Developers have to buy TDRs to utilise 2 FSI, rules Bombay High Court   

June 10, 2010

TDR prices will go up as a lot of demand for these rights has been created now by the court’s decision. Ergo, real-estate prices may go up further

The Bombay High Court on Thursday dismissed the Maharashtra government's decision to increase the floor space index (FSI) in Mumbai's suburbs from 1 to 1.33.

In 2008, the Maharashtra government, in its State Budget, increased the floor space index (FSI) in Mumbai suburbs from 1 to 1.33. Additional FSI increase of 0.33 could have been purchased by the developers from the government as specified by the State government in its 10th April notification.

A public interest litigation (PIL) was filed by Amit Maru and Arun Gaikwad (both practising engineers and architects) last month alleging that the increase in FSI would lead to more construction and put a heavy burden on the infrastructure in the suburbs.

"The court's decision will force developers to buy transfer of development rights (TDRs). TDR prices might go up in the future as a lot of demand is created in the market now (for these rights)," said Pankaj Kapoor, founder, Liases Foras.

The maximum permissible FSI in the city's suburbs remain the same, i.e. 2. Earlier, developers had to buy 0.67 extra FSI, when an FSI of 1.33 was allowed by the government. The 0.67 FSI was available at a nominal price from the government. But now developers have to buy 1 FSI rather than 0.67 FSI at a higher price through TDR if they want to utilise the maximum developable area.  

The 10th April notification stated that the additional FSI was available at a cheaper price than the prevailing TDR prices in the market. Developers were expected to opt for this and hence TDR prices started falling last month. There are a lot of redevelopment projects currently being developed in suburban Mumbai and TDR forms an important part of them.

"The FSI remains same for the suburbs but the TDR prices will go up," said Pranay Vakil, chairman, Knight Frank (India) Pvt Ltd.

Currently TDR prices vary between Rs2,400 per sq ft to Rs2,800 per sq ft. After the High Court decision, TDR prices will shoot up and developers like HDIL and Ackruti City will benefit from it as they generate a lot of revenue through sale of TDRs.

"Developers have to buy TDRs at an incremental price. Extra FSI is no more available at a nominal price. Owners and developers were buying TDRs anyway, but their dependency on TDRs is now increased," said Ashutosh Limaye, associate director-strategic consulting, Jones Lang LaSalle Meghraj.

While the maximum FSI possible for a normal suburban property still remains 2.00, the difference is:

1. To achieve 2.00 FSI, the owner/developer has to buy TDR, as premium FSI is no more available, resulting in increase in demand of TDR and thus a likely increase in prices of TDR. Eventually, it means an increase in cost of projects, meaning increase in real-estate prices.

2. While the premium FSI was decided by the government and was defined and thus known and fixed, the TDR sale and purchase is a market phenomenon. Thus the prices are variable depending on location of TDR generation and location of TDR deployment. Thus, there is a degree of uncertainty in pricing that will be added.
—  Pallabika Ganguly