Higher charge on extra FSI may hit redevelopment in Mumbai suburbs
The state government is considering linking the premium to be paid by developers for the 0.33 extra FSI to ready reckoner rates of 2015 as against current base of 2008 rates
Feb 06, 2015
Source : The Economic Times


MUMBAI: Maharashtra government's proposal to charge builders more for the extra 0.33 floor space index (FSI) given for housing projects is likely to hit redevelopment work in Mumbai's suburbs. 

The state government is considering linking the premium to be paid by developers for the 0.33 extra FSI to ready reckoner rates of 2015 as against current base of 2008 rates. The state has increased the ready reckoner rates by an average 15% every year since 2008. 

If the proposal is accepted, experts say developers may not find smaller redevelopment projects viable because of the financial outgo, as the base rate for calculation of premium will increase by almost 100%. The move will also push up costs for home buyers in Mumbai's suburbs. 

"Is the government realty serious about making homes affordable?" said Rajesh Mehta of Raha Realtors. "Most of the measures announced so far are aimed at boosting the government's revenue, but these, including the latest one, will impact home buyers in terms of prices and lower areas offered to existing owners in redevelopment projects." 

In some localities and zones, ready reckoner rates have been revised upward by more than 30-40% every year. In the revision for 2015, rates in popular suburbs such as Goregaon, Borivali, Malad, Chembur, Ghatkopar and Vikhroli have been increased by 30-40%. It is the same for plush residential localities such as Worli and areas near Bandra-Kurla Complex

"All the equations will change as costing itself will double with this proposal. Redevelopment projects in suburbs like Mulund, Bhandup, Kanjur Marg, Borivali, Kandivali and Dahisar will be hit severely as the cost will move up without much room for recovering it through any price hike," said Nayan Bheda, CMD of Neptune Group. 

In a sluggish property market where prices are weakening, a rise in cost for developers is bound to hit their margins.This is expected to see less number of developers coming forward for smaller redevelopment projects in the suburbs. 

"Cost going up will have two possible ramifications. Either home-buyers will have to pay more, which looks unlikely given the current market scenario, or developers' margins will suffer. Unlike in any other industry , in real estate, each project is assessed on its net realisation and profitability , and based on that redevelopment projects in suburbs may not see many takers," said Vvikas Aroraa, director, marketing & sales, Runwal Group."This will also impact the additional space to be shared with existing tenants." 

Once the proposal is notified, developers are likely to renegotiate the old redevelopment agreements where construction is yet to start, as builders will be interested in reducing the compensatory benefits, including extra space for tenants. 

In late 2011, the state government had decided to grant 0.33 additional FSI to projects in the suburbs and extended suburbs of Greater Mumbai by sanctioning an amendment to the Development Control Regulations for Greater Mumbai, 1991. 

The move was expected to lower price of housing on the back of augmented supply in the suburbs. The additional FSI could be availed of on payment of premium. The premium accrued to the state government and the Municipal Corporation of Greater Mumbai from this additional 0.33 FSI was to be used on upgrade the city's infrastructure. 

Currently, basic FSI of 1 is permitted in Mumbai suburbs, while developers are also allowed to use the transfer of development rights (TDR) equivalent to additional FSI of 1 and 0.33 FSI from civic authority with the overall cap on FSI at 2.

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