Higher FAR Can Mean Great Things For Real Estate In India

The Union Environment Ministry has amended the norms governing construction in coastal regulation zone (CRZ) to allow construction of high-rise buildings in CRZ II areas. CRZ II areas are developed parts within 500 meters of the high tide line along the coast, falling predominantly within corporation and municipal limits. Coastal cities like Chennai, Vishakhapatnam, Surat, Mangalore and Puducherry are likely to benefit from this. Mumbai, Kerala and coastal cities in Goa were exempted from height and other building restrictions four years ago. 

Such deregulation is expected to help developers and homebuyers across the country, and has become increasingly common in the recent past. In April, the Uttar Pradesh government approved raising the Floor Area Ratio (FAR) within 500 mtr radius of the metro line between Noida and Greater Noida, and the existing Delhi metro corridor from 2.75 to 3.25. This means that if a person could earlier build a 275 sq mtr building on a 100 sq mtr plot, now he can build a 325 sq mtr building.  With raised FAR, the Noida authority estimates that their revenues from real estate will rise by around Rs 3500-4000 crore. The Uttar Pradesh government also hiked the FAR in the sport city in Sector 15 from 1.5 to 2. For offices in institutional areas, the FAR is hiked from 2 to 2.5, and for group housing plots, from 2.75 to 3.5. Now, developers will build taller buildings.

Consider what this would do to Noida. In Noida, which is seen a result of the urban sprawl of its adjoining city, Delhi, the pace of urban sprawl has been greater than in most other cities. But, not many have delved deep into the reasons. The answer lies in the low Floor Area Ratio (FAR) in Delhi and Noida. FAR is the height limit, which compels a city to expand spatially. Cities like Noida expand spatially because the existing land cannot accommodate the ever growing population and migration from other cities.

But, though restricted to certain areas, this is a remarkable move because even in the central business districts (CBD) of large Indian cities, the FAR is below 3.5. The restrictions on the height of buildings is the most stringent in India.

Apart from causing urban sprawl, low FAR constricts residential supply, raising home prices throughout the city. Another consequence of low FAR is that it raises the heights of buildings in parts of the city where buildings would otherwise have been shorter. This happens when the city expands spatially, while people try to do the best they can under the constraints. For instance, many people would not have lived in Noida or Gurgaon, commuting long distances to their offices in Delhi if the FAR in Delhi wasn't ridiculously low. So, it is not just that the low FAR raises the home prices in Noida or Gurgaon. Residents of Noida are also compelled to commute to Delhi every day. Raising the FAR will make them incomparably better off.