Will the recent Supreme Court (SC) stay on the demolition of Supertech’s 40-storey twin towers – Apex and Ceyane - in Noida and order to let the buildings stay sealed set a precedent of sorts? It remains to be seen if, in the absence of a regulator, developers will think twice before increasing the number of floors by purchasing the floor area ratio (FAR) from the authorities purely for the sake of profits, blatantly disregarding the safety of the buildings and those living in it.
There is urgent need now to look at the broader implications of purchasable floor area ratio (FAR) from the buyers’ perspective. Having a real estate regulator in place would have meant mandatory disclosure by developers of FAR being used for a project when signing an agreement with the buyers.
While the concept of purchasing additional FAR was introduced to create additional supply of homes in a market and adequate infrastructure, it has often been misused to solely generate profits without any concern for the safety of people and buildings.
As more cities mull over possibilities of increasing FAR (Gurgaon plans to increase it to 2.25 from 1.75 to 2.25 and 3.5 along the Metro corridor; Noida plans to increase it from the existing 2.75 to 3.5) the need for a regulator is felt acutely. One of its major roles will be to ensure that FAR is finalised at the onset of the project and additional FAR is not doled out arbitrarily by the authority, especially when construction has begun, as it would compromise the interests of the buyers for the sake of increasing the profitability of the builders.According to real estate experts, developers operating in a market where the average capital values are anything between Rs. 3000 per sq ft and Rs. 4,500 per sq ft tend to make a profit of 35% to 40% (see table) if they construct additional floors by purchasing additional FAR from the authority. In a prime sector with premium properties, the profits can even double.
Experts say there ought to be full and fair disclosure of the FAR that a builder acquires from the development authority in the agreement. He should also clearly spell out plans to acquire additional FAR in the project. Often, builders get buyers to sign a ‘blanket’ approval in the builder-buyer agreement for any subsequent changes in building plans. And these are not minor changes. There have been cases of developers, after constructing 10 towers of a reasonable height of 15 floors, suddenly deciding to construct a marquee tower of 32 floors in the middle of a park, initially planned as green area, blocking sunlight and reducing the common area initially promised to the buyers.
Vaibhav Gaggar, partner, Gaggar and Associates, says that some states such as Maharashtra offer transferable development rights under which if a developer exhausts the floor space index (FSI) allocated to him, he can either buy it from another builder or even transfer excess FSI in one project to another project in the same state. This has its own challenges.
“FAR should be frozen at the initial stage when the project is sanctioned, the buyer should know what he is buying into, the opaqueness that is created by juggling norms and making key changes in the middle of the project by keeping the buyer in the dark, should be done away with and going forward the regulator can play a major role in this regard,” he says.
The concept of purchasable floor area ration (FAR) may not always work for all markets. For instance, if a developer sells 30 storeys for `8500 per sq ft and gets additional FSI and adds 10 storeys to the building, he may be able to sell these units at a revised rate of Rs. 9,000 per sq ft only if that particular market is doing well and there is enough demand for the product.
However, in areas such as Greater Noida, this may not work as the market might not be able to sustain high values.
“Going forward, in areas where sale values are less than Rs. 5000 per sq ft, developers may not find it viable to utilise the full/additional FAR that is legally permitted because of the incremental cost pertaining to construction and the benefits in terms of incremental sales realisation, not to mention the extended timelines required to complete the project.
This is also because in such areas allowance of higher FAR may lead to a clear trend of the builder putting up iconic towers which necessarily means high specifications and high prices. This may backfire in some markets where there may be an oversupply of such luxury products,” adds Anckur Srivasttava of GenReal Advisers.
With the Supertech case, established developers will think twice before taking a risk with additional 33% extra FAR. If they build more floors by buying FAR, they are definitely putting more lives at risk and the project into jeopardy. Also, the new-found rights of allottees will change the real estate scenario, says SK Pal, Supreme Court lawyer.
On a shaky foundation
Don’t extra floors added to a building make it unsafe? The Supreme Court, while hearing the case of Supertech Emerald Court last week, had been told that in 2005 the builder had secured permission to construct 15 towers in the entire complex. In 2006, the plan was revised to include one more tower of G plus 11 and a shopping complex.
In 2009, the authority converted the shopping complex to a residential tower and allowed construction for ground plus 24 floors in both the new towers. Then in 2012 permission was given to construct 40 floors. The question posed by the Bench was: “If you had sanction for 24 floors, the foundation of the towers must have been of the nature to sustain the load of a 24-storey building. How did you add 16 more floors? ” The court was told that when foundation was being laid the builder knew he would get permission to construct a 40-storey building.
When HT Estates asked structural engineers about the safety of buildings with extra floors added, it was told that there were many cases in which plans to add more floors were made even after construction had begun. However, most developers usually started by building a foundation capable of bearing heavy loads as they “anticipated they would get more FAR in the future.” However, there was no way to verify how solid the foundations were, an engineer admitted.
There are several buildingcodes that exist in India. A soil testing report is also a must. What is surprising, however, is that the cost of these tests is generally comes to 0.1% to 1% of the civil engineering cost of the entire project.
For a 40-storey tower, the charge would be a miniscule Rs. 4 lakh and is likely to take four to six months to complete.