In a major policy move, the Maharashtra government has allowed an increase in Floor Space Index (FSI) from 1 to 3x in suburban township projects. Under this policy, if developers construct affordable housing stock of 0.75x FSI and hand it over to the government, they can avail of higher FSI on their plots. The move is aimed at improving the affordability of suburban residential development and the low cost housing stock with the government. The policy, in our view, is a major positive for suburban township developers in Mumbai like IBREL/ HDIL that have large land parcels for township development in the suburbs.
IBREL (+20msf) / HDIL (50msf) and Godrej (4 msf) have large suburban township projects in Panvel and Virar regions and hence stand to benefit in the longer term from this policy. The additional FSI comes in lieu of additional construction done for providing housing stock to the government and as such is not free. Nonetheless, it still is accretive for value on a marginal cost basis. FSI increase additionally should keep longer term price inflation in check in these areas allowing for more sustainable demand.
As with other major cities in India, Mumbai’s population growth is now concentrated in the suburbs. As per the last census (2011), population growth over a 10-year period in suburbs like Navi Mumbai (+56%), Virar (221%), Panvel (113%), and Thane (44%) have outgrown the city center (-5%) or main city (only 5%) growth.
FSI levels (1-2x) in most Indian cities are way below most global city standards despite each individual city (NCR/ Mumbai 20MM+) having populations to rival small countries. FSI increase, in our view, is the only possible way to reduce pressure on land & infrastructure rollout costs. Some cities have at the margin started to increase such levels (i.e., Noida, and now Mumbai) but this still is yet to become a more generalized trend across major cities.
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