The FSI premium that is hurting Mumbai’s property market


Home buyers in many parts of Mumbai are faced with a unique situation, where the rate that they pay for open spaces like balconies is more than the cost of construction

“Even though I am buying an apartment of 1,470 sq ft in Mumbai, I am not getting even one decent balcony. If this is the situation in a large apartment, I can understand the plight of those who live in a small one,” laments Anurag Mathur, who recently shifted to Mumbai from Gurgaon. Mathur feels that open spaces should be mandated by law and not left to the mercy of builders.

The reason for Mathur’s dejection can be traced to the policies of the Brihanmumbai Municipal Corporation (BMC), where the Development Control Regulations (DCR) constrain the residential developments with FSI limits and, more importantly, high premium.

In Mumbai, the developers often shell out more in terms of paying the premium, than the actual construction and other input cost. For example, residential projects in Mumbai are granted a total FSI of 2. Out of this, the base FSI of 1, is available free of cost. The remaining FSI has to be purchased in the form of TDR (Transfer of Development Rights).

TDR is a floating FSI, which can be availed by the developers for projects, where the market demands more breathable space like balconies, etc. However, the irony is that if a project applies for FSI of 2, then, the developer has to pay a premium of 60%, to be able to build 35% extra space.

 

The impact of premium on realty development

Till a few years back, the municipal authorities used to sanction this extra space, without charging any additional premium. Consequently, analysts blame the high premium for hampering new developments and causing a hike in property prices across the city.

According to Rohit Modi, an urban planning expert, the purchasable FAR is nothing but an infra augmentation fee, for the additional load on infrastructure.

However, he asserts that to put a premium of 60% for additional 35% space, defies business logic and urban rationality. “Nowhere else in the world, is the premium higher than the input cost of the project. It is inexplicable and completely avoidable for two reasons. One, it is a major cause of property price hike. Secondly, it deprives residents of open and breathable spaces, like balconies, etc. It is a double whammy for Mumbai’s property market,” Modi maintains.

See also: More FSI for Mumbai: Boon or curse for home buyers?

 

Unfair to average home buyers

Devang Trivedi, managing director of the Progressive Group, points out that this premium creates a chain of loading, with the BMC forcing it upon developers and the developers, in turn, passing it on to the home buyers. It defies business sense, at a time when there is a need to create a decent stock of affordable housing. “We are going nowhere. Land cost in Mumbai is so high and construction costs are also increasing. There are so many hidden costs involved and now, over and above that, we have this high premium. What for? Just to give the home buyers some open space like balconies. The policy makers should think about it,” says Trivedi.

As per a rough estimate, in many of the upscale localities of Mumbai, the premium paid for additional open spaces is 20% to 40% higher than the actual construction cost. If it is Rs 100 for construction, then, the premium is Rs 120-140. While the upscale home buyers can easily pay for this luxury of open spaces, it definitely robs the average home buyers of their right to open spaces in the form of balconies.

 

The price, for additional FSI

  • The base FSI of 1 can be availed free of cost.
  • Developers can avail of additional FSI of 1, through TDR.
  • To avail 35% extra space, the developer has to pay a premium of 60% .
  • This premium is paid to construct breathable spaces, such as balconies.
  • The premiums are sometimes higher than the construction cost, in upscale localities of Mumbai.

(The writer is CEO, Track2Realty)

 

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