market.

TDRs are generated when the developer or owner of a piece of land surrenders the same to the government in return for additional construction rights in the suburbs. The developer would, however, have to provide rehousing free of cost. to the evacuated slum dwellers or affected persons. These TDRs can be utilised for construction or sold in the market.

With the increase in FSI, a developer has the option to buy additional FSIs either through the Government or by procuring TDRs.

Premium or TDR?

Here again, the developers would stand to benefit only in areas where the premium to be paid to the Government is lesser than the price of TDRs in that locality.

According to Mr Anand Gupta, Chairman, Builders Association of India, Mumbai Centre, TDR rates vary between zones. “Prices for TDRs between Andheri and Bandra, for instance, are higher than between Andheri and Borivali” he said.

But the increase in FSI could well mean a decline in the price of TDRs as there are now alternative options for developers. Bigger players such as HDIL and Akruti City, who have been undertaking large slum rehabilitation projects, may see a softening in the price of the TDRs they receive.

Will societies encash?

The mixed impact for developers apart, many housing societies in Mumbai may now be holding land stock that has 30 per cent more value all of a sudden. For societies, the additional 30 per cent could mean more space without having to shell out on expensive TDRs, feels Mr Kaustuv Roy, Director, Tenant Strategies & Solutions India, Cushman & Wakefield. “This could trigger higher redevelopment work in the city” he said. He does not, however, expect a decline in TDR prices to set off a property price decline as the supply scenario of land remains unchanged with the developable area continuing to be capped at 2.

While a higher FSI could be an inevitable option to provide affordable housing for a constricted city such as Mumbai, it could well take a toll on the creaky infrastructure of the city. Further, pressure on electricity and water supply may pose additional challenges for the Government.

While premium on the FSI may add to the State’s treasury, effective utilisation of funds to improve infrastructure may hold the key to reducing pressures arising from higher FSIs.