Thursday, October 20, 2011

Allotment of additional 33% FSI in Mumbai suburbs to correct realty prices

Move to bring down TDR prices, curb cartelisation

Mumbai's realty sector has received a much needed boost as the Maharashtra government has announced a crucial decision to allot 33 per cent floor space index (FSI) in suburbs for premium. This is expected to substantially bring down the TDR (transfer of development right) prices, increase housing stock and reduce their prices.

Besides, the move would generate an annual revenue of up to Rs 5,000 crore from the recovery of premium to be shared by the state government and the Municipal Corporation of Greater Mumbai (MCGM). Initial estimates by the state government and the realty sector show that the allotment of 33 per cent FSI would increase in supply of TDR to the tune of 10 millionsq ft annually. Prices of residential properties are expected to fall by Rs 500-1000 per sq ft with the correction in TDR prices.
Chief minister Prithviraj Chavan told Business Standard, "The government had already completed the legislative part by amending the Maharashtra Regional Town Planning Act during the winter session of the legislature last year.

It was not implemented as the government thought it fit to seek a second opinion as there was a view that it may put pressure on existing infrastructure. However, the MCGM commissioner gave his view in favour of the allotment of 33 per cent FSI in suburbs for premium."

Chavan, who was speaking at the sidelines of investor after care conference organised by Maharashtra Economic Development Council, said this would help correct realty prices and also lead to increase in housing stock.

A government official recalled that the Bombay High Court had last year quashed the rule saying that it had no right to levy premium under the existing Act. After the High Court order in June last year, constructions with additional FSI had come to a standstill, forcing the government to issue an ordinance. With the amendment in the MRTP Act, the planning authority would be in position of levying premium against additional FSI of 33 % given to the builders executing projects in suburbs.

Realty industry has welcomed the government's move. Sunil Mantri, former president of Maharashtra Chamber of Housing Industry said "It was a long pending move. It comes at a time when the TDR market is highly volatile in Mumbai, Very few players control and decide the TDR price. About two years ago TDR prices had increased to a level of Rs 4,250 per sq ft which was resulted in the utilisation of TDR unviable. The current prices of Rs 2,700-3,000 per sq ft are also discouraging for may realty players." However, he informed that with the government's decision realty players are expected to pay a premium between Rs 1,200 and 2,000 per sq ft. Immediately after the premium payment the realty players would get TDR utilisation certificate.

Mantri said the government move would help create more TDR stock in middle segment which would reduce TDR prices. "In view of fall in TDR prices, realty players will be able to pass down benefit to consumers and the prices are expected to fall by Rs 500-1,000 per sq ft," he noted.

Yomesh Rao, director YMS Consultants Limited clarified that the 33% FSI was not above the cap of FSI 2 in suburbs, "It is just replacing the TDR at Rs 2,900 per sq ft by FSI premium at Rs 600 to 1,200 per sq ft from Andheri and Dahisar. The premium collection of well over Rs 2,000 crore annually can be used for the betterment of the city." He added that this would marginally affect the TDR cartel as TDR was still very much a required commodity.

Rao said the government's move is a win win for the Mumbaikars, the state government and the realty players.

Ashutosh Limaye, head for research at Real Estate Intelligence Services, said "There will be lesser dependence on TDR which will be reduced now to .67. The allotment of 33% FSI at premium is very transparent and the rate will be as per the ready recknor rate which are revised every year in January. It is transparent and fixed rate and not subject to demand supply situation. TDR rates will come down and the realty players in the present conditions are expected to pass down benefits to consumers."

Rajesh Raha, managing director Raha Realtors shared views of Rao and Limaye. He noted that "This will increase lot of development potential in suburbs. TDR price will reduce and we hope the realty players to pass down benefit to the actual users."


Pawan said...

This is only to help the builders. At a fraction of cost, they will add more floors but the end user will have to share the same common area with 50% more families. So you are paying less because you are getting less. Plain and simple.

Anonymous said...

