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Last Updated : Feb 18, 2015 04:05 PM IST | Source: CNBC-TV18

High FSI to double co's absolute profit on land: DB Realty

Real estate companies in Mumbai get a boost as the BMC proposes a new 20-year development plan and recommends a substantial increase in FSI to a maximum of 8.


Real estate companies in Mumbai get a boost as the BMC proposes a new 20-year development plan and recommends a substantial increase in FSI to a maximum of 8. This is positive for companies with large land parcels in the city like DB Realty, Bombay Dyeing and Oberoi Realty.


Discussing the details, NM Gattu, CFO of DB Realty, said the saleable potential goes up due to higher FSI.


Below is the transcript of NM Gattu’s interview with CNBC-TV18\\'s Reema Tendulkar and Latha Venkatesh.

Reema: The first question as a true Mumbaikar is what happens to pricing. Do you think with the relaxation of Floor Space Index (FSI) norms there will be increased supply and therefore the pricing pressure on the Mumbai real estate will ease?

A: I would like to cover this in four parts just to give a perspective of it so that the numbers could be crunched at individual level as such. DCR 2034 can be stated as introduction of a flavoured popcorn with salted popcorn if the last two DPs can be treated as such and in this I would like to say that there is some numbers with regard to the comparison of the construction areas where it was the old DCR then the introduction of fungible FSI DCR in 2012 and the proposed DCR 2034 as we understand.

In a typical building there used to be in typical floor plate of 100 square metres 40 sq mts used to be non FSI areas which are like lift lobbies, lifts and staircases, and the area within the four walls of the house on a floor plate used to be 60. This ratio has significantly changed with the 2012 new fungible FSI conflict coming in where the buildings from 2012 to 2015 if you analyse which we have done it comes to around 25 percent as non FSI areas i.e. the liftlobby, lifts and staircases because there were penalties imposed that you should have luxurious lobbies vis-à-vis the lifts etc. So that was converted into FSI, so everybody crunched the core areas. So the efficiency has increased to 75 percent and because the entire thing is already crunched and if we assume that the same ratios continue in the new developments as well the island city example if you were to take a 1.33 FSI where it was there as the base FSI for introduction of fungible FSI will take you to 180 on a 100 sq metre plot I am saying including the non FSI areas it will be 2.4. Whereas this 240, that means 100 sq metre plot was getting a construction area of 240 which will now go up to as high as 800 sq mts.

If you look at the FSI distribution as we understand about 60 percent of the total Bombay areas will be benefitted at 3.5 FSI and about 30 percent of the areas will be 5 FSI. Rest 10 percent is having six and half and eight etc. So, if you look at it in that manner the bonanza to the people in the island city is almost about 45 percent extra saleable areas they will get if you are awarded as 3.5 percent and you will get 275 extra saleable area if the FSI is going to be five.

Likewise in the suburbs if you look at 3.5 FSI the developer is actually losing two percent of the saleable area because in the same parametrics if you look at on a 100 sq mt plot we used to develop 200 sq ft with fungible FSI of 270 and including non FSI area which is 360 whereas we will get only 350 now at 3.5 FSI. At five FSI the same thing will go up by 150 percent etc. So, this is from the point of view of the development potential over the land.

Now second, coming to the premiums. This is where I called it as the flavoured pop corn. On an island city if I have a 10 lakh sq ft of plot including the fungible FSI premiums and non FSI premium I used to pay Rs 4 lakh as the premium to the government which is about 43 percent of my ready reckoner (RR) rate. If the FSI goes up to 3.5 I am paying 120 percent as the premium, that mean three times I am going to pay to the government and at five FSI I am going to pay five times and at eight FSI I am going to pay ten times the premiums that I am going to pay today to them.

So, the cost implication has to be relooked at as to how this cost of 10 times versus my additional development potential of about two times or 1.5 times will impact on. The third dimension I would like to touch upon is the implications of this. The parking implications where it is high density where they have said with regard to 6.5 and 8 FSI which has been granted in the immediate vicinity of major railway stations etc there they have reduced the parking to half. So if you are eligible for one car park per tenement now it will become half a car park per tenement. Now with such high density development of eight or 6.5 if you reduce the car park by half how that is going to impact on the saleability of the flat in the first place is to be looked at.

The objective in the DCR 2034 is said as that they want to encourage compulsory public transport because the FSI is given only to those places where they are closer to the railway stations. So, this is the tricky part of it for other development components like malls, hotels etc and if you look at, as I explained in the first part, that the overall development potential of a floor plate has shrunk from 40 percent non core areas to 25 percent with effective that all the balconies have disappeared in Bombay. So now maybe that even these lift lobbies will disappear and the lifts will directly come to your house and you just have to walk into your house, there are no doors, no lift lobbies because everything is FSI nowadays. So this is going to be a downside. And then we have to read through the final points of it to understand what other implications this is going to be on.

Close

Latha: You think that this is unimplementable in its current form, do you think it is only a proposal and therefore we shouldn’t be kite flying so much?

A: Concept wise it is fine.

Latha: How is the concept fine when you yourself have admitted that there isn’t parking space. If there isn’t parking space there won’t be even vehicular movement space. So are we discussing an impossible plan?

A: That is only for five percent of the areas. We have to see that because the objective is to push the people to use the public transportation, that is only for five percent of the land but I am concerned more on the balance areas where basically the potential at 3.5 FSI is not much gain but at five FSI where the 30 percent of the land there you are actually giving 1.5 times the existing development potential in itself. So that we need to understand because the set back areas that are not relaxed. The general DCR regulations have not been relaxed. And then the minimum size of the plot has to be 2,000 sq mts etc. Where there are smaller plots unless you make it contiguous or amalgamate them so these benefits will not be applicable. 

Latha: Given all these conditions will DB Realty benefit?

A: Definitely we will benefit because each of our land parcels are more than 10,000 sq mts and we should be getting five FSI which implies that all the development potentials of our projects will go up by 1.5 times.

Latha: Will the price be unaffordable since you say that you have to pay a very high FSI premium to the government?

A: Yes, because the premiums are a little scary that they are going up five times what I am paying today. So, that we have to understand as to mathematically per square foot how much it is going to impact etc.

Reema: So, compared to the things as they stand now what will be the cost for the buyer, would it be higher?

A: As I said this is a flavoured popcorn. So we need to taste the flavour to understand exactly that how much of this is going to happen because the premium fees are based on the land RR rate. My saleable area is only the saleable area point of view. So we need to see it but prima facie it looks like that government is getting an extra bonanza and the customers are also going to have some kind of –it will be a win-win situation.

Latha: How will it be a win-win if the prices go up beyond affordable?

A: It may not, I am saying that on a 100 sq mt plot where I was developing 250 sq ft now I am able to develop 500 sq ft. My absolute amount of profit on my land has doubled. Likewise the government is also earning five times. So, the price impact will definitely be there to reduce the prices to some extent. So the kitty will be distributed to everybody. So the customer will also benefit in the overall scheme of things.



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First Published on Feb 18, 2015 01:20 pm
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