MUMBAI REALTY - UNLIKELY THAT PRICES WILL COME DOWN

By Ruma Dubey

With an eye on elections, the Maharashtra Govt tweaked the Development Control Rules (DCR) for Mumbai city. The Chief Minister has suddenly woken up to Mumbai realty? After the Adarsh scam, no redevelopment project has been passed. Its over two years and builders and flat owners have been literally bleeding to death. All pleas till now have fallen on deaf years but suddenly, the CM decided to wake up to corruption in realty and made moves to rein that in.

The amendments made mainly dealt with the Floor Space Index (FSI). Under the new DCR, area used for balconies, flower beds, terraces, voids and niches will be FSI, which earlier was not a part of. In the earlier DCR, allowing balcony in a flat was left to the discretion of municipal authorities, which led to corruption. The new amendments will put a check to these practices.

This in simple language means that the flowerbed, balcony or the terrace which was earlier shown as a part of the developable area, will now be over and above the FSI limit granted to the plot of land for the building.  So when we bought a flat, the builder asked us to pay for the balcony or the terrace, counting it within the area of the flat. But now, under the new rule,  if the developer wants to build these kinds of amenities, calling it ‘compensatory fungible’ (mutually interchangeable) FSI, the developer will be only allowed up to 35% over the FSI limit for residential areas and 20% over the FSI limit for a commercial building. This means, the developer will have to now pay to build a balcony or a terrace or even a flowerbed. Does the developer ever pay? Naturally not. So this means, we once again pay, probably more. The developer will have to pay about 60%, 80% and 100% of the ready reckoner rates for residential, industrial and commercial premises respectively.  And this cost will be passed on to the consumers, like you and me.

Regarding car parking, it will not be counted in the FSI and the builder will have an option to offer 25% more parking to the building residents and over 25%, premium would not be charged.

This means overall cost of construction for the developer will now go up. And any cost increase, be it the service tax or increase in cost of FSI, is always passed on to the consumer. Thus if the sector was hoping to see some stimulus , well, in a period of election and politics, what else can be expected?

As per a report put out by equity brokerage Prabhudas Lilladher, registrations of property sales in November have hit a 31-month low, down 20% over a year, to 4,060 units, and down 12% on MoM. But does that mean that developers will bring down the prices in Mumbai realty? Unlikely as they say that they are grappling with high labour and raw material costs. And now, with great expectations that RBI will usher in a cycle of reducing interest rates from this month, there is hope that this lowering of interest rates could spurt the stagnant demand. When that is the expectation, why the rates be lowered? In all probability, it could go up. Yes, Mumbai realty is peculiar but when space is such a rare commodity in this over crowded city, naturally any space comes at a much higher premium, even when rest of India could be facing lower prices.