I am curious why most of you like to live in Mumbai. It seems obvious that there is scarcity of living space, population overflow, and corrupt and inefficient governance. Also, most of you are clearly unable to afford the expensive apartments.

Why not move to a cheaper city in India? Can you not get a similar job elsewhere? I would be curious to know why most people still like to live in Mumbai in spite of all the problems it has.

Anonymous said...

I would be curious to know why most people still like to live in Mumbai in spite of all the problems it has.

Family friends and inertia.

nonetheless, many people have done this.

Pawan said...

I am not in Mumbai. I have never been there. Never want to be. I hate it from what I have seen of it in TV, movies, papers etc.

Anonymous said...

Financial capitals around the world have high cost of living and high RE prices. Mumbai is no exception. But the quality of living in developing countries capital may be low. But guess what, thats where all the money is when the economy is booming!!!

Anonymous said...

Another Scam!! Congress is getting ready for elections..

Anonymous said...

What a joke... additional FSI!

1. Mumbai is already choking.
2. Do you think discounts ever get properly passed on? This will serve to cushion builders in case there is any correction in prices.

Anonymous said...

madarchod hukumat officials trying to fill their pockets

More FSI, more sub standard construction and more Bhayyas

Anonymous said...

Why REALTY stocks are down??

I thought India is shining then why realty sector in a ditch?

Does it even make sense to say that country is booming but relty sector is not?

Weird indeed!!!

Anonymous said...

Why REALTY stocks are down??

They aren't down. They reflect the real value.

Anonymous said...

I am amazed to find that there are no readily available new flats in western suburbs of mumbai. Resale (2nd hand) flats are priced insane .
Can anyone shed light on this phenomenon.

I'm a NRI from Dubai and have been searching for a new flat for the last 3 weeks without luck. While doing google search on internet, I stumbled on this block.

Anonymous said...

@ 7.04

I can sell you one 2 br in S'Cruz East 700 sq ft for Rs 20000/sq ft. 30 year old building. Let me know if you are interested.

Anonymous said...

"I am curious why most of you like to live in Mumbai."

If possible we'd all like to live in a Switzerland type place or at least one where there is a semblance of dignity.

Living in Mumbai is like being packed into a sardine can. Quality of life is non-existent. Even the modern-royalty cannot escape the pollution and crowds if they dare step down from their gated fortresses and venture into reality.

The common man gets the impression that he's making progress by being in a big city but at the end of the day, there are a few Pharaohs and the rest of us can only survive by building pyramids on their behalf.

Anonymous said...

at the end of the day, there are a few Pharaohs and the rest of us can only survive by building pyramids on their behalf.

I like the way you have put it.

Anonymous said...

Nice quote!!

Rajesh said...

Financial tsunami is on the horizon. If rumors are to be believed, the massive outflow of FDI has started and this situation combined with debt repayment, a much awaited currency devaluation may take the Indian Rupee to trade at 70 per US dollar.

The housing market will greatly benefit from NRIs buying property. There wont be a respite from the current prices as builders/developers are expected to hold on or increase the prices.

Let us pray that this doesn't happen.

Anonymous said...

"The housing market will greatly benefit from NRIs buying property. There wont be a respite from the current prices as builders/developers are expected to hold on or increase the prices. "

In the scenario you mention, house prices may not correct in Rupees, but in terms of any actual currency (like CHF, SGD or EUR), they will collapse.

If you've been saving in SGD or CHF for example, Indian house prices have been steadily declining or flat over the past 3 years.

Indian RE will NEVER correct in INR terms, but in terms of strong currencies, it will PLUNGE.

Sayani said...


INR may fluctuate between 48~52 to $ until the next election and may strengthen if a strong govt is elected.

People think that FDI is by foreign institutions . The fact is that these foreign institutions indirectly act as money laundering houses, the investors being 100% Indians, either NRI or locals. The flight of such investments is like 'ANDHAR BAHAR' card game.

INR isn't eroding. Real Estate price rise is just a natural phenomenon jusst like the commodity prices.

