A step towards transparency

Let us look at the issue,the solution and its relevance for the realty sector as a whole.

The core issue

Development in any city is governed by local guidelines. Despite their existence,most developers send building proposals to the competent authority — Municipal Commissioner in the case of Mumbai — to seek concessions and relaxations to build more.

Subodh Kumar,Municipal Commissioner of Mumbai said that developers ask for consideration of additional but free FSI for ornamental effects along with features such as refuge floors,ducts,parking spaces etc. As per the current rules,these are granted as ‘free of FSI’. However,this is usually misused.

Here’s how. Typically,the plan is sent for free of FSI areas to be used for ornamental features and essentials. Once sanction is obtained,the developer constructs more saleable spaces instead. Then he charges the buyers super built-up area and gets away with huge profits. The benefit of extra and free FSI is not reaching the home buyers who are paying for every square feet. The situation is the same across the country.

For example,assume the carpet area of your flat is 750 sq ft. The built-up area (walls etc) is usually 20 per cent of the carpet area. In this case,it is 900 sq ft. Next,the ornamental and additional features are around 35 per cent of the built-up area taking the total to 1,215 sq ft. Some developers add spaces outside the flat such as staircases,lift areas,lobbies etc of say 400 sq ft,divide that by the number of flats on the floor,say 4 and add the 100 sq ft making the saleable area as 1,315 sq ft.

The problem begins here. The developer would vanish once he has sold the property with the misused ‘free of FSI’. The home buyer does not know what is legally permissible and what is illegal,and would be held responsible for violating the law.

The solution

The amended DCRs have no more sops for developers as far as FSI is concerned. Instead,it will include a compact plan where FSI will be fixed and there will be no room for the developer to manipulate the rules for creating extra free spaces.

In addition,there are two lists regarding specifications: ‘considered free of FSI’ and ‘not considered free of FSI’. Refuge floors,flower beds,ducts,individual terraces and swimming pools,ornamental projections etc are now no longer available under ‘free of FSI’. The developer will have to pay a premium at 60 per cent of the ready reckoner rates (RRR) to the civic body.

In turn,the developer would be compensated with “fungible FSI” up to 35 per cent of the flat area. This could be used as regular FSI.

The change will now force the developer to compute all the areas of the structure for calculation of FSI. Now that he is free to use the fungible FSI,he can either create additional flats or extra/larger rooms or ornamental effects.

The civic body stands to earn more through the premium charged on developers. Mumbai expects to net Rs 1,000 crore a year. Other municipalities too can emulate this solution. It is also significant,for the municipal authority has proposed to curtail its own discretionary power and streamline the approval process to curb delays and corruption.

Impact

The payment for fungible FSI will be an official payment,meaning that the black-money portion of the developer-buyer deal will reduce. Approvals would be cleared at the chief engineer’s level. This will save time and projects can get completed quickly. The buyer,in future,would be freed of the super built-up and saleable areas and would know exactly what he is paying for. Projects that are already approved would not be affected by the new DCR.

Beneficiaries of redevelopment projects stand to gain hugely.

One,there is no impact of this new FSI regime on rehabilitation. The developer will not have to pay premium on the area used by the existing member while giving him space in the redeveloped project. He is free to use “Transfer of Development Right” (TDR) option.

Two,the fungible compensatory FSI cannot be used for the free sale component and shall be used to give additional area over and above the eligible area to existing members. This relates to many growing families in the cities,where 300 sq ft space currently given after redevelopment is hardly sufficient. The amendment restricts the developer on selling the extra FSI at market rates. He will have to give additional 35 per cent i.e. 105 sq ft in this case,to the family by charging construction cost,at the most.

This would benefit home buyers as redevelopment of cessed buildings,especially in island city will be early and faster and will also create more housing supply.

Property prices

Developers say the FSI premium is too high and would escalate construction costs,resulting in high prices. When the FSI was free,they never passed on that space to the buyer,but are now intent on passing costs. In a sluggish market,they would have to absorb the premium as increasing the prices would not help.

The new DCRs would lead to more supply,creating pressure on prices. According to Kumar,land cost would also reduce. Hitherto,prices were artificially hiked by developers by manipulating the system to get high ‘free of FSI’ areas. Now that this practice is stopped,land prices would fall.

Some developers believe prices will rise by at least 15 per cent while experts say it would be 10 per cent. Municipal Commissioner Subodh Kumar had said that prices would rise by 6-7 per cent,if at all they rise. However,Paras Gundecha,president of Maharashtra Chamber of Housing Industry (MCHI) feels prices will stabilise. “We expect this move to result in bringing about an element of certainty amongst the Home Buyers. It is expected to bring about stability in property prices,” said Gundecha.

The amendment appears a welcome move to encourage organised development and have speedy and effective implementation of rules for the benefit of the home buyers. Any city would look forward to better growth and overall prosperity. According to Kumar,“If rules are compromised within most cases,what is the point of having them? DCRs should be strong enough to make this a scam-free city when it comes to land.”

The new development control regulations may not be a major leap in countering malpractices completely,but it surely is a step in the right direction.

anshumali.ruparel@expressindia.com