ROLE OF FLOOR SPACE INDEX IN THE REAL ESTATE INDUSTRY
When buying your dream home or investing in property for the first time, you may come across jargon that you need to understand. Floor Space Index (FSI) or Floor Area Ratio (FAR) is one of the most important real estate terms that are key to making a smart decision when buying property. To put it simply, the Floor Space Index is a ratio of the built-up area to the total plot area.
Who regulates the FSI and how is it calculated?
The Directorate of Town and Country Planning (DTCP) regulates the FSI. An FSI differs from building to building, irrespective of its location. It depends on the city zone, number of floors of the building, and other factors like amenities provided. The calculation of FSI also depends upon the type of building construction, residential or commercial, the function of the building, and the number of floors it has.
Based on this, the builders pick the relevant FSI from the ready-reckoner circulated by the government every year. The ready-reckoner refers to the government rates used to calculate property taxes such as stamp duty and others.
The Floor Space Index is calculated using the following formula:
Floor Space Index = Floor space covered in all the floors/Total area of the plot
What is the premium on FSI?
Usually, the government fixes the FSI for every location and the builders have to abide by it. However, in some cases, the developers can avail an extended FSI, for which the government charges a fee known as premium on FSI.
What is the role of the Floor Space Index in the real estate industry?
An increase or decrease in FSI has a great impact on the real estate industry. Read on to know more.
1. It enhances the skyline of the city
An increase in the FSI results in adding more floors to a building. This means if the government proposes FSI increases, the location will see more of vertical properties, which will decongest a city and add tall building complexes, both residential and commercial.
2. It increases the scope of development
Apart from the visual enhancements of the skyline, an over-crowded city can enjoy a greater advantage of an increasing FSI. Over-crowded cities like Mumbai, Hyderabad, and others attract a large number of people from other cities owing to reasons like employment opportunities and a higher standard of living. Thus, they experience a scarcity in vacant space to build affordable housing projects. So, the projects offering housing facilities sell at a heavy price. FSI is one of the most effective ways to combat this problem. Developers can add more floors to their buildings and offer additional flats for sale. Thus, FSI also affects the scope of development in the city.
3. It spikes real estate prices
As you know, the government charges a premium on a higher FSI, which is borne by the builder or construction company. Thus, the burden of an increased cost of construction is most likely to send property prices soaring. In places like Mumbai, where realty prices are already on the higher end, an increase in FSI will definitely pinch the pocket. Thus, FSI has a critical impact on real estate in Mumbai, Pune, Hyderabad, and the other cities. Even if the economy is expecting a correction in real estate prices, increases in FSI may make real estate more expensive.
So, make sure that you pay close attention to the FSI when you are looking to buy a home. Moreover, consider the increased cost to allow yourself enough time to arrange for the same. In terms of borrowing a home loan, consider a Bajaj Housing Finance Limited Home Loan that gives you access to an amount of up to Rs.3.5 crore. This means you need not worry about shelling out an extra sum for the increased property prices.
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