At the bottom line the DEMAND SUPPLY factor rules the market. In a city like Mumbai is over crowded by 500% and as such it is foolishness to expect price drop in a commodity that is in short supply, in this case the commodity being REAL ESTATE

Jai Ho

Anonymous said...

"INR isn't eroding. "

Take a look at a CHFINR or SGDINR graph and tell me what is eroding and what isn't.

"Real Estate price rise is just a natural phenomenon jusst like the commodity prices."

Well then you should know that commodity prices are highly volatile and can go up and down with swift rapidity as recent movements in the commodities markets have shown.

Cool Head said...

Used flat sellers seem to having a hard time selling as their expectations & greed have gone sky high. I have seen good flats that have been on the block for more than 6 months with no takers. These flat sellers price their flats at par with the "booking" rates quoted by builders but prospects are not buying it at that rate but ant lower rates. There is no transparency at all. Even after selling the sellers say that got a very good price ( I suspect they are garnishing the truth) and the buyers keep mum about what they have paid. The agreement values are anyway lesser so a third party has really no idea at what price actual deals are happening. One thing is clear-these prices are unsustainable as peoples earnings have not increased in proportion at all.

Anonymous said...

Anyone sayin that mumbai is overcrowded hence more demand..

Why is it then such a huge quantity of flats are unsold or no takers.

Even i have seen RENTAL flats in the market for 6-8 months with no takers. If RENTAL flats are not taken imagine outright flats.

So please use common sense and look at stats when u say demand is more demand is more..

Certainly there is lots of demand.. EVERYONE IS ASKING. NO ONE IS TAKING.. lol :)

So only TALK. No ACTION.

fork said...

Pawan said...

Saving rates deregulated. One more back-breaking kick for RE.
Either banks reduce their margins or pass on the hike to borrowers. Lets see how it goes.

polt said...

I maintain my initial stance. Like in the US, it will be the burden of interest rates that break realty's back. There it was over-leveraged homeowners. Here it might be over-leveraged builders.

Anonymous said...

Since when did Bankers, builders, politicians and Indian RE sellers started making sense ?

I'm wondering where is the catch in this article.

Anonymous said...

Its shocking how well builders have been able to hold on in spite of their supposed debt troubles!

Prices have gone up another 50% between 2010 and end-2011. That's a cushion for the prices to fall by 33% and merely return to 2010 prices.

Looks like we will just have appreciation-less erosion of value in housing for the next few years.

Anonymous said...

"Prices have gone up another 50% between 2010 and end-2011. That's a cushion for the prices to fall by 33% and merely return to 2010 prices."

Do you think buyers can afford and will rush to 2010 prices. It will all boil down to how media portrays this circus.

Anonymous said...

Where are we with Adarsh Scam ?....uhh.. what adarsh... what scam..

Anonymous said...

"Its shocking how well builders have been able to hold on in spite of their supposed debt troubles!"

The black paisa kitty has tens of thousand crores and most builders have access to it and the current interest rate varies from 24-45% depending on builders credit score. Gangsters act as brokers or middle men. Builders are not worried about the money owed to the banks as they know that banks can't do anything to them. Credit crunch is just rumors. Business is as usual. Given these circumstances, why would they reduce the prices

'India Growth' malai is shared by few, that include politicians, racketeers, bureaucrats, kala danda chors.

For you and me, have to be satisfied with the leftovers

Anonymous said...

"Builders are not worried about the money owed to the banks as they know that banks can't do anything to them. Credit crunch is just rumors. Business is as usual. Given these circumstances, why would they reduce the prices"

What about actual sellers? Builders are not only one selling the RE.

Anonymous said...

>Prices have gone up another 50% between 2010 and end-2011.

This is certainly not true in Bangalore. Most places have seen about a 5% hike (if at all). At 9% inflation and 11% mortgage rates, that looks like a losing proposition.

Anonymous said...

