Limited FSI Adds to Land Scarcity

Monday, January 29, 2007: If India’s skyline sans skyscrapers
reflects a growing economy, it has also at the same time added
a few limitations as it is by the low Floor Space
Index (FSI) restrictions imposed by municipal authorities
of major metros.

With land already scarce, and acquisition quite an issue, the
low FSI is compounding matters for real estate builders across
India.

The Floor Space Index (FSI) is the ratio of the total floor area
of buildings to the area occupied on the ground. On an average,
most Indian cities maintain the FSI between 1.33 and 3.75, but
this is sadly inadequate, complain builders, as it does not allow
them to spread their costs on the plot of land.

Land prices in India constitute almost 50% of the cost of the
property, whereas it accounts for only 15 -20% of project cost
overseas. In New York where land rates are steep, the government
allows a high FSI, enabling real estate developers to cover their
costs and maintain their profits.

India needs to revise its FSI policy in view of steep land costs,
and the commercial and residential needs of a growing economy.
Restricting vertical growth directs all construction activity
towards luxury projects, such as hotels, to cover the land cost.
A trend towards multipurpose use of luxury construction to work
around the FSI restrictions has been observed.

More mixed land use in Indian
real estate has recently been noticed as fallout
of the low FSI and high land cost. Hotel complexes in Bangalore
and Noida are found to be housing retail outlets under the same
roof to cover their costs.

Hyderabad recently hiked its FSI to 5 to accommodate the severe
space crunch felt by real estate builders. In Mumbai, the FSI
is the lowest in the world, considering its size and population.
This has led to stretching of the city to far flung suburbs, straining
the infrastructure further.

The FSI policy also needs to look into bringing in variations
within the city, rather than maintaining a flat ratio throughout.
The crunch is more acute in the commercial space category, and
a higher FSI would definitely give a boost to the Indian real
estate indu.