Office Rentals in Indian Metros

Office rentals in Indian metros is quite high compared to other metros in the world.  According to a recent study Delhi ranks seventh in the world for highest office rental charge. Mumbai also figures in top 20 costliest places in the world so far as rental of premium office space is concerned. These unrealistic rentals have an adverse effect on business activity and fresh job creation opportunities. Our government should be worried about this trend and its negative side effects. Remember that a business exists to make profit. Private businesses do not have unlimited resources which are naturally available to a government. When there is possibility of profit a private enterprise will move in and create employment and job opportunities.

Floor Space Index

To site an example the rentals in developed cities like Singapore and Los Angeles is lower than that in Delhi. This is a clear indicator of distortion in the Indian land market so far as metro cities are concerned. So what are the prime reasons which have caused this distortion? The main reason is that we have forgotten that there is finite supply of land. God is not making fresh land any more on our planet Earth. So our policy on Floor Space Index has to be practical and should match the realities of limited land supply. FSI is the ratio of a building’s total floor area (of all floors) divided by the area of the plot of the land on which the building stands.

Let us take example of Shanghai which is a well known commercial hub in the world. China’s economy has been growing during last three decades or so. Shanghai was in the forefront of this economic growth and has grown exponentially as a commercial city. How did it manage the land problem in relation to its remarkable commercial growth? Very simple. Its policy makers realized very early that a city needs to grow vertically because land supply is limited. They eased the FSI norms in Shanghai. In 1984, Shanghai had only 3.65 Sq Meter of space per person. But after liberalizing the rules of FSI, it has increased available space to 34 Sq Meter per person despite continuous increase in population. You will be surprised to know that as per a study in 2009, Mumbai has an average of 4.50 Sq Meter of space per person. Higher FSI is needed to decongest Mumbai. Presently the Base FSI is 1 for suburbs and 1.33 for island city. It is pertinent to bring out that New York has FSI of 15 and Shanghai has FSI of 13.

In Delhi, FAR (Floor Area Ratio) is calculated a bit differently. It is taken as a percentage unlike standard ratios in other major cities. In November, the urban development ministry had approved the increase in FAR in Delhi from 150% to 200% for plots of 750-1000 Sq Meters, and raised it to 200% from 120% for plots of 1,000 Sq Meters and above.

Land Market Reform

Land Market Reform is the key to production and employment generation. Government and PSU own vast tracts of land. This land bank is being used inefficiently. This land should be released for better commercial and housing purpose. This extra availability of land along with increased FSI will reduce housing costs and commercial rentals. This will result into more economic activity and direct benefit to all. A single blanket FSI across a city is also not an ideal policy. Development and availability of infrastructure should match each other. With growing population in urban centers there is no option but to go vertical.

During September 2017 The Ministry of Housing & Urban Affairs (MHUA) has ordered review of Floor Space Index (FSI) and Floor Area Ratio (FAR) norms in our mega cities. 53 cities have been identified which have a population of one million and above. NITI Ayog also has asked for review in FSI to meet demand for affordable housing projects under Pradhan Mantri Awas Yojana (Urban).

Article by Col P Chandra (Retd)