@anon above:

South-east bangalore (Whitefield, Marathahalli etc) have actually started seeing falling prices. So , you are right.

North-west Bangalore (Malleswaram, Sanjaynagar etc) have seen increasing prices, and some people have just got nuts with the hikes.

There is a massive oversupply in Bangalore already. I have seen a complex of 200 flats with 5 lights switched on a night recently! As soon as the remaining segments of metro are finished (one-two more years) we will see a massive new supply of flats that were previously not interesting. Then, the prices for central areas (e.g Malleswaram) will fall.

Bangalore real estate hikes are currently on ventilator. Next year, it will be "Ram naam satya hai"..


Anonymous said...


Does it matter how long as many investor have made money for next decade worth in first 50% build/sales.

Builders have capacity to hold on for another 5 to 6 years easy. As many have indicated on blogs, there are tons of black money in play and also there are many investors that have more than enough money to be laying in some assets than rot in rotten banks.

polt said...

Black money , tons of which exists in the middle east, did not prevent the Dubai bubble from bursting. It did not prevent prices from crashing 30-40% here in 2008. It will not prevent a correction/crash here in the future too.

What remains to be seen is the extent of the correction. It could well be the case that a 15% fall will bring in the buyers currently waiting on the sidelines and prices could rise again slowly.

polt said...

The government is banning property discounts :)). Truth is definitely stranger than fiction.

Pawan said...

The government is banning property discounts :)).

This is really funny. This reminds me of a story a colleague was telling for a town in north India where the market price went below the circle rate set by the govt. There, the buyers make the payments at circle rate in white and then get the difference back in cash from the seller. LOL!

Anonymous said...

@ Pawan

India has solution for everything! ;-) especially in financial matter. Western countries should learn something from India and all the crisis would be solved.

skeptic's ghost said...

When does any %age correction make sense? What is the price index? Who sets the peak prices? Per sqft rates are not constant as built up area, carpet are, terrace/garden area etc are always misquoted.

Again we all here want prices to fall but who decides how much will that fall to and who decides what was the real peak?

A real correction will be when the sale price is less than full cost price (including cost of financing the property).
In some areas that has happened in many it will never happen.

I am really thinking we should start a spreadsheet per city on Google Spreadsheets or so to maintain this info.

Anonymous said...

anon@11:05 AM

India has solution for everything! ;-) especially in financial matter. Western countries should learn something from India and all the crisis would be solved.

I think you should keep your stupid solutions to yourself. People like you have made hundreds of thousands of Indians immigrate to other countries. And then, there also, people like you and Rajaratnam, try to "fix" the financial system using your "Indian" value system, which is a value system of petty thieves.

You give a bad name to hardworking and honest Indians in other countries. Please keep your filthy thinking limited to India, and let the NRIs who immigrated to stay honest, stay honest.

In the mean time, you can party in your cities overflowing with garbage, human excreta and urine, with the crores of black money your are stealing from your idiot countrymen, who don't have a backbone to protest against anything.

Tumko tumhari India aur uski gandagi mubarak ho. Humse dur raho!

Anonymous said...

@Anon above.

Do you think all these are not happening in USA or western countries. Smell your arse instead of coffee?

Difference is in India things happen under the table or under the bridge in shadows, where as in western countries the lobbyist will change laws/regulations in their favor.

Anyways I was just making sarcastic remarks and you couldn't handle that... what to say more...

Anonymous said...

@Anon 2:11

Everyday we are seeing how you NRI's are involved in the biggest credit card scams, insider trading scams to mention a few. When you are kicked out of your job there don't ever think of coming back.

Pawan said...

Good luck Mr. Subbarao controlling inflation. You keep raising interest rates while the govt. will keep raising MSP for crops and nonsensical fuel subsidies.

Knowledgeable people are already talking of an interest rate of 12+% and GDP growth below 6%.

Mr. PM, why don't you wake up now? Or are you doing it deliberately to finish Rahul baba off in the next elections?

Anonymous said...

