India’s commercial capital is in a desperate need of a makeover. And the city’s developers need more space to cater to the growing appetite of companies, retailers and residents. The state government thinks it has found a way to satisfy the developers and raise the money needed for the city: it plans to allow developers to build more on their properties, in exchange for a premium, and use this money to create a fund called the Mumbai Development Fund.
Sanjay Ubale, secretary, special projects, Maharashtra government, said the state government is considering charging an “impact fee” from developers who want an increase in FSI or floor space index that will allow them to build more on a plot of land than they currently can. However, the government does not plan to raise FSI benchmarks across the city. “We have not decided to what extent the FSI will be raised and what will be premium,” said Ubale.
The government plans to raise around Rs15,000 crore from the premium on FSI and from higher stamp duty that buyers need to pay.
FSI is the ratio of the total area of a building to the area of the plot of land on which it is built. In south Mumbai, the current FSI is 1.33, which means that a building with an area of 1,330sq. ft can be built on a 1,000sq. ft plot of land. In the suburbs, the FSI is currently 1.
The Rs15,000 crore that the move will raise should come in useful for a city that needs an overhaul in everything from roads and railway lines to sewage systems.
The Mumbai Development Fund will exclusively invest in the city’s infrastructure and the state government has drawn up an ambitious plan, involving an expenditure of Rs40,000 crore, for this purpose. The government hopes to achieve all this by 2012.
Much of the current infrastructure in south Mumbai is of British origin and outdated and inadequate. And sewage systems in the city’s northern suburbs have limited capacity. The overhaul planned by the government for the city includes a proposal to double the sewage carrying capacity in the city’s suburbs.
The idea of creating a specific fund to fund the overhaul of Mumbai’s infrastructure was first aired two years ago, in the aftermath of floods on 26 July 2005 that brought the city to a halt.
Ambar Mahershwari, director, investment, at DTZ , a real estate advisory, described the government’s proposal as a “win-win” for developers and the city. “There will be a lot of takers for the extra FSI given the shortage of supply of built-up property. However, it depends on the premium that the government puts on extra FSI. If the premium is too high, the developer may not have enough left on the table to make it profitable for him,” he added.
The FSI-gambit has been thought of before in Mumbai. The government hopes to raise an extra Rs2,000 crore by hiking FSI in its plan to redevlop Dharavi, a 600-acre slum that is considered to be Asia’s largest.
Maheshwari said the increase in FSI would add to the supply of luxury housing and international quality commercial buildings in a city that is perenially short of space and help stabilize soaring prices. Prices of real estate have risen between 50% and 100% in Mumbai over the past two years.
The state government and the Union government plan to develop Mumbai into a global financial hub, and have drafted plans to rebuild the city’s infrastructure and inner city neighbourhoods. The state government is also looking to repeal laws that hamper the development of the city, including the Urban Land Ceiling Act.
The repeal of this Act could see some 30,000 acres of land becoming available for development. Developers say that because of the shortage of land, this commodity accounts for up to 60% of the project cost in any development as compared with 30% in other cities.