How will the new Housing Policy benefit buyers?

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The Maharashtra government has come out with a draft for a new Housing Policy.

According to this draft, the floor space index or FSI for buildings outside municipal limits will be upped from 0.5 to 1. This means that one can now build twice as much as earlier, on the same plot of land.

Buyers will pay only as per carpet area. There will be no more built-up, super built-up or saleable areas. This draft policy will be implemented in two months after the houses debate it.

Investment advisor, SP Tulsian explains how this will benefit the buyers, affect the builders and other pros and cons of it. 

Excerpts from CNBC-TV18's exclusive interview with SP Tulsian:

Q: What are your first thoughts on what they have said?

A: I have not gone through the entire draft policy, but from whatever I have seen, the best part is that now this premises or area, which will get sold, will be based on the carpet area basis.

Right now, there is loading to the extent of 40-50% in case of residential premises because builders are selling the premises at super built-up area, which is about 40-45% loaded on the carpet and in case of commercial, it is sometime more than 100%. So now at least the best part would be that a customer or a purchaser would get the actual area for which he is paying.

Apart from that, they have raised this FSI from 0.5 to 1 outside the municipal limit. Presently in city, they have FSI of 1.33 and in suburb it is 1. So even that was required to be raised.

So it seems that the housing policy has not incorporated the full thing, which was required or expected from the government in this policy.

Q: Does the policy require any more ratification or is this a done deal and this is how it will work whenever it will be implemented?

A: This is just a draft policy. They will be inviting comments and suggestions from the industry, public, etc and whatever suggestions, which they will get from builders, users, the government, affected parties and maybe even environmentalist, will be considered and probably get incorporated. Only then, this policy will get implemented or effected.

Q: Will there be some sort of a rollback effect on maybe developers? Would they actually read too much into this draft policy?

A: I do not see anything of that sort. If we take an example, a carpet area flat of 1,000 sq ft is now sold at 1,500 sq ft at say Rs 5,000 per sq ft for Rs 75 lakh. I do not think that prices will drop to that level and now that flat will get sold for Rs 50 lakh.

So effectively, there will be sharp increase in selling price of the premises across the board in the entire Mumbai city. This will give a big jerk because if I am buying a flat in the suburbs at Rs 5,000 sq ft, I may have to pay Rs 7,000 a sq ft.

So once this carpet area concept gets implemented  there maybe a huge hue and cry that price have gone up 30-40%, which will not in fact be an effective increase, but a correction of the mismatch between carpet area and selling area or maybe the super built-up area.