Premium on FSI hiked in Mumbai, homes to become more expensive
Mumbaikars should gear up for more expensive homes after Maharashtra Chief Minister issued a notification, increasing both the premium amount and the floor space index (FSI) in Mumbai’s suburbs. This announcement comes after the Maharashtra Budget’s proposal to increase the premium on the floor space index (FSI) to generate more revenue.
FSI denotes the total built area on a plot of land. An FSI of 2 means that the area of construction should be double the area of the piece of land. Developers who purchase premium floor space index (FSI) for constructing taller buildings will now have to pay the state government as per the current ready reckoner (RR) rates from April. The hiked premium will also affect those who bought homes earlier, since builders have been asked to pay dues from 2008. The government had frozen the rate of premium FSI in 2008. This means developers continued to pay as per the rate in 2008. The new premium will be linked with the 2015 RR rates, which were hiked recently.
How the property will become dearer?
This move is likely to lead to an overall rise in property rates in the suburbs as developers will pass on the burden to home buyers. The urban development department notification has increased the 0.33 FSI, which is granted to all projects in the suburbs on payment of a premium, to 0.60.
The notice also hikes the amount of the premium from the previously levied 10 to 30 per cent of the 2008 ready reckoner (RR) rate to 60 per cent of the current year’s RR rate. The announcement will lead to the premium based on RR rates substantially going up from an average of Rs 800-2,000 per sq ft to an average of Rs 3,000-12,000 per sq ft. The maximum increase in rates would be in areas such as Bandra, Juhu, Santacruz and Andheri in the Western suburbs followed by Chembur and Ghatpokar in the Eastern suburbs where the RR rates are relatively higher.
The notice says this additional FSI won’t be applicable to slum redevelopment schemes and constructions in Bandra Kurla Complex, both of which already enjoy a high FSI, and to Coastal Regulation Zone areas where development is restricted.
The state budget showed a revenue deficit of Rs 3,757 crore, which the government needs to recover by way of new taxation. The state government has been working on possible alternatives to increase its revenue once the local body tax is scrapped in August this year. Hence, CM Fadnavis, immediately after presentation of the budget last week, announced that the premium hike would generate revenues to the tune of Rs 4,000 crore.
TDR rates also likely to increase
The Development Control Rules 1991 granted suburbs a total FSI of 2. Of this, the base FSI of 1 can be used free of cost while the remaining has to be purchased by developers in the form of TDR (Transfer of Development Rights).
TDR is a kind of floating FSI that is mainly generated by a handful of developers specialising in slum redevelopment projects and then sold at rates decided by them to the realty market. The 0.33 FSI was introduced by Vilasrao Deshmukh government in 2008 with a view to reducing developers’ reliance on the TDR market.
According to Sunil Mantri, President, National Real Estate Development Council (NAREDCO), not only were the revised government FSI rates higher than the TDR rates, the move to increase the government rates had led to the TDR market to hike its rates too.
Mumbai’s suburbs have an inflated inventory of 40,000 unsold apartments. The residential market had begun to show some signs of easing, as developers had started to marginally reduce rates to offload this inventory. However, after this announcement, developers are likely to roll back their decreased rates leading to further slump in home sales.
CM promises Housing Regulator
On the positive side, CM Fadnavis has assured that a housing regulator (authority) would be appointed soon to check errant developers. The state has sorely lacked a regulatory authority in a market that is completely driven by realtors, and not by buyers. He also added that the developers who build affordable housing would not pay any premium. He said the builders would have to pay dues since 2008, because they had sworn on affidavits that they would pay up whenever the premium rates are hiked.
