Developing Against Norms

By Rahul Trivedi
In Issue 6
March 5, 2015
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Flouting norms has been a marked character of the Indian real estate sector and complaints by buyers about various irregularities in the sector have been routine. The complaints against the realty players have not been only about the delayed possession or bad construction quality but there have been legal issues related to violation of various construction norms. Unfortunately, there has been no proper action plan from the government’s end to deal with developers violating the norms but now the time has come when these irregularities can’t be overlooked anymore.

india-developingThe real estate sector is India is notorious for its lack of transparency. The sector is still not matured as compared to the developed markets. Lack of information and low transparency discourages the investment by large players in the semi urban and rural areas thus slacking an overall growth of the real estate sector.

To curb the irregularities there has been a constant demand of real estate regulatory bill but this has been pending since long time. Till the time that happens, buying a property will remain a risky task. Any construction to be done has to be according to the National Building Code but despite getting the plans cleared by the authorities some developers violate them without fearing the consequences. One norm which developers openly violate is Floor Area Ratio (FAR) norm. It would not be wrong to say that even authorities are openly violating the norms and granting purchasable FAR to the -developers in some states. For example, even though the provision in the UP Apartment Act 2010 state that a developer shall not make any alterations in the plans, specifications and other particulars without the previous consent of the allottees, developers are openly undertaking such alterations.

Experts also agree to the same. Vikas Malpani, co-founder and vice president (communities), Commonflorr.com, a real estate portal says, “In most cases, the building is not built according to the plan submitted to the governing body. The violations range from the height of the building to margins (open spaces).”

“In some cases, builders think that even if they violate rules, their buildings will be regularized by urban local bodies,” he added.
“Sometimes, developers build more floors than permitted,” says Samarjit Singh, managing director, India Homes, a property brokerage based in New Delhi.

FAR and It’s Significance
FAR essentially defines the limit up to which construction in a certain plot of land or location can be done. In other words, it is a means of controlling building volume in accordance with a previously developed master-plan for that location. FAR parameters vary from state to state and are governed by the respective city development authorities.

The calculation of FAR is very simple, one has to divide total covered area of all the floors divided by the plot area. For example the builder has got a plot of 1,000 sq. m and the permissible FAR, according to development plans, is 1.5. He is allowed to construct a building on 1,500 sq. m of this plot. It is  the ratio of the total floor area in the building compared with the total plot area. The constructed area would include the basic structure, walls, staircase and lobby space, if any.

There has always been a debate over the FAR in the realty sector. It is one of the key determinants for development of the country. In India FAR is considered to be a hurdle to construction activities as it is low compared to other  mature markets. There has been a constant demand from the developers to increase the FAR but then a question stands tall that will increasing FAR be effective in the current scenario of the sector?

On FAR restrictions, Anuj Puri, chairman and country head, Jones Lang La Salle Meghraj (JLLM) says, “FAR restrictions are necessary in heritage zones featuring monuments, and  wherever higher FAR would destroy the urban fabric of a particular area. This has been the primary area of contention. Lower FAR implies higher horizontal growth, which is positive in terms of environmental sustainability but negative in terms of available supply.”

Bangalore-based real estate consultancy firm Asipac Projects  chairman Amit Bagaria feels that horizontal development definitely has its disadvantages.  “The world realized over 50 years ago that horizontal development is expensive. Horizontal development has its negatives — infrastructure is collapsing, fuel consumption too is growing leaps and bounds,” he asserts.

There is little doubt that a higher FAR will bring in more supply in the market, thereby creating room for more affordable housing. “Surpluses are needed in real estate. We have the funds and the resources. When surpluses can be created in other areas, then why not in housing?” questioned Niranjan Hiranandani, MD,  Hiranandani Constructionsduring a conference organized by the Confederation of Real Estate  Developers’ Associations of India (Credai).

Though Hiranandani’s views were echoed by many others in the industry who feel that several advantages can accrue to  the sector if FAR is increased but  increasing the FAR in the current infrastructural bottlenecks would create more problem than it would solve.

Sanjay Dutt, Deputy Managing Director, India, Cushman & Wakefield, says, “Typically, doubling the FAR shall reduce the per capita cost on development infrastructure; however this is not a direct proportion relation.  In India, our infrastructure is yet to cater to current requirement and hence doubling FAR instantly would put an additional strain on infrastructure.”

