Mumbai’s real estate market has always been at the epicentre of various reforms and initiatives undertaken by the Maharashtra Government which is quite usual since this is one of the biggest and costliest realty markets in India. Mumbai’s property market has been reviving of late but still needs some more impetus before it can make a full recovery. The market needs a clearing of unsold inventory while a price correction is also badly needed in several areas in order to spark higher sales figures once again.
Mumbai’s realty market has benefited from the cut in GST rates sometime earlier while the affordable housing spurt and incentives under PMAY (Pradhan Mantri Awas Yojana) will lead to several projects being developed on its outskirts spanning the MMR (Mumbai Metropolitan Region) and even parts of Thane and Navi Mumbai. Additionally, the Government’s decision to release unused tracts of land will improve supply and bring down prices in the long term. The same effect will be felt once old buildings and chawls are redeveloped into housing clusters. With a few finishing touches needed to accelerate growth in Mumbai real estate, the Maharashtra Government has now announced a reduction in FSI (floor space index). This could be a game changer for property buyers in Mumbai.
What the Government has announced
The Maharashtra State Government has officially declared a reduction in the floor space index (FSI). This will benefit commercial and residential real estate buyers alike. FSI has been lowered by 20% and 15% respectively for commercial and residential properties. The FSI percentage has been reduced to 35% from 50% in residential realty projects while this has come down to 40% in case of commercial realty projects, as compared to 60% previously.
Industry players have opined that this landmark move by the Maharashtra Government will go a long way towards lowering overall input costs for commercial and residential real estate projects. This will naturally benefit aspiring home owners and prospective buyers of commercial spaces in Mumbai. This will also help several real estate developers start on their projects which were lying dormant for quite some time.
Impact of the FSI reduction
Experts feel that input costs will be coming down greatly as a result of this move by the Government. Here are some key aspects worth noting-
- Developers will have to pay lower premiums for added FSI, thereby indicating lower input costs.
- This may lead to lower costs of housing units for end-consumers.
- This decision may lead to positive and improved home buying sentiments in a still-sluggish market as per experts.
- Lowering development cess will make redevelopment more viable for builders from a financial standpoint.
- More PMCs will thus be attracted to the redevelopment segment.
- The construction cost will thus go down and there will be a higher incentive for project proposal filing in the construction segment.
- The final consumer will benefit only when the developer passes on his/her benefits to the former.
- High premium rates for FSI used to be a major hurdle for several real estate developers earlier and this led to slower real estate expansion as per reports.
- This move is expected to drive sizable sectoral growth and input cost (premiums) for higher floor space will naturally reduce, thereby making many stalled project proposals viable.
- Developers will be able to hold margins from reducing further on account of escalations in costs.
- The concession is for 2 years and this may lead to a major recovery for the Mumbai real estate market if the initiative is perceived pro-actively by builders.
- Property prices in Mumbai may come down to more reasonable levels, particularly in prime locations of the city.
All in all, experts feel that the major benefits arising from the FSI percentage will be reflected on the final price paid by the customer. This is because developers will now be able to pass on the benefit of lower input costs by reducing property prices by a minimum of 50% of the cut in the FSI percentage.
This should be really good news for all those aspiring to buy property in Mumbai in the near future. Additionally, major infrastructural developments should also keep the market going over the next 1-2 years as per experts.