Ahead of the Assembly polls, the Maharashtra Government has unveiled a slew of measures to boost the flagging realty sector in the State. It has offered significant cuts in builders’ fees for availing floor space index (FSI) for their projects. This move is expected to spur construction activity and demand for residential homes. However, reduction in FSI fees may not help boost residential property demand if it isn’t reflected in home prices for buyers.

What is it?

Floor space index, also known as floor area ratio (FAR), is the maximum area that can be constructed on a plot of land. It is regulated by the municipal or local authorities of the respective State government. FSI norms are usually set based on the National Building Code. It is calculated by dividing the total covered built-up area on all floors of a building by the area of the plot it stands on. For instance, if you have 1,000 square feet of land on which you want to build a residential or commercial building and the FSI in your locality is 1.5, then you could build up to 1,500 sq.ft of covered structures on the plot.

Effectively, you can build apartments comprising one or two floors or a single dwelling unit on the plot, but not beyond 1,500 sq.ft. The constructed area would include staircases and other basic structures.

The fees paid to the government for this construction is known as FSI fees. Now, if a developer wants to build over and above the FSI limit, the authorities sometimes give permission to do so for an additional fee.

This is termed as premium FSI. A developer can utilise the area (over and above the FSI limit) for providing additional amenities such as flower bed, gardens, balcony and private terraces.

Why is it important?

Building activities in the past happened without any control. Therefore, considering the need for ventilation and safety, governments thought it prudent to set limits on construction by way of FSI norms. This limit plays a crucial role in controlling the burgeoning of buildings, especially in metros. Higher FSI for an area indicates greater building volume. Therefore, among all the regulations in development planning, FSI is among the most crucial. Since many people migrate to cities for job opportunities, FSI limits help regulate vertical building growth and living conditions, while accommodating the burgeoning population.

While determining FSI, apart from the carrying capacity of land, related aspects such as adequacy of water supply, sewerage system, solid waste disposal and road capacity are taken into consideration. This is why FSI varies with each State and each region within a State. FSI varies with the type of building as well.

Why should I care?

While the increase in FSI adds to the supply of housing units and should usually lower housing prices, it often doesn’t work that way in prime areas of a city like Mumbai. Land-owners usually peg up the value of land available for sale when there’s an increase in FSI. For home buyers, an increase in FSI, particularly in high-density buildings, would mean more residents needing to share common amenities such as lifts, pools, clubs, electricity and water. The maintenance cost in such cases could also go up.

On the other hand, home buyers who had bought the property with lower FSI would now have the option of adding to their built-up area for higher capital returns. But FSI increases in the outskirts of a city may lead to lower property prices, as builders may lower the price to stimulate demand for homes in these areas.


It’s a tough trade-off between building homes for the aspiring and preventing cities from turning into concrete jungles.

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