Will government shift to charging premium on construction cost?

Jan 04, 2015, 09:02 IST | Varun Singh

Speculation is rife that builders may have to pay a premium on the construction cost, which costs lesser than the ready reckoner rates

Here’s some good news. If sources in the Brihanmubai Municipal Corporation (BMC) and real estate market are to be believed, the government is closer to charging a premium on the construction cost instead of the ready reckoner rates. If the plan comes to fruition, builders who pay a premium to the BMC on the fungible floor space index (FSI), based on the ready reckoner rates, will now have to pay less to the civic body. This, in turn, will mean that buyers who pay builders will be charged less even in the case of an increase in FSI. This, however, will depend on the builder. While fungible FSI was free earlier, the BMC started charging the builder for the same since 2012.

The move’s impact
Ready reckoner rates across the city are higher than the construction cost. In most areas, ready reckoner rates are equivalent to existing market rates. The construction cost is below R2,000 per square foot for buildings that have up to seven floors, and above R2,500 in buildings that have more than seven floors. Thus, in Goregaon for instance, where ready reckoner rates could be anywhere between R6,000 to R7,000 per square foot, the builder pays for the fungible FSI based on these rates. However, with this new planned move, if he pays as per the construction cost, the amount will be much lower as the rates will fall between R1600-R2,500 per square foot.

Experts speak
Dr Sanjay Chaturvedi, executive editor, Accommodation Times, said, “I have heard such discussions about the premium being charged on the construction costs instead of ready reckoner. This will bring more clarity and less burden on the builder. But it remains to be seen whether builders will pass this benefit to the buyers or not.”
A liaising architect with the BMC, who deals in fungible FSI and other matters, said, on condition of anonymity, “There is a discussion in the lobbies of the BMC that the new rule, will mean that fungible FSI will be now charged on construction cost not on ready reckoner rates. This will lower the expenses of the builder. But, the BMC needs to do this and not just talk. There might be hurdles, too, as the BMC will lose money and there might be a few who won’t like it to be implemented.”

R Balchandran, Chief Engineer (in-charge), Development Plan department of the BMC, when contacted, denied the news of such discussions. “As per my knowledge, there’s no discussion on the removal of premium on fungible FSI,” he said. A top builder claimed that as the new government took over the reins of running the state, the builder lobby has heard similar news but they have decided to not comment on the policies, unless and until they are made official.

Go to top