New FAR Bill Promises Vertical Growth In Karnataka

Introduction

FAR bill implications on real estate:

Karnataka government recently passed the premium FAR Bill allowing developers to construct more floors. What does this mean to the real estate growth of the state and the country?

The Karnataka Legislative Assembly recently passed the Karnataka Town and Country Planning (Amendment) Bill, which focuses on premium floor area ratio (FAR). This Bill allows developers to build extra floors by paying a premium charge ensuring increased revenue and vertical real estate growth in the state. “This Bill entails amending Section 18-B, which provides for the levying of premium charges for the grant of premium floor area ratio and allows the competent authority to grant premium FAR as additional FAR, in accordance with the Zonal Regulations of the approved Master Plan. The premium charges shall be payable at the rate not less than 40 per cent of the guideline value and the maximum premium FAR shall not exceed 0.6 times or 60 per cent of the ordinary permissible FAR,” explains Samreen Paloba, associate partner, SNG & Partners, Advocates & Solicitors. Industry experts believe that this move would help increase utilisation and housing stock, enable vertical growth of real estate, and bridge the demand-supply gap. However, experts caution that this could put a strain on the infrastructure and basic amenities of the city.

Let’s first understand what is floor area ratio

It is a ratio of the total floor area of a building to the total area of the land or plot on which the building is being developed on.

In simple words, the higher the FAR, the more the number of floors in a building.

“It’s a formula based on the building’s construction area and total usable floor area. The ratio is calculated based on the total plot area to the total building area and is determined by the size of the plot and the width of the road in front of the plot. It’s an important regulatory measure that not only helps the government shape zoning rules but also protects the environment in the process,” informs Mahendra Reddy, managing director of a real estate developer company in Bengaluru.

Impact of this Bill

Reddy says, “The percentage increase in the payable FAR is to be used for land acquisition and development of basic amenities, thus enhancing the revenue of local planning authorities. And eventually helping in the betterment of property development, as proven by the collection of Rs 3,000 crore in Mangaluru where premium FAR has been in effect since six years.”

The increased far could benefit in the following ways:

  • “Increased utilisation and housing stock: When FAR/FSI increases, developers can build more on the same parcel of land, leading to better utilisation of available space;
  • Vertical development: Higher FAR/FSI encourages vertical development. This often leads to more space efficiency and can help conserve land resources;
  • Bridging the demand-supply gap: By allowing intensive land use, can help bridge the demand-supply gap for housing as the number of housing units increases. This is especially important in rapidly growing urban areas where there is a shortage of housing units;
  • Reasonable charges to homebuyers: With increased housing stock and competition, developers may face pressure to offer more competitive pricing to attract buyers. This could potentially lead to more reasonable charges for homebuyers,” explains Paloba. Further adding to this, Thakur highlights, “Increased construction activity could also lead to job creation in the construction and allied sectors, potentially boosting the local economy. Premium collected from developers can also be a significant source of revenue for the government that can be used for upgrading infrastructure, which in turn could improve the overall quality of life in the city.”

The downside of this move:

The basic drawback of an increased FAR is the additional strain on infrastructure such as water supply, waste management, sewage, etc. For example, if the sewage capacity or the water supply for a particular area is as per the current population, then the additional FAR will disturb the entire infrastructure as now the authorities will have to level up to provide for the increased population.

Paloba adds, “The initial beneficiaries of such additional FSI are developers, as they gain more flexibility and potential profit margins in their construction projects. However, the extent to which these benefits are passed on to the common people, particularly in terms of affordable housing, depends on various factors such as market dynamics, regulations, and developer priorities. The reliance on developers to transfer these benefits to common people could be a concern, in the absence of well-defined regulations. Intensive construction and development can strain natural resources, contribute to pollution, and significantly deteriorate the environment, demanding complete environmental considerations and mitigation measures. In some cases, increased FSI/FAR can lead to migration by marginalised communities, where rising property values and rents displace low-income residents and small businesses as the developers may prioritise luxury developments or high-end housing.”

Reddy observes other less obvious concerns and says, “Additional FAR for one property can decrease the value of nearby properties that might have had high sale values, as its views can get blocked by the extra space used. Increasing FAR in just a few areas of a city can result in an infrastructure deadlock and an eventual fall in property prices.” The passing of this Bill can also increase the already notorious Bengaluru traffic as the motorised traffic on Bengaluru roads will also increase with increased population.

What does this Bill mean for Indian real estate?

“This can influence discussions around urban development and growth strategies in the country. The decision of whether to implement a premium FAR policy should be based on a comprehensive analysis of the specific needs and challenges of each city. Carefully considering the factors such as impact on infrastructure/environment/affordability, exploring alternative solutions, and learning from the experiences of Bengaluru will be crucial for other states to make informed decisions regarding their individual real estate landscapes and development goals,” asserts Thakur. The influence of this premium FAR Bill goes beyond Bengaluru as there are many areas in the country, especially in the top seven cities that are facing the challenge of limited land supply. A classic example of the same would be Mumbai, which is waterlocked from three sides. Reddy also seconds this and says that India’s real estate industry has always been longing for a hike in FAR.

Kaushal Agarwal, chairman, The Guardians Real Estate opines, “Cities must ensure infrastructural readiness, strike a balance between expansion and environmental sustainability, and prioritise quality of life. In summary, the Premium FAR Bill offers the potential for sustainable urban development, but its success relies on planning, regulation, and adaptation to local conditions.”

Formula to calculate FAR

FAR = Total covered area on all floors/Gross Plot area

Prashant Thakur, regional director and head (research), Anarock Group, explains it with an example, “If FAR of a plot is two, it means that the total floor area of the building(s) on that plot can be twice the size of the land area.”

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