Lower FSI premiums for builders: Will homes now become cheaper?
For the developer, this will reduce the input cost of premiums for increased floor space by up to 25% for residential buildings and up to 30% for commercial buildings, bringing down the total cost of the project by up to 10%, according to builders and experts.Updated: Aug 20, 2019, 08:45 IST
In a boost to the realty sector ahead of the elections, the Maharashtra government on Monday reduced the premium amount to be paid by builders for floor space index (FSI) for all residential and commercial projects in Mumbai for two years. The move is expected to translate into a dip in prices for the buyer.
According to the decision, signed by chief minister Devendra Fadnavis, the premium for additional FSI (more than the base FSI fixed by the state) has been reduced to 40% of the ready reckoner rate, from the current 50%. For fungible (galleries and flowerbeds) FSI, the premium has dropped to 35% of ready reckoner rate, from the current 50% for residential buildings; and to 40% from the current 60% for commercial structures. The premium amount has been reduced to half for Mhada homes in the low-income group.
For the developer, this will reduce the input cost of premiums for increased floor space by up to 25% for residential buildings and up to 30% for commercial buildings, bringing down the total cost of the project by up to 10%, according to builders and experts. Moreover, the government has also withdrawn development cess – 100% of the development charge above the base FSI for any redevelopment project in the city – for two years. This will give a boost to redevelopment of old buildings.
Municipal commissioner Praveen Pardeshi had written to the state in July requesting to halve the premiums paid for FSI to give a fillip to the real estate industry. It has also been the demand of various bodies working in the real estate sector such as Maharashtra Chamber of Housing and Industries, National Real Estate Developers Council, and Practicing Engineers and Town Planners Association.
Nitin Kareer, principal secretary of the urban development department, said, “We expect this relief will be transferred to the buyer as well.” It has been welcomed by all experts. City-based senior architect Vilas Nagalkar said, “This is a good move and will give a much-needed boost to the sector. As it will reduce the amount a developer has to pay to the authorities, it will reduce the overall cost of the project and make many construction projects, that were stuck until now, feasible.”
Yomesh Rao, consulting engineer for several construction projects in the city, said, “Whether a builder will be able to transfer this to a buyer entirely depends on individual cases.” Pardeshi said, “I expect the income the BMC generates from premiums to go up due to the reduction in rate of premiums against paid FSI. The total revenue in 2016-17 was Rs 4,238 crore. In 2017-18, it came down to Rs 4,077 crore. Every year it is declining. Last year, it dipped by Rs 1,000 crore. The total number of permissions has come down. A rate cut will help restart projects that are on hold. The BMC will get more applications.”
According to the BMC budget 2019-20, the development plan (DP) department lost Rs 903.03 crore in 2018-19. As opposed to its estimated income of Rs 3,947.38 crore (that mainly comes from premiums in FSI) for 2018-19, the civic body got only Rs 3,044.35 crore. Budget 2019-20 estimates an income of Rs 3,453.64 crore for the DP department.