Bonanza for BMC as bldrs seek extra FSI

Mumbai: Suburban builders have filled up the BMC's coffers by Rs 100 crore in the past few weeks by paying a premium to procure 33% additional FSI (floor-space index) for their construction projects. FSI defines the permissible built-up area on a plot. 

    Since the beginning of November, the BMC received 44 proposals—31 from the eastern suburbs and 13 from the western suburbs—from developers. Although Mumbai's realty market has remained stagnant, the BMC and state government estimate they will both earn over Rs 1,000 crore annually from developers who want to utilize this additional FSI. This windfall will be utilized to augment the city's infrastructure. The state and civic administration will share the amount equally. 
    The premium is levied on the basis of the ready reckoner rate of land, which is fixed for different areas in the city. Interestingly, the BMC is currently charging builders premium based on the ready reckoner of 2008. An architect said the 2008 ready reckoner rates are 15% to 35% lower than the 2011 rates. However, the BMC will approach the government to revise the rates to the existing one. 
    In October-end, CM Prithviraj Chavan cleared a long-pending proposal that allowed suburban developers the option to purchase 33% additional FSI from the state government instead of buying the more expensive TDR (transfer of development rights) from the open market. 
    The Rs 2,500 crore-a-year TDR market is controlled by a clutch of politically-connected developers. The entire construction industry in the suburbs was dependent on this TDR cartel. The permissible FSI in Mumbai's suburbs is restricted to just 1, but a developer can load another 1 FSI by buying TDR from the market, which is controlled by this cartel. 
    By allowing builders to purchase 33% extra FSI from the government at a cheaper rate, the state has reduced a developer's dependence on the TDR market by 33%. 
    To give an instance of how the state's policy has helped, an architect designing a residential building in Chembur, said. "The current rate of slum TDR is in the region of Rs 2,500 a sq ft, but the premium we paid to the BMC based on the ready reckoner rate in Chembur worked out to a little over Rs 1,000 a sq-ft.'' The difference worked out to around Rs 37 lakh. A builder with a project in the eastern suburbs is believed to have saved Rs 18 crore by going for the government's FSI instead of buying TDR. 
    Builders hinted that property rates in suburbs could dip if the premium turns out to be cheaper than TDR prices. The government's premium based on the ready reckoner rate is expensive in areas such as Bandra, Khar and Powai as land rates in these areas are more expensive than TDR rates. 
100CR WINDFALL 
The additional .33 FSI is optional and nontransferable. It can be used only on the same plot The total FSI in the suburbs (including TDR) will be restricted to 2 Premium to be shared between state government and BMC on 50:50 basis No vertical extension of existing building by utilizing .33 FSI shall be permitted with erection of columns in the required marginal open space

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Realty Gains Scale New Highs in Small Towns

Demand in tier II & III cities shows an uptrend on rising affluence, aspirations of buyers

   The industrial town of Rudrapur, 220 km from Delhi on the way to Nainital, isn't exactly the kind of place that you would start talking about. But Sanjeev Srivastav, managing director of real estate developer Assotech, won't quite agree. He's got a lot to talk about this little town, and is happy his firm had launched a project in this tier-III town four years ago.
At a time when builders in metros and tier-I cities are staring at falling sales and rising supply, tier-II and tier-III cities are doing quite well — both in terms of demand and prices. Rudrapur, for instance, has seen prices appreciating by more than 80% in the past three years, something even Mumbai — the hottest property market in the country — has not managed during this period. And if you do a quick scan of the tier-II and tier-III cities, you will find many such Rudrapurs, which are showing steady price appreciation, as affluence and economic growth trickle down to smaller towns. "Moderate income class is growing in these cities. Their aspirations are now well supported by expanding credit availability, even if non-subsidised, and relatively lower land prices; all of this is helping smaller property markets to remain stable," said RV Verma, chairman and MD of National Housing Bank, the housing finance regulator.
In fact, demand in cities like Bhopal, Faridabad, Lucknow, Bhubaneswar, Ahmedabad and Surat is still holding up and rates are showing an uptrend, unlike in metros where sales numbers are pretty dismal with most builders resisting any correction so far. Property prices in Bhopal and Faridabad have jumped nearly 25% in the past one year; rates have also gone up in cities like Lucknow, Ahmedabad and Surat. This was revealed by NHB Residex, the residential pricing index, maintained by the National Housing Bank. "These cities will not fail you, returns here are stable and much better than metros over the long-term," said Srivastav of Assotech, that has several projects in Delhi and the National Capital Region (NCR).
"Speculative elements come into picture in larger markets like Mumbai and Delhi, while in tier-II and III cities there's no speculation. This helps in stable and steady price appreciation than volatile price movements," said Lalit Kumar Jain, national president of Confederation of Real Estate Developers Associations of India (CREDAI). This growth in tier-II cities and smaller towns can be attributed to rising investments across industries including information technology and ITES, rapid industrialisation and opportunities arising out of it and improvement in infrastructure and urban governance.
Bhubaneswar, for instance, may not qualify to get the benefit of the government's latest decision to allow foreign direct investment in multibrand retail since it does not have the stipulated minimum population of 10 lakh, but it's a hot property destination with three top IT companies — Tata Consultancy Services, Infosys and Wipro — having set up their campuses there. Shailesh Puranik, managing director of Puranik Builders, that has been operating in both Mumbai and tier-II city Nashik for the past 35 years, sums up the situation aptly.
"Demand is less, but steady. Rates do not appreciate very quickly here, but they do not decline sharply either." Given the proximity of these cities to metros, it usually has a ruboff effect as industries consider these locations as an alternative.

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