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Will realty rates fall now?

The state government's decision on Thursday to hike the Floor Space Index (FSI) by 0.33 in the suburbs will have a huge impact on the realty market.

mumbai Updated: Oct 21, 2011 01:53 IST
Naresh Kamath

The state government's decision on Thursday to hike the Floor Space Index (FSI) by 0.33 in the suburbs will have a huge impact on the realty market.

The base FSI in the suburbs was 1, and chief minister Prithviraj Chavan has allowed it to be raised to 1.33. FSI is the ratio of permissible built-up area to the size of the plot it is built on.

Builders and experts believe this decision will increase the housing stock, which could reduce property prices in the suburbs.

The move will also generate revenue for the state and civic body - an expected Rs500 crore annually - that can be ploughed back to improve the city's infrastructure.

Sunil Mantri, chairman and managing director, Sunil Mantri Realty Ltd., said: "Construction costs will reduce and it will tempt builders to pass on the benefit to buyers."

Pranay Vakil, chairman, Knight Frank India Ltd., agrees. "The government will get money and it will ease the Transferred Development Rights (TDR) rates, which could result in price cuts," he said.

The TDR, also called floating FSI, can be bought from the open market, but it is controlled by a cartel.

Till now, builders were given a base FSI of 1 in the suburbs, but the FSI ceiling was 2. The remaining FSI of 1, if needed, had to be purchased in the form of TDR. The TDR cartel had hiked rates to unaffordable levels and the move to offer extra FSI will reduce the demand for TDR and stabilise the market.

According to Mantri, areas beyond Goregaon in the western suburbs and beyond Vikhroli in the eastern suburbs, where real estate rates are relatively lower and thus cannot justify the purchase of TDR, will see more development now.

Sandeep Runwal, director, Runwal Group, said: "Many of the projects that have been on hold anticipating this decision will take off now."

Not everyone believes realty rates will drop. "It is unlikely that there will be price reduction as builders won't pass on any benefit to buyers," said housing expert Chandrashekhar Prabhu.

He, however, welcomed the decision because "unlike earlier, all redevelopment will not be at the mercy of the TDR cartel".

According to Prabhu, the hike in FSI will also not increase the burden on the existing infrastructure as most builders would anyway purchase TDR and build projects with an FSI of 2, which remains the maximum limit.

The state had decided to hike the FSI in the suburbs to bring it on par with the island city in 2008, but the high court had struck down its decision saying there was no provision in law to charge a premium for extra FSI.

In 2010, the state amended the Maharashtra Regional Town Planning Act to make such a provision. Since then, the decision has been under Chavan's consideration.