I recently had a very interesting conversation with a friend about Floor Space Index (FSI) — which indicates the built-up ratio permissible on a piece of land.
For example, if a plot size is 3,000 sq.ft. and the FSI is 1, it implies that a maximum of 3,000 sq.ft. of built-up area on the plot is permitted. In other words, this will allow you to build, for instance, a two-storeyed home with 1,500 sq.ft. area on each floor.
This FSI is not constant across cities in India and in some cities the FSI varies within the city with the nature of development and/or the width of the road in front — plots facing wider roads usually enjoy a higher FSI. Besides, though used interchangeably with Floor Area Ratio (FAR), the states that follow FAR also prescribe a maximum plot coverage ratio. The specified ratios are set by policymakers and this makes any decision on a revision a highly politicised one.
The focus now is on the wide disparity in FSI/FAR ratios across cities and its impact on realty prices and long-term appreciation. Intuitively, a city that keeps a tight lid on FSI is likely to see a higher rate per sq.ft., assuming limited availability of land in a particular city area. And with an increase in demand for space in that area, the appreciation will most likely be faster. Take the example of Mumbai. The FSI in the city is at 1.33 and there is some talk of it being upped to 2.5. If that happens, it is bound to exert some downward pressure on prices, as it can enable more space to be added to existing plots. On the other hand, in a city like Hyderabad that doesn’t really impose any FSI restrictions, space can be added at will, thus limiting any sharp increase in realty prices.
This is also cited as one of the reasons why capital appreciation in property in Hyderabad lags other cities by a wide margin.
If we assume the state government takes a decision to enforce FSI limits in Hyderabad, it could spark a sharp rise in realty prices. While buying a home, it pays to be aware of regulatory moves/proposals that can impact your investment. So keep an eye out to ensure you don’t ink a deal just when the tide is going to swing against you.
Former Editor, Outlook Business and Executive Editor, NDTV Profit, the writer is a personal finance expert. Mail him at propertyplus@thehindu.co.in
