With the Mumbai Development Plan 2034 opening up 3,700 hectares of land that was earlier designated as no-development zone (NDZ) for construction of residential real estate, homebuyers can expect housing units of 30 sq m to be available in the range of Rs 60 lakh to Rs 75 lakh.
Experts say that going forward with more housing stock getting added in the affordable category, prices may correct by 10 to 15 per cent but this is possible only if the increased Floor Space Index (FSI), promised under the blueprint for the city’s development for the next 16 years, is available at rational prices and not at a premium.
Under the new Development Plan, over 3,000 hectares of land would be available for building affordable houses after unlocking the NDZ land. Apart from this land, an additional 300 hectares of salt pan land will also be available for affordable housing. About 10 lakh affordable houses will be built on these lands by 2034. Salt pan lands are those where large water bodies have dried up over years, leaving behind salt and other minerals.
As per DP 2034, FSI or the ratio of the total built up area to the total area of a plot or the actual construction permissible on a plot, for commercial properties has been raised up to 5 in the island city from the earlier 1.33. For suburbs, new FSI will be up to 2.5 and 5 for residential and commercial properties, respectively. The existing FSI for the two categories is 2 and 2.5, respectively.
Developers in Mumbai are of the opinion that it may now be cheaper to buy an apartment in Mumbai, especially in the island city or in the suburbs. The plan to increase FSI and build 10 lakh houses will help in rationalizing property prices and in the long run help in bringing down property prices.
“This across the board FSI increase will give a boost to affordable housing stock in the long run, especially 30 to 60 sq m units that will now be available for below Rs 75 lakh. This segment is likely to gain traction going forward,” said a developer.
Prices likely to soften; downward pressure likely to be momentary
Mumbai DP 2034 proposes to unlock 3,700 hectares of public and private land currently tagged as No Development Zones (NDZ). Along with opening up of land, the Government has also increased the FSI in the island city to 3, “which means we are likely to see higher and larger developments in the future periods. Considering the laws of economics, and the unsold inventory situation in the city, technically, the property prices must soften with such a mega-impact policy initiative. However, the Maximum city has been resilient and possesses a significant inherent housing demand and so we believe that prices are not likely to be impacted in the near term. However, if the newly opened up land is available at competitive rates and relevant products are built by the real estate developers, there may be some impact on the prices in the future periods,” said Santhosh Kumar, Vice Chairman – ANAROCK Property Consultants.
According to Gulam Zia, Executive Director – Advisory & Valuation, Retail & Hospitality, Knight Frank India, the new development plan seeks to benefit mid to low end of housing, a segment that had been completely wiped out from South Mumbai. That is where the focus is now bound to shift.
Property prices are dependent on demand. At the current demand levels, there is a strong case of prices coming down because excess inventory may get created in the near future. However, the downward pressure on prices will only be momentary.
Having said that, Mumbai witnessed about 20 per cent correction in last year and going forward the reduction will not be more than 10 per cent, he said.
Expensive FSI may not translate to more supply
The objective of the Development Plan is to increase the supply by releasing more land. FSI is generally increased to improve realty supply. The Development Plan talks about additional FSI but does not say anything about the premium that is generally charged for it.
“Often the cost of FSI is so high that the builder cannot reduce prices. Also, due to expensive FSI, there is lesser consumption of FSI. What this means is that even if the government does release more FSI, this FSI may not get converted into new supply and that is because the builder may not be able to purchase more FSI at high price and therefore not launch more units under the affordable category,” said Pankaj Kapoor, managing director of Liases Foras Real Estate Rating & Research Pvt Ltd.
In such a scenario, the actual benefit from FSI benefits may percolate only to the land owners as it will increase the cost of land and not home buyers, he says.
Having said that, if FSI is available at a rational price, then over a period of time, one may see prices rationalizing by about 10 to 15 per cent.
Government should also consider introducing vacant land tax so that owners do not sit on excess land for long, he adds.
The Development Plan also talks about adding 10 lakh supply of affordable housing. The current supply is about 2 lakh units in Mumbai while the requirement is that of 20 lakh units.
Mayur Shah, president of Credai MCHI, said that he is hopeful that the issue of high premiums for additional FSI will be addressed to make units more affordable.
Ravi Ahuja, Senior Executive Director, Mumbai & Developer Services at Colliers International India, feels that the increase in FSI for commercial user to 5 in Mumbai augurs well to develop quality office stock.
Having said that “one must look up the premiums payable for such use (if any) as these will lead to increased costs. However, incremental supply due to increased FSI is expected to keep office rental and capital values of under reasonable check. Office leasing demand continues to be steady at approximately 5 to 6 million sq ft per annum in Mumbai,” he said.