Mumbai is seeking to amend its 24-year-old building rules that allowed slums to mushroom and kept housing beyond the reach of most of its 19 million residents.
The island-city, which has little land available for development, is proposing changes to its Floor Space Index regulations that may permit developers to tear down old structures and build taller towers. This may be good news for companies including Oberoi Realty Ltd., Sunteck Realty Ltd., Peninsula Land Ltd. and Godrej Properties Ltd., according to Edelweiss Financial Services Ltd.
The plan for the world’s second-most densely populated megacity after Dhaka is part of Prime Minister Narendra Modi’s “Housing for All” program, which seeks to build 20 million homes across India by 2022 to help eliminate urban slums and squalor. In theory, the move should increase the supply of apartments, cut property prices and help India’s financial capital emulate wealthy peers including New York and Shanghai.
“This is the only way to solve the perennial housing shortage in this city, where most are living in pigeonhole-size apartments,” said Vyomesh M. Shah, managing director of Hubtown Ltd., a Mumbai-based developer.
The Municipal Corporation of Greater Mumbai has proposed to increase the Floor Space Index, or FSI, to range between 2 and 8, compared with an earlier cap of 1.33. The FSI determines the maximum floor area allowed in a building relative to the land on which it is erected.
When the index was first introduced in Mumbai in 1964, it was set at 4.5, meaning on a one acre (0.4 hectare) plot of land, a little smaller than a football field, living space totaling only 196,000 square feet could be built.
Policy makers lowered that number in 1991 to 1.33 times, a move contrary to what most cities with limited land have tended to do — raise the permitted FSI to accommodate growth, as in Manhattan, Singapore, Hong Kong and some Chinese cities.
The proposed change will allow for variable building heights depending on location, consumption patterns and logistics.
Historically, FSI has been used as a tool to limit congestion in Mumbai, said Aashiesh Agarwaal, an analyst at Edelweiss Securities Ltd. said. Under the new plan, it is designed primarily to be a tool to manage physical development by laying out uniform rules, where locations with good public transport connectivity will get a higher FSI, he said.
“They seek to address key lacunae impacting Mumbai’s real estate sector,” Agarwaal said. “They are a step in the right direction and positive for developers with strong governance, brand and execution capabilities.” The proposals will be put up for public comments after which final regulations will be released, which could be as late as end-2015, he said.
The 13-member S&P BSE India Realty Index has risen 17 percent this year compared with the benchmark S&P BSE Sensex index’s 7 percent gain. Oberoi Reality Ltd., the country’s second-largest developer by value, has climbed 14 percent this year while Godrej Properties has added 16 percent.
Not all are optimistic about the proposals. Allowing taller towers on smaller land parcels may lead to a break down of the already creaky infrastructure, said Gulam Zia, Mumbai-based executive director at Knight Frank LLP.
“The city has grown haphazardly like wild grass and now if you let it expand vertically without putting necessary infrastructure in place, it won’t serve anybody,” he said.
The Mumbai metropolitan region needs $60 billion of investment in public transportation over the next 20 years and the current plan falls short of needs, according to estimates by McKinsey & Co. In a 2010 study, the consultant said India must spend $2.2 trillion by 2030 on urban transportation, housing and office space to boost infrastructure ranked below that of Guatemala and Namibia by the World Economic Forum.
More than a decade after then prime minister Manmohan Singh vowed to make Mumbai another Shanghai, the improvements in the city haven’t been significant.
Half of Mumbai’s residents live in slums — more than the population of Switzerland. The city’s clusters of ramshackle huts made from scrap materials line narrow garbage-strewn alleyways, usually lack proper sanitation facilities and water supply, and residents often use pilfered electricity from tapping into power cables.
The business districts are a different world. Mumbai is the world’s 16th most expensive business location as of September quarter, according to real estate services company CB Richard Ellis Group Inc.
In the earlier development plan for the city, FSI was kept low to prevent congestion and promote growth of suburbs, according to a note from Edelweiss. The aim was to curtail the population in Greater Mumbai to 9.8 million.
Under the proposed rules more than half of Mumbai’s land area will get FSI of 3.5. Areas that can be well accessed by public transport, mainly those in close proximity to commuter railway stations and existing and upcoming metro stations could get an FSI of about 5. Such areas would make up about 32 percent of the city’s land.
Higher FSIs of between 6.5 and 8 will be allowed in the immediate vicinity of major railway stations close to the central business districts and other employment nodes. Only about 4.5 percent of the city will fall under an FSI of 6.5 while less than 0.5 percent of a plot area will get an allocation of 8, according to Edelweiss.
“It is expected to address the critical issue of augmenting the housing stock in the metropolis in a very positive manner,” said Sarang Wadhawan, vice chairman and managing director of Housing Development & Infrastructure Ltd., the best performer for the year on the India Realty Index. “However, a lot of clarity is needed with regard to its implementation.”
Some companies such as Housing Development and Infrastructure Ltd., DB Realty Ltd., and Hubtown, that redevelop old buildings will also benefit from the increase in FSI, said Amit Harichand Anwani, a Mumbai-based real estate analyst at Kantilal Chhaganlal Securities Pvt.
Housing Development shares have jumped 71 percent this year while DB Realty added 13 percent.
“There will not be any lack of demand as they are coming up in centers which are densely populated and have a severe crunch for housing units,” Anwani said. “The companies with the right kind of skill set will be able to leverage this rule change without stretching their balance sheet.”