In a bid to boost the real estate market, the government of Maharashtra recently announced a reduction in the premium on additional FSI (floor space index) and fungible FSI, among other measures.

Maharashtra Chief Minister Devendra Fadnavis announced that for residential buildings, the premium for additional FSI (more than the base FSI fixed by the state) has been reduced to 40 per cent from 50 per cent. For fungible FSI (FSI for balconies and flower beds), the premium has been reduced to 35 per cent from 50 per cent.

Similarly, for commercial properties, premium on fungible FSI has been reduced to 40 per cent from 60 per cent. The state has also waived off development cess paid on buying additional FSI.

The relief offered is available for two years and is applicable to projects that are yet to be launched in the market or where developers are yet to acquire the additional FSI. This change is not applicable to projects where developers have already paid the fees.

If you are a home buyer, here is why the changes in FSI matter.

Impact of FSI

Any reduction in FSI fees could benefit home-buyers as it could reduce the input cost to developers and bring down the total cost as well.

FSI fees are paid by developers when construction approval is received.

The Maharashtra government’s announcement of a reduction in premium charged for additional FSI is aimed at boosting real estate demand in the market. With prices stagnant and multiple projects stalled across the Mumbai metro region (about 89 projects according to ANAROCK Property Consultants), housing units could become viable to an extent due to lowered premium payment.

Parth Mehta, Managing Director, Paradigm Realty says: “High premium rates of fungible FSI were an impediment for developers in the past, which slowed down the overall expansion of the real estate sector. This move by the Maharashtra government to reduce premiums on fungible FSI will propel growth in the sector.” Home-buyers should be able to reap better pricing on projects, depending on location, he adds.

The stock of Mumbai-based realty company, Sunteck Realty, has declined nearly 3.5 per cent since yesterday. The company has multiple projects under various stages of construction, for which FSI or additional FSI, if any, may have been already paid.

What is FSI?

Floor space index or floor area ratio, in simple terms, is the buildable area on a plot of land. It is calculated by dividing the total covered area on all floors of the building, by area of the plot. For instance, if you have 2,000 sq ft of land on which you want to build a property (it could be a flat or individual house or any other commercial building) and FSI in your region is 1.5, then you could build 3,000 sq ft covered area on the plot. It can be either two or three floors. You cannot build more than 3,000 sq ft.

FSI varies with each region in a state and the type of building. Municipalities and governments allow certain FSI limit depending on the geographical location, population in an area and other factors. However, if you want to build over and above the FSI limit, you can extend your built-up area up to a certain limit by paying additional fees to the local authority or the government. This is known as premium FSI. For instance, if you have a plot of 1000 sq ft and, say, the premium FSI allowed is 20 per cent, then you can pay additional fee and avail the premium FSI as well. The area used for flower beds/ gardens, balcony and terraces, are also part of FSI, and is known as fungible FSI. Developers have to pay a fees on this as well.

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