Will Maharashtra’s FSI Relief To Developers Make Homes Cheaper In Mumbai?

Maharashtra reduced the rates developers pay to acquire additional floor space to build more saleable area in a bid to lower project costs in Mumbai as the real estate sector grapples with delays and unsold inventory.

According to the state’s Urban Development Department’s note approved by Chief Minister Devendra Fadnavis:

• Premium for additional FSI—ratio of saleable area to plot size—is now 40 percent of the ready-reckoner rate, or market value determined for taxation and stamp duty, compared with 50 percent earlier.
• For fungible FSI used to build balconies and flowerbeds, developers will have to pay 35 percent of ready-reckoner rate compared with 50 earlier for residential buildings; 40 percent of the market value instead of 60 percent for commercial projects.
• The state also waived the development cess paid for buying additional FSI. It’s charged at 100 percent of development charges.

The relief on all three fronts, available for two years, is applicable to projects yet to be launched or where developers are yet to acquire more FSI. Cheaper rates don’t apply to properties where the payments have been made.

“It is for the first time in last decade that the government has reduced rates. But given the high costs that developers incur, I don’t think they will be able to pass on the benefits to the consumers,” Nayan Shah, president at developers’ lobby Maharashtra Chamber of Housing Industry. “However, this will help in completing the incomplete projects and some of the redevelopment projects will now see light of day as developers might find them viable due to the cost reductions.”

According to Anarock Research, Mumbai has 35,430 units in 82 stalled residential projects worth nearly Rs 76,500 crore. The real estate consultancy estimates total unsold inventory in the city at 1.48 lakh units.

Lower FSI premiums come a month after the Brihanmumbai Municipal Corporation Commissioner wrote to the state’s Urban Development Department seeking steps to revive the housing construction in India’s second-largest property market. It’s been a long-pending demand of the industry.

“Based on our calculations, these reductions will bring down the premium cost incurred on the project by 25-30 percent. However, the overall project cost will come down by 5-10 percent,” Vilas Nagalkar, architect and member of practicing engineers, Architects, and Town Planners Association, told BloombergQuint. “If the BMC further reduces the premium on staircase and deficiency area, the overall project cost can come down by 15-20 percent depending on the land price.”

According to Farshid Cooper, managing director at Mumbai-based developer Spenta Corporation, consumers too stand to benefit. The changes in the rates will cut the project cost by as much as 5 percent, which will be passed on to homebuyers, he said. “Additionally, developers are also offering a range of festive discounts on projects, which will further help in increasing the buying sentiment.”

The move, Cooper said, will help stalled redevelopment projects and pave the way for builders to take up more such projects.

Dhaval Ajmera, director at Ajmera Realty & Infra India Ltd., doesn’t see prices coming down immediately. “Due to the reductions, overall project cost will come down by 5-15 percent depending on the ready reckoner rate of the area. However, it needs to be understood that for the ongoing projects the developers won’t be able to pass on the benefit to customers as they have already incurred the cost,” he said. “The impact will be seen for the projects launched either in the end of this year or 2020. And customers need to understand this.”