Unlimited FSI putting pressure on Hyd infra

“Honestly, infrastructure in several parts of Hyderabad has not kept pace with the density that unlimited floor space index has allowed, and pretending otherwise would not be fair to the city or its residents –Narsi Reddy, Founder and MD, Ira Realty

Hyderabad: Higher Floor Space Index (FSI) is changing the economics of real estate development in Hyderabad, particularly in premium corridors such as Kokapet and Neopolis, but higher FSI does not necessarily translate into cheaper homes for buyers, according to Narsi Reddy Posham, Founder and Managing Director, Ira Realty.

“Higher floor space index changes the entire economics of a project like this one. Land in Kokapet today trades at values that would make a low rise development on the same parcel almost impossible to price sensibly,” Narsi Reddy said.

He said some developers in the corridor are building close to 500,000 sq ft on a single acre, translating into an FSI of around 11, compared with a national average of 3 to 4.

For Trump Towers Hyderabad, the land is valued at roughly Rs 250 crore. “Without the ability to build 65 storeys across that footprint, there would simply be no way to spread that land cost across enough saleable area to arrive at a viable price per square foot,” he said.

“Higher FSI does not remove the land cost, it distributes it across far more built up area, and that distribution is often the difference between a project being financially possible or not possible at all in a location like this.”

On whether higher FSI makes housing more affordable or allows developers to generate greater revenue from expensive land, he said the answer depends on the location. “Honestly, it does a bit of both,” he said. “At a city wide level, unlimited floor space index has helped Hyderabad add housing supply faster than most Indian cities, and that has kept average prices here more reasonable than in Mumbai or Delhi over the years.”

“But in specific high demand pockets like Kokapet, the story shifts. Here, higher FSI mostly allows developers to justify paying very high land prices in the first place, because the cost can be spread across a much larger buildable area.”

He said landowners are generally the first and biggest beneficiaries when FSI increases. “In our experience, the landowner captures the first and often the largest share of that value,” he said. “The moment floor space index increases in an area, sellers immediately price their land assuming the maximum buildable potential, which is exactly why parcels in Kokapet and Neopolis have touched close to Rs 100-150 crore per acre.”

Developers capture the next share, he said, while homebuyers benefit more indirectly. “Developers capture the next share, because higher FSI is what makes it financially possible to build ambitious, amenity rich projects that would otherwise never get approved on a return on investment basis,” Narsi Reddy said.

“Homebuyers benefit last and most indirectly, mainly through larger master planned communities, bigger clubhouses and more shared amenities that come from developing at scale, rather than through any direct reduction in price.” He said rising land prices absorb much of the benefit of higher FSI in premium corridors. “Once floor space index is effectively unlimited, land value stops being tied to what a low rise building could generate and instead gets priced against the maximum a developer could theoretically build,” Narsi Reddy said.

“That pushes acquisition costs up sharply, and by the time a developer accounts for that inflated land cost, much of the savings that higher FSI was supposed to create has already disappeared.”

For Trump Towers, higher FSI is therefore primarily a viability tool.

“Speaking honestly, for a project like ours, higher FSI is essential mainly for viability rather than a lever we use to discount prices,” he said. “The additional buildable area is what makes the project possible in the first place, not what makes it cheaper.”

However, higher density also puts greater pressure on civic infrastructure.

“Honestly, infrastructure in several parts of Hyderabad has not kept pace with the density that unlimited floor space index has allowed, and pretending otherwise would not be fair to the city or its residents,” he said.

He said the government and developers must share the responsibility for addressing the infrastructure gap. “The government already collects impact fees on floors above the 15th, and that revenue, along with the very high land auction values it earns in corridors like this one, should be directed specifically toward roads, drainage and water infrastructure in the same areas generating that density,” Narsi Reddy noted.

Developers, meanwhile, need to ensure that projects address their own infrastructure requirements. “Developers, for our part, need to build responsibly on site, water treatment, rainwater harvesting and proper drainage design should not be optional extras,” he said. “Neither side alone can fix this, and we would rather Hyderabad solve it early than face the kind of gridlock some other Indian cities are already dealing with.”