FSI Amendment - Impact on Mumbai Realty: PINC Research
PINC Research has come out with its report on real estate sector. According to the research firm FSI amendment will change the face of Mumbai realty for good from the point of view of the customer.
January 16, 2012 / 11:45 IST
PINC Research has come out with its report on real estate sector. According to the research firm FSI amendment will change the face of Mumbai realty for good from the point of view of the customer.
In a recent move, the Maharashtra government made some amendments to the FSI allotment rules. The new amendment includes flowerbeds, terraces, and balconies in the FSI definition which were previously excluded. We believe this amendment, if implemented properly, will be a game changer in the Mumbai realty market. We believe the above amendment will bring the following changes (1) transparency in the system between the developers and end customer (2) expedition of project clearances and hence more launches (3) reduction in open space area in newly constructed buildings and (4) margins of the developer (especially premium segment developers) likely to be affected. We expect that Mumbai Super premium developers like Oberoi, Lodha, Orbit, Hiranandani and Sunteck will see some cost pressure on account of the above amendments.The new amendment: The government has included Flowerbeds, Balconies, and Terraces in the FSI definition which were not part of the FSI definition earlier. To compensate for the loss of free-of-FSI areas, fungible FSI to the extent of 35% for residential and 20% for industrial and commercial developments has been allowed. Fungible FSI would be available at 60%, 80% and 100% of the ready reckoner rates for residential, industrial and commercial construction respectively. To bring in more transparency in the system: Previously, there were builders who used to violate the free FSI available by building 10% of free FSI for balconies, terraces but charging 25% loading on the same. In some cases the builder used to say that the flower beds, terraces area can be known only when society is formed but charged for the same in construction linked scheme. In order to remove such ambiguity the government has fixed the area for flowerbed, terraces, and balconies to 35% in case of residential projects. Such step will bring very high transparency and will be useful to the customer segment.Faster Clearance of Projects: Such amendments will also help developer in planning of the projects and also allow authorities to curtail the number of clearances which was earlier required for the derivation of developable area. Faster clearances will lead to savings in cost and time and thereby help quicker project launches. Increase in launches is likely to help improve the supply of the projects and keep the property prices under check.Reduction in open space: Reduction in mandatory open space around a building to just 1.5m will reduce the space between two high rises. Also, the government has set restriction on the height of ceiling from 4.2m to 3.9m as it is often misused to add mezzanine floor.Construction cost likely to hurt margin of premium and super-premium developers: We believe that the recent move will hurt the margins of premium and super-premium developers. This will be primarily on account of increase in construction cost as the builder will now have to pay for buying additional 35% FSI (residential) for constructing flower beds, terraces, etc. In our sample example (see tables) we see the profits for builders going down by ~5-20%. However, low cost housing developers will not see much change in project profitability due to the proposed law. One thing to note however is that the registration income for BMC will go up by ~35% for residential projects apart from the collection that it will receive from developer on selling of flower beds, terraces and balconies.Conclusion
We believe this amendment will change the face of Mumbai realty for good from the point of view of the customer. It will also help increase the supply of stock and keep property prices under check in the long run.Disclaimer: The views and investment tips expressed by investment experts/broking houses/rating agencies on moneycontrol.com are their own, and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.To read the full report click on the attachment 
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