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FSI, premium on it hiked in Mumbai suburbs

The urban development department notification has increased the 0.33 FSI.

Written by Shalini Nair | Mumbai |
March 20, 2015 4:29:35 am
fadnavis4 Chief Minister Devendra Fadnavis

With the Maharashtra Budget proposing to increase the premium on floor space index (FSI) to generate more revenue, the urban development department headed by Chief Minister Devendra Fadnavis Thursday issued a notification increasing both the premium amount and the FSI in Mumbai’s suburbs.

This is expected to lead to an overall escalation in property rates in the suburbs as developers have said they 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. FSI is the ratio of the built-up area of a project to its plot area.


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 move 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.

With the state government working on possible alternatives to increase its revenue once the local body tax is scrapped in August this year, Fadnavis, immediately after presentation of the budget on Wednesday, announced that the premium hike would rake in anywhere between Rs 3,500 and Rs 4,000 crore.

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.

Sunil Mantri, president of the National Real Estate Development Council, said 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.

“TDR prices that were until recently in the range of Rs 2,500-3,000 per sq ft have now increased to Rs 5,000-6,000 per sq ft. We had lobbied with the Deshmukh government for the 0.33 extra FSI, which the government approved with the dual aim of reining in the TDR market that is controlled by a cartel of a few developers and for getting money in their treasury. Now, with the hike in the premium, there is bound to be at least a 10 per cent increase in property rates in Mumbai,” said Mantri.

Since the premium amount in 2008 was lower than half the TDR rates, the TDR prices had nose-dived. However, there was no corresponding decrease in the prices of houses.

“Developers will always try to maximise their profit margins, which is why the benefits of price reduction are never passed on to buyers, only the burden of price increase is,” said Pankaj Kapoor, CEO of real estate research firm Liases Foras. He added that this time, however, there were 40,000-odd unsold new apartments in the suburbs.

“Developers who so long held on to their rates, in anticipation of pro-industry measures by the Modi government, had recently given up and started marginally reducing their rates just to offload their piling inventory. They will also now roll back their decreased rates leading to further slump in home sales,” he said.

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