Mumbai housing prices may rise up to 30%!

Mumbai municipal commissioner Subodh Kumar's proposal to charge additional premium on construction of certain sections in a building, could push up property prices in the city by 20 to 30 per cent, say property developers.

Consultants, however, raise doubts about the practicality of such price rise.

Kumar has put forth a proposal before the state government that the Brihanmumbai Municipal Corporation charge a premium of 100 per cent of the ready reckoner rates on construction of lobbies, terraces and balconies compared to the 25 per cent charged earlier.

Ready reckoner rates are the rate at which the government calculates the market value of the property. Though these specified areas are free from calculation of floor space index (FSI) -- permissible construction allowed on a given plot of land -- according to BMC, developers sell terraces, balconies and decks to buyers at market rates.

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The proposal is expected to help BMC to earn extra revenues in the form of additional premium.

Developers, though, say, it could raise prices. "If the premium is increased, our yields will come down by 20 to 30 per cent and costs will go up. I expect prices to go up by 20 to 30 per cent if the rule is amended," said Pujit Aggarwal, managing director and chief executive, Orbit Corporation, a Mumbai-based developer.

"If our costs go up, we can not absorb them. We have to pass it on to the customers. It is ridiculous," said another prominent Mumbai developer requesting anonymity.

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Developers say the move could further delay projects in Mumbai. "Most developers have delayed their projects due to  delay in permissions. Developers will start deferring them once again till the time they figure out how much more will it cost them," said Aggarwal.

Credai (Confederation of Real Estate Developers Associations of India) president Lalit Kumar Jain said the state government should scrap FSI restrictions like Hyderabad instead of tweaking the norms to make more housing stock available.

"The new norms will only add to the cost but will not help  growth of real estate industry and the availability of housing stock which is in short supply," said Jain, who is also the chairman and managing director of Kumar Urban Development Ltd.

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But leading property consultants like Pranay Vakil, chairman of Knight Frank India, believes developers can not afford to increase the prices in the current market scenario where home sales are almost standstill due to high prices.

"The current rates have seen very little sales. If prices are increased further, how can they sell properties? We have already seen 30 per cent drop in registration numbers in June. I do not think prices can go up at this point," Vakil said.

Developers are also upset over the fact that the commissioner has proposed to include the additional parking slots (and allowed one car park for an apartment) under the permissible FSI.

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Earlier, parking lots were excluded from the calculation of FSI and it was alleged that developers sold parking lots to home buyers at hefty rates.

"Most of the households in Mumbai have two to three cars. If we are allowed to build only one slot, where will people park their cars. I think it will lead to congestion on the roads," said a developer.

But Vakil said most developers attached the parking slots to the apartments and sold them.