The Bombay High Court's decision to strike down additional Floor Space Index (FSI) in suburbs means those wanting to buy homes in the suburbs will have to pay more.
Developers, who want to still go vertical, will be forced to buy additional FSI by way of Transfer of Developmental Rights (TDR) from the open market, experts said.
The government gives TDR to property owners who surrender their land for public projects. In return, they are allowed proportionate FSI that can be used in any construction north of the location of the property. Owners can also sell their TDR.
Experts said the TDR lobby will take advantage of the situation and increase rates by at least 10 per cent.
"It is inevitable and this will make projects costlier," said Gulam Zia, national director, research and advisory services, Knight Frank India, a real estate consultancy firm.
There is at least 3 million sq ft of TDR in the market, monopolised by a handful of developers.
TDR rates vary. In Borivli, it costs Rs 1,800 a sq ft but in plush Bandra, the rates are Rs 3,000 to Rs 3,500 a sq ft.
Ashutosh Limaye, associate director (strategic consulting) Jones Lang LaSalle Meghraj, said, "The dependence on TDR has increased and this will push up prices."
The maximum permissible FSI in suburbs is 2 of which 1 is permitted by default. The additional FSI of 1 has to be acquired by buying TDR.
The state, in 2008-2009, had proposed to offer 0.33 FSI at 30 per cent of the Ready Reckoner rates. The builders would have to acquire the rest from private parties.
This had helped control TDR and realty prices.
The state and municipal corporation had earned Rs 400 crore from premium and the target was Rs 1,200 crore annually.
"The revenue which could have gone for developing infrastructure will be netted by private developers," said Anand Gupta, secretary, Builders' Association of India.
Minister of State for Housing Sachin Ahir said the state will seek legal advice on the matter after studying the grounds on which the court took the decision.
Ahir said the state increased FSI to create additional housing. "For years, there was disparity between FSI norms for the city and suburbs. Increasing the base FSI brought them on par," Ahir said. "This was also aimed at reducing the illegal addition of floors in the suburbs."
WHAT ABOUT PREMIUM PAID?
Builders want to know if the state and BMC will refund the sum of Rs 400 crore to Rs 500 crore it had earned as premium for the 0.33 FSI it gave developers.
"There is tremendous confusion among the builders about the money," said Anand Gupta, secretary, Builders’ Association of India. "The state should challenge the order."
Experts said it is unique situation. "What will happen to those developers who have already used the FSI?" asked Gulam Zia, national director, research and advisory services, Knight Frank India.
Developers say the state will have to solve the tangle. "The state should amend the MRTP (Mumbai Regional Town Planning) Act and ensure that the FSI already given is deemed legal," said Sunil Mantri, chairman, Maharashtra Chambers of Housing Industry, the apex body of builders. "This will benefit the builders and government."