Maha govt new regulations to hurt margin of Mumbai-based realty developers

MUMBAI: The Maharashtra government’s recent amendments to development control regulations are likely to result in higher construction cost and hurt margin of Mumbai-based realty developers, analysts said.

Under new Rules, areas of balcony, flower beds, terraces etc. will be counted in the project’s floor space index. To compensate for this, the government has allowed compensatory fungible FSI to the extent of 35% for residential development and 20% for Industrial and commercial developments.

The additional FSI will be allowed at 60%, 80% and 100% of the ready reckoner rates for residential, industrial and commercial projects, respectively.

“Developers will now have to pay for buying additional 35% floor space index for constructing flower beds, terraces, etc in residential projects...We see the profits for builders going down by 5-20% assuming builders are unable to pass on incremental cost to consumers via increase in selling price,” said a report from PINC Research.

According to Edelweiss Securities, while there is unlikely to be additional benefit to developers from increase in saleable area, there is likely to be additional outflow of 5-10% of project realization towards payment of FSI premium.

“This (premium for additional FSI) would increase the developers’ cost and put pressure on margins, while also not allowing the developer to construct and sell far above the actual FSI level,” said a report from brokerage Nomura.