Ahead of the Assembly polls, the Maharashtra government has unveiled a Rs 2,200-crore fiscal package for Mumbai’s real estate industry comprising significant cuts in premiums that the builders pay for availing additional buildable area or floor space index (FSI) for their projects.
Scrambling to stem the slowdown in the construction sector, leading industry bodies — including the Maharashtra Chamber of Housing Industry (MCHI-CREDAI) and the National Real Estate Development Council (NAREDCO) and the Practising Engineers Architects and Town Planners Association (PEATA) — had last month approached the state government and the Centre seeking lowering of the various construction premiums. Acceding to the industry’s demand, the Fadnavis government has slashed such premiums across all construction segments.
But just as the move will significantly reduce the construction cost of projects, the public exchequer will take a big hit. According to Mumbai municipality’s own initial estimate, the dole will dent its coffers by Rs 1,260 crore. The state’s exchequer will take another Rs 800 crore hit. With construction premiums also slashed for redevelopment of buildings in Maharashtra Housing and Area Development Authority’s (MHADA)-owned colonies, the government stands to lose another Rs 140 crore in estimated revenue. Overall, the public exchequer will take a Rs 2,200 crore hit.
Incidentally, the stimulus is being offered at a time when the state and the civic revenue from construction premiums has consistently failed to meet the targets since 2016-17. Last month, industry representatives had also held deliberations in this regard with Union Housing and Urban Affairs Minister Hardeep Singh Puri, confirmed sources. Industry captains have justified the sector-specific stimulus arguing that the slowdown and the liquidity freeze was eroding wealth and causing job losses, besides delaying the completion of projects.
The big dole
In a sweeping gesture, premiums across all segments have been lowered. When Mumbai’s new development control (DC) regulations were implemented last September, the government had introduced an additional development cess for infrastructure purposes, which was payable over the additional FSI component. With the industry opposing it on grounds that the Mumbai municipality was already levying “development charges” on all projects, the government has now withdrawn the additional cess.
Similarly, the CM-led urban development department has lowered the premium payable on the FSI, which is granted to all projects in Mumbai on payment of a premium, from 50 per cent to 40 per cent. FSI is the ratio of the built-up area of a project to its plot area. In another move, premiums payable for compensatory fungible FSI in residential and commercial projects have been brought down to 35 per cent and 40 per cent of the ready reckoner (RR) values respectively. RR values are market values of plots as determined by the government. These premiums were calculated at 50 per cent and 60 per cent of the RR values previously.
To push the development of information technology parks and similar specialised commercial projects, premiums for the incentive FSI has also been lowered to 40 per cent. For fast tracking redevelopment of dilapidated buildings in Mhada-owned colonies, the government has meanwhile proposed a 50 per cent reduction in the premiums payable on the incentive FSI component in such redevelopment projects in the economically weaker and low income segments and a 25 per cent reduction in the middle and high income segments. Additionally, to promote development of multi-storied public parking lots on private land, the premiums payable on the incentive FSI component of such projects has also been lowered from 60 per cent to 50 per cent. As per official statistics, the Mumbai municipality has so far granted approvals to 84 projects for the construction of such parking lots. Incidentally, the municipality itself is considering a proposal of lowering premiums on concessions offered in areas to be set aside for staircase, lift, and lobbies. The civic commissioner has the discretion of approving this concession in cases of genuine hardship.
Valid for two years
The government has said that the concessions offered will be valid for a period of two years. While most of the revisions require modifications to be made to the DC regulations, sources said that the CM will use discretionary powers (under section 154 of the Maharashtra Regional Town Planning Act, 1966) to direct the Mumbai municipality and MHADA to implement the concessions immediately. And while it still remains to be seen if the developers will pass on the benefit to the flat buyers, the municipality is hoping that restoring the sector’s buoyancy will boost its own revenues in the long run. At the start of 2019-20, the municipality had projected an income of Rs 3,454 crore from construction proposals, which is its third highest grosser. Civic commissioner Praveen Pardeshi had argued that the revenues from development proposals had been declining for the past three years owing to a slowdown in the construction sector. The civic body feels that the concessions being offered now would boost the sector resulting in an increase in the number of construction proposals that come to it for approval. The MHADA has also argued similarly.