Real Estate | Update
19 February 2015
Sector Estate
Real Name
Proposal for higher FSI in Mumbai
Clarity on FSI cost, approval, infrastructure support key to price rationality
The Brihanmumbai Municipal Corporation (BMC) has come up with a proposal for
development plan (DP) for 2014-2034, where it has introduced the concept of variable
FSI with higher maximum FSI in the city, as a key feature.
While the proposals may take 2-3 years to be implemented, we believe these are
directionally positive steps to induce more supply and price rationality.
The extent of benefits would depend on clarity on FSI premium cost, approval
mechanism, ambit of DP (in terms of redevelopment and slum rehabilitation projects),
and most importantly, infrastructure support plan, which according to media articles,
is lacking in the proposed DP.
The true benefits for key Mumbai developers like Oberoi, Bombay Dyeing, Mahindra,
IBREL (industrial land), Godrej, (JDA, redevelopment), HDIL, and Hubtown (SRA) would
be contingent on clarity on the above issues. Oberoi remains our preferred pick.
EVENT: BMC proposes
“DP-2034”
with variable FSI as key concept
According to media articles, BMC has proposed the following:
Introduction of variable FSI concept:
DP-2034 envisages higher FSI near
transportation corridors and activity magnates to a higher level of 2.5x-8x versus
the existing largely uniform FSI of 1x in the suburbs and 1.33x in the island city.
Sharp rise in maximum FSI:
FSI can go up to a maximum of 8x, along with
various FSI bands of 2.5x, 3.5x, 5x and 6x, indexed to proximity to mass transit
systems (rail/metro-rail) and density.
TDR usage in island city:
Opening up TDR (transfer of development rights)
usage, which was until now restricted to South Mumbai.
Reduce open space allocation:
Allocation for open spaces, education and
healthcare service has been reduced significantly.
No clear provision on infrastructure support:
As per media article, there was no
clear plan in the proposal to augment the infrastructure of surroundings to
support the higher FSI permission viz. road network, water pipelines, sewage
lines and similar basic services.
IMPLICATIONS: Gradual price rationality? – await clarity on key aspects
Logically, the higher FSI would increase potential supply, moderate per square foot
land cost, and hence, aid lower property prices. This should also improve the
economic viability of various redevelopment projects across the city. However, the
extent of benefits is yet unclear.
(a) Higher FSI purchase cost may deter meaningful price correction
The incremental FSI (over base FSI) that needs to be purchased from the
government to avail higher FSI comes at high cost.
Sandipan Pal
(Sandipan.Pal@motilaloswal.com); +91 22 3982 5436
19 February 2015
Investors are advised to refer through disclosures made at the end of the Research Report.
1
Motilal Oswal research is available on
www.motilaloswal.com/Institutional-Equities,
Bloomberg, Thomson Reuters, Factset and S&P Capital.

Real Estate | Update
Based on media articles, these would be at prices linked to 60-100% of “2015
ready reckoner (RR) rates”. This is against the current premium (on FSI that
developers purchase from the government over and above base FSI of 1x) of
30% of “2008 RR rate”. For many micro-markets, RR rates have doubled over
2008-2015.
RR rates have moved much closer to market transaction rates. As FSI rates are
based on RR rates, the effective cost of FSI purchase will now be meaningfully
higher and will inflate TDR-parity price as well.
These would be impediments to lowering land (or FSI) cost for developers, in
turn translating into no meaningful price correction for consumers.
(b) Clarity on base FSI
Clarity is awaited on base FSI, which comes inherent with land (no extra
premium attached). The magnitude of the same versus existing level of 1x-1.33x
would decide the direct benefits to the developers.
Moreover, there could be hurdles on usage of such high FSI in practice (due to
height and various other restrictions) in crowed zones.
(c) Infrastructure bottleneck
Higher FSI was a need of the hour, as Mumbai FSI is still much lower than its
historical base (4.5x in 1960s) and compared to the maximum permissible FSI in
other key super metros like New York, Shanghai and Manhattan (FSI of 5-15x).
However, given the lack of infrastructure support in a city with congested traffic,
higher FSI could prove detrimental to Mumbai’s overall dynamics.
The overall phenomenal increase in bulk FSI, linked to proximity to mass transit
modes but not indexed to provision of physical and social infrastructure, may
not augur well for the average citizen’s quality of life.
(d) Others – approval mechanism
Decision on key approval authority for the proposed DP and whether the DP
would cover redevelopment/slum projects are also important aspects to get
clarity on. Any approval hassles in the interim period of plan stabilization may
lead to delays in project execution and price increase in the initial phase.
WAY FORWARD: Would take time to get implemented
BMC will float the draft proposal for feedback from various forums.
Incorporation of the suggestions, if accepted, may take 2-3 years, based our
interactions with industry experts and developers.
Overall, we believe “DP-2034” is a thought in the right direction to address the
needs of mid-income housing and affordability in the city.
FSI purchase cost needs to be rational and should be linked to infrastructure
development cost in the vicinity, which is the common practice in many
developed cities.
The Real Estate sector is poised well to benefit from the downturn in rates, FDI
policy relaxation and global fund-led liquidity. We expect greater rationality
(compared to the previous upturn) in developers’ approach.
Mumbai (especially the suburbs) remains our medium-term preferred market
(followed by Bangalore) on low base, high pent-up demand, and government’s
renewed focus on policy incentives – higher FSI, better infrastructure, etc.
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Sector outlook
19 February 2015

Real Estate | Update
The true benefits for key Mumbai developers like Oberoi, Bombay Dyeing,
Mahindra, IBREL (industrial land), Godrej, (JDA, redevelopment), HDIL, and
Hubtown (SRA) would be contingent on clarity on the above issues. Oberoi
remains our preferred pick on Mumbai play.
Exhibit 1: Media article snapshot (TOI)
Source: Company, MOSL
Exhibit 2: Media article snapshot (ET)
Source: Company, MOSL
19 February 2015
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Real Estate | Update
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