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."