Real Estate Development: How FAR Can You Go?

Kishor Pate, CMD – Amit Enterprises Housing Ltd

Among the various regulations adopted in real estate development, Floor Area Ratio (FAR) is one of the most critical ones because it decides the intensity of development which is permitted in a certain area. Recently, the fact that the urban development ministry raised the FAR for residential areas in Delhi to 200% made headlines news because this will lead to a significant increase in built-up areas in many parts of the city, thereby infusing critically needed residential supply.

FAR regulations play a big role in any city’s real estate development profile and it is therefore important to understand the concept. FAR parameters vary from state to state and are governed by the respective city development authorities.

In other words, increase or limitation of FAR is not city-specific but area-specific. Every city has its own areas where higher FAR is permitted, with the intention of encouraging or accommodating growth of a certain market segment. Such ‘special’ FAR will not be applicable in other areas of the city.

Who Makes The FAR Rules?

The Ministry of Urban Affairs, which is the apex body that formulates and administers rules, regulations and laws related to housing and urban development in India, has provided general guidelines via the Model Urban & Regional Planning and Development Laws.

However, the implementation of these guidelines is entirely city specific and therefore in the hands of the respective city development authorities. Essentially, it is the city authorities that are empowered to plan the development of their respective cities. Whenever a new area opens up for development, a city’s development authority will lay down a master plan that stipulates the land use zone, regulations that control development and permissible FAR for various uses.

How Is FAR Calibrated?

FAR is calibrated according to the nature of a project in terms of the intended usage. Generally speaking, on a plot of 100 square yards with a permissible FAR ratio of 2 allows a total built-up area of 200 square yards – the plot area multiplied by the FAR is the amount of construction that is permissible for that plot. FAR for various zones and type of usage is notified by the local Development Control regulations. FAR in restricted zones like, say, Lutyens Delhi, may be 1 or even lower, while it would be higher in suburbs.

FAR restrictions are necessary in heritage zones which have protected monuments or other such features which could be destroyed or otherwise impacted by increased FAR in these areas. The issue of whether our cities should grow horizontally or vertically is basically one of limited available supply, and whether horizontal growth is a real solution in context with growing populations and increasing land prices.

Pros And Cons Of Increasing FAR

There are advantages and disadvantages to increasing FAR. Lower FAR means higher horizontal growth, which is positive in terms of environmental sustainability but negative in terms of available supply. Higher FAR implies lower horizontal spread and therefore lower consumption of available real estate, which means that it limits the escalation of property prices to that extent. It also implies a more workable set of infrastructure parameters than horizontal spread calls for.

Providing infrastructure to accommodate horizontal growth (i.e. lower FAR) implies more infrastructure over larger geographic areas, whereas higher FAR calls for more intense and specific infrastructure. Increased FAR basically allows developers to save on land costs, and gives them a wider arena to operate on. This means that the units in the projects they build will be cheaper and also more plentiful in profitable areas, which is beneficial for property investors and their eventual buyers alike.

However, increasing FAR in some of a city’s areas for this reason alone is not a good thing, as it will result in an infrastructure deadlock and eventual fall in prices.  On other words, assigning additional FAR is not something that should be done arbitrarily or without fully understanding the 360-degree real estate dynamics of a certain location.