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This article is more than 2 year old.

Realty industry cheers Maharashtra govt's decision to cut fungible FSI premiums

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In a major relief for the homebuyers and the real estate sector, the Maharashtra government has decided to reduce premiums on fungible Floor Space Index (FSI), a long-standing demand of the industry facing rising costs and a slump in demand.

Realty industry cheers Maharashtra govt's decision to cut fungible FSI premiums
In a major relief for the homebuyers and the real estate sector, the Maharashtra government has decided to reduce premiums on fungible Floor Space Index (FSI), a long-standing demand of the industry facing rising costs and a slump in demand.
According to the proposal cleared by Maharashtra CM Devendra Fadnavis,  the premium for additional FSI (more than the base FSI fixed by the state) has been reduced to 40 percent of the Ready Reckoner Rate, from the current 50 percent.
For fungible (galleries and flowerbeds) FSI, the premium has dropped to 35 percent of Ready Reckoner Rate, from the current 50 percent for residential buildings, and to 40 percent from the current 60 percent for commercial structures.
Explained
For Mhada homes, the premium amount has been reduced to half in the low-income group.
The government has also withdrawn development cess – 100 percent of the development charge above the base FSI for any redevelopment project in the city – for two years, which in turn will give a boost to redevelopment of old buildings.
Industry representatives have welcomed the decision of the state government, saying the change in regulations will be a big boost to the sluggish real estate market in Mumbai.
"The move to slash premiums, development charges and cess will help revive the construction industry in Maharashtra. Revenues to the Brihan Mumbai Municipal Corporation from development proposals have been declining over the last three years, owing to the slowdown in construction," said Niranjan Hiranandani, senior vice-president of Assocham and national president of Naredco.
Concessions such as reduction in premium, development charges and cess would result in increased number of new construction proposals. According to Hiranandani, such concessions will also have a positive impact on redevelopment, and restore the buoyancy of revenues from the construction sector in the long run.
"While the concession is for a period of two years, this can definitely facilitate the revival of the real estate market, besides seeing property prices reduced across prime locales. The same can also go a long way in reviving stalled projects, as developers will no longer be required to pay high charges, " said said Amit B Wadhwani, co-founder, SECCPL.
"The move is expected to bring significant relief to the sector. It will help boost the redevelopment projects which were previously stalled, and also make way for developers to take up new redevelopment projects. The rate change would reduce the total cost of the project by around 5 percent, which will be passed on to the homebuyers, " said Farshid Cooper, managing director, Spenta Corporation.
High premium rates of fungible FSI were an impedance for developers in the past.
Parth Mehta, managing director, Paradigm Realty is of the view that this move by the government will definitely propel growth in the sector.
"The input cost of premiums for increased floor space is expected to come down. The stalled proposals shall become viable to an extent due to lowered premiums. It is a relief for developers as shrinking margins won't deteriorate further due to cost escalations whereas pricing remains to be stagnant" he added.
"Reducing the premium paid by the developers on additional FSI will bring down the input costs which will hopefully translate into the cost reduction of housing units for buyers. It will boost the buying sentiments in the stagnated housing market," said Rohit Poddar, Joint Secretary, NAREDCO West and managing director, Poddar Housing and Development Ltd.
This raft of measures will not only minimize the overall cost of construction but also incentivize the filing of project proposals in the construction sector. It will benefit the end-consumer only if the developers pass on the benefits to buyers, he added.
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