Builder-Led Redevelopment – Hidden Costs in Additional FSI After Reconstruction

 Builder-Led Redevelopment – Hidden Costs in Additional FSI After Reconstruction

Builder-led redevelopment is often seen as a cost-free option for society owners, but there are hidden costs involved—primarily related to additional Floor Space Index (FSI).

1. What Is Floor Space Index (FSI)?

FSI (Floor Space Index)—also known as FAR (Floor Area Ratio) in some states—is the maximum permissible construction area on a given plot.

• It is calculated using the formula:

            FSI= Total Built-up Area/Plot Area​

• For example, if a plot of 10,000 sq. ft. has an FSI of 2, the builder can construct 20,000 sq. ft. of built-up area.

2. How Additional FSI Impacts Society Owners

When a society opts for builder-led redevelopment, the builder often requests the local authorities for additional FSI to make the project financially viable.

• The builder uses this extra FSI to build and sell more apartments, covering the reconstruction costs and making a profit.

• Existing society owners get new flats, often with modern amenities, at no direct monetary cost.

• However, society owners indirectly pay for the additional FSI through:

  • Increased population density

  • Overburdened infrastructure (parking, lifts, water supply, etc.)

  • Higher maintenance costs due to larger society sizes

  • Reduced privacy as more units are added

3. Example of FSI Impact on Owners

Imagine a 50-year-old housing society in Gurugram with:

• 50 apartments of 1,200 sq. ft. each.

• The current FSI is 1.75, allowing for a total built-up area of 105,000 sq. ft. on a 60,000 sq. ft. plot.

Scenario After Redevelopment:

• The builder gets additional FSI of 2.5 approved.

• The total built-up area increases to 150,000 sq. ft., adding 45,000 sq. ft. of new saleable flats.

• The builder sells these extra units at market rates, making a profit.

Impact on Society Owners:

• While owners don’t pay directly, they lose privacy and face more crowded amenities.

• Maintenance charges increase due to higher infrastructure usage.

• Resale value may reduce if the market becomes saturated with excess inventory.

4. Hidden Costs Through Charges and Taxes

Even in builder-led redevelopment, society owners might end up paying indirect costs such as:

• Development Charges:

  • In some cases, the government or municipal corporation may impose additional development charges on society members due to the increased FSI.

  • These charges can be passed on to the society by the builder.

  • GST or Service Tax:

    • In some states, redevelopment agreements attract GST or service tax, indirectly adding to the owners’ costs

5. Is Builder-Led Redevelopment Truly Cost-Free?

While builder-led redevelopment appears cost-free on paper, it often comes with indirect financial implications:
Loss of exclusivity: More units mean more residents, reducing exclusivity and increasing shared space usage.
Higher maintenance costs: More apartments lead to increased expenses for cleaning, repairs, and maintenance.
Infrastructure strain: Larger societies face greater strain on water, power, and parking facilities.
Legal and administrative fees: Society members may still have to pay for legal fees and administrative expenses.

Key Takeaway:

In builder-led redevelopment, while society owners avoid direct reconstruction costs, they pay indirectly in the form of:

• Higher population density and reduced exclusivity

• Increased maintenance costs

• Potential development charges and taxes

• Long-term financial implications such as higher property taxes

Tip: Before opting for builder-led redevelopment, societies should carefully review the FSI terms, legal agreements, and cost implications to avoid unforeseen expenses. End Users should go for Mivan Construction societies which almost has double the durability as compared to Non Mivan construction. Contact us here for Consultancy.