Considering that MSM is a former world bank/IMF guy he has more trust in voodoo Keynesian economics where numbers matter more than reality on the ground, somehow they feel if they can rig the index to show less inflation, inflation will magically go down.

And what more can we expect to happen when we make people like montek singh ahluwalia, another IMF man, to head the planning council, but to implement IMF policies.

The idea is to take up one economy at a time, and then bloodsuck the lifeblood out of it and then leave them in the dustbin of history.

Anonymous said...

Anon @ 2:18pm

""Prices have gone up another 50% between 2010 and end-2011. That's a cushion for the prices to fall by 33% and merely return to 2010 prices."

Do you think buyers can afford and will rush to 2010 prices. It will all boil down to how media portrays this circus.

2:18 PM"

I think the reference is again to Mumbai prices. There are enough jokers out there who will jump in at a 30% discount to current prices. If you think you are being "sensible" not everyone else is thinking like you are.

Anonymous said...

Realty firms are being valued at prices that are reflective of their long term returns discounted. Even if they hold land valued at multiples of their current "quoted" market prices, the inherent knowledge is that they will not be able to sell it to book the profits immediately.

Anonymous said...

With the additional FSI granted, will we have excess capacity in the city now? Don't think so - the biggest advantage that some realtors now have is that they can sit on the extra FSI and not "invest" any money to convert it to saleable realty. Those realtors who are not burdened by debt can hold on to their entitlements and land holdings until demand shows up again. I remember a well-paid couple not being able to afford anything more than a one room kitchen place in the suburbs in the early 1990s. We have returned to that state now... stretch to afford the most basic roof over your head.

Anonymous said...

Lots of "talking" action in the market - no "buying" action!

Me too taking a look at the prices all the time.

The trigger to buy will be when home rentals start generating 8% + in annual returns... either rents go up or the prices go down.

Matter of time now.

Anonymous said...

Lodha One - India's tallest residential tower will be built by end-2014. Will that signal the end of India's real estate rally as is the tradition?

Enough time for prices to go up to stratospheric levels before that...

skeptic's ghost said...

Protests in China as Shanghai property prices fall

Anonymous said...

@Skeptics Ghost

Australia news -

The RE dominoes continue to fall. India next? There seems to be a sense of inevitability about it.

Anonymous said...

Its been a great ride for RE since past 5 years.

Now they are sayin "We are in trouble". Panic has set in.

Now there is no one in the world who wud help a sinking ship

So it is inevitable.
Please use ur COMMON sense rather than funky economics.

Amit said...

I live in Bangalore. Today while driving along outer ring road towards Jayanagar I was surprised by the number of Empty commercial space here. Every other building had a big "To Let" sign. Does anyone know what may be going on here?

Anonymous said...


Commercial and residential real estate cycles typically have a half-period lag -- usually, commercial leads. But, it is way more complicated than that and depends on many macroeconomic variables.

Simply put, people buy RRE to live in, and during boom times, they buy more. So, RRE prices go up. During that time, Commercial activity is already on the decline and as RRE starts going down, CRE investments start going up as people plan for the business activity for the next cycle (beyond the recession plans). So, many intelligent brokers switch to CRE when RRE starts going down and vice versa.

Right now, RRE in Bangalore has just started going down from a historical peak. It should hit bottom of this cycle in 3 years. CRE right now should be booming. If what you are seeing is true, Bangalore has very bad times ahead.
(No one is planning to invest in Bangalore's businesses). I don't know why, perhaps you do. May be high state taxes on corporations, high cost of doing business, bad security situation, corruption or bureaucracy, or some combination of the above.

Anonymous said...


you live in Bangalore and today you saw the 'To Let' signs . You mean to say that they suddenly appeared!!!!

In the next blog you reply to your own question as 'Anonymous'. Hmmmm!! Did you copy the items from some economic textbook or blog!! Not surprising!!!as it shows your state of mind.

People aren't renting the places as rents are too high. On top of it, an earnest deposit is asked that is too high. Eventually, everything is going to be rented out, and the 'To Let' boards are transferred to new constructions.

There is plenty of scope in Bangalore. Business failures are much lower than the other cities

Anonymous said...

@anon above: I replied to Amit's post and I can assure you that I am a different person, but then, what is the point? You have already made the assumption that someone is trying to "game" this blog. Gita pe hath rahna padega kya bhai-sahab?

Thank you for the great compliment, that some lines I merely wrote out based on my past experience seemed to you as if they are copied from a textbook. May be, I should consider writing one.

Having seen the business potential of many cities in India, I think you are wrong about Bangalore. The cost of doing business is extremely high in Bangalore, employees are frustratingly mobile with very little loyalty, and corruption is rampant for government permits etc. I do not have direct experience of doing business in Bangalore, but have at least three friends who have relocated out in the last one year (all IT).

In my own experience, the best place to do business in India is Gujarat today. 2nd place is a tough call, personally, I would say Hariyana.

Anonymous said...

anon above, in the spirit of constructive criticism, I feel that cyclical analysis and other technical analysis of charts and business cycles do not hold true in our world of fantasy economics where every market, every ticker and resource is manipulated.

As an example, all the analysis can go haywire just with the act of a central bank holding down rates or raising to the stratosphere.

Anonymous said...

My apologies to Anon 9:34. Myguess was probably wrong

I'm from north, settled in Bangalore and involved in real estate, trading etc. My experience shows that business climate in Bangalore is better than other cities viz

1.Middle class percentage is higher than other cities

2. No extortion by criminal elements

3. Corruption in par with other metros, no more

4. People are sophisticated compared to other metros, so less hassle in dealing

There may be certain areas in Bangalore that may not support all businesses but this applies to all metropolitan cities

In general, the life in Bangalore is more peaceful other than traffic chaos

The worst places to do business are cities of north india where one has to bear the unhygienic conditions plus live in fear of extortionists.

Anonymous said...

This blog often has posts that deviate from the article the comments are posted under but nevertheless interesting.

I like the Bangalore discussion - I do think it has become more expensive for fresh IT setups. The skilled population is way too mobile and options are aplenty. Real Estate is still available at every budget range so, not a deterrent. More space is constantly being added.

Haryana and UP are still too unsafe and climate is an issue. Gujarat is becoming a nice place to go to except that they are not attracting enough talent from other cities yet. Pune is emerging as an alternative to high-cost Mumbai. Hyderabad and Chennai have been low-cost centers but with their own set of issues. Kochi is cool but not developed enough. Kolkata is still in hinterland territory.. no one wants to go there!

shailesh said...

Will Real-Estate prices fall now?

Recorded sales is one aspect. What about money received? According to Mr Kapoor’s data, the inventory sold in Mumbai in the June 2011 quarter was valued at around Rs5,046 crore. However, only Rs2,802 crore out of that amount has been received as payment. Even as the builders are adding more and more to their stock, they are getting less and less of money. “In Mumbai, inventory has seen a 22% year-on-year (Y-o-Y) increase,” said Mr Kapoor, “but the amount of receipts has steadily gone down. In the June quarter, receipts amounted to Rs2,802 crore, a 13% Y-o-Y decline.” The story is much worse in Delhi-NCR (National Capital Region). Against an inventory of 242mn sq ft, it sold 22.04mn sq ft—a sales velocity of 1.76%. Though the average cost per unit is far less than that in Mumbai, at Rs48 lakh, NCR builders have seen little payment for their sales. The value of stocks sold was Rs6,850 lakh, but only Rs1,680 lakh was received by way of payment. One of the least overheated markets is Pune. “It has seen the best sales velocity because properties there are most reasonably priced.” Against an inventory of 48mn sq ft, Pune has seen sales of 9.47mn sq ft, amounting to Rs3,381 lakh. Already, builders have received Rs1,798 lakh as payment. The sales velocity is 3.01%, which is the highest among the six cities. An average flat there costs Rs48 lakh.

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