What By-laws Say?
According to the by-law a builder was allowed to construct only 1.75 times the ground area till 2006. However, bylaws limit construction to 80 flats on an acre. There’s also a cap on the ground area that a builder can use for construction, which is 35 per cent of the total area of the project. Let’s say a builder is allowed to construct 80 flats on an acre, which is equivalent to 40,000 sqft. But as the allowed floor area ratio is 1.75, the total construction area on the oneacre land can be 70,000 sqft. But this entire construction has to be done on 35% of the ground area, which is 40,000 sqft. This means the builder can utilize only 14,000 sqft. So, to use the total allowed built-up area, buildings more that have more than five storeys have to be constructed.

But these norms keep changing. In 2006, authorities allowed a builder to increase the floor-area ratio (FAR) up to three. In some areas like Greater Noida, the permitted FAR is even more. While increasing FAR, the authorities also allowed the developer to construct more flats on a given area. The permitted density — which is the number of flats on an acre — was increased to 140.

With these new norms, almost all developers decided not only to construct additional number of permitted apartments in their ongoing projects but also in projects that were partly completed and even delivered them to a number of flatowners. In projects where developers had already started construction, they could not change the specification of a completed plinth to build additional apartments. So, they decided to build new towers to  accommodate more flats.

How Builders Violate the Norms?
The violation comes in light if the developer takes the completion certificate as they have to disclose the total number of flats they have made. For example if the developer has an approval to make 100 flats and he constructs 150 flats then the violation would come into light only while taking the completion certificate. But here the developers play the game, they don’t take the completion certificate from the development authority which is not even a compulsory document for the registration of apartment. Instead of taking the completion certificate they offer possession to buyers. Through this way even the illegal flats are getting registered with the revenue department everywhere in Delhi-NCR.

Several RTI applications filed by the RWAs of many group housing projects in Indirapuram have revealed that developers have built more than the sanctioned number of flats. What is surprising is that even top banks have extended loans to these ‘illegal’ flats, and the revenue department of Uttar Pradesh has collected stamp duty as registration fee from these buyers.

A resident of one of the housing projects in Indirapuram says, “The reply from GDA has shocked all the 765 families in our group housing project as only 545 flats have been found to be in accordance with the sanctioned plan. We don’t know the exact flat numbers assigned to the 220 unauthorised flats because we didn’t ask for the particulars of the units in our application. Now we are planning to file another application to get these specific details.”

What Should Be Done?
To curb the violation of FAR norms there are few things which if done can be fruitful. Experts say that identifying select areas that have the capacity to accommodate a higher FAR. Developers too agree and feel that a zone or centers of excellence can be created within which, the FAR can be increased. This model can be replicated in all the cities in the form of a well demarcated area.

Anshuman Magazine, CMD of Global Real Estate Consultancy Firm CB Richard Ellis says, “There are a lot of areas where land is not being utilized and is lying vacant. These can be optimally utilized.

Ideally, infrastructure should be allowed to develop first. But as that does not happen in India, developing it simultaneously is the only option.”

“A dedicated wing to study the demand and establishing reforms for FAR index is highly desired with the increasing demand. The model specializing in the subject will provide optimum utilization of all re-sources and can help to get maximum returns,” feels Rohtas Goel, CMD, Omaxe.

Of course for the investor, a higher FAR can augur some good times ahead. It can be the only way to fight price rise and accommodate the rising demand in the real estate sector. Projects will then be cheaper on a unitto- unit basis and also plentiful in profitable areas, which obviously would be a welcome change. “It can help stabilise land prices, which ultimately will benefit the common man. A raise in FAR would help in setting up more affordable houses and control the steep rise in prices,” feels Kabul Chawla, MD, BPTP.

The national average of FAR in the country would approximately vary between 1.25 and 2. And while it may be some time before the FAR could be increased to desired levels, this debate has at least  spruced up efforts by industry players to think of alternative methods. There is a pressing need to revise the FAR despite  the fact that infrastructure development poses a major
challenge. The government needs to simultaneously initiate ramping up infrastructure  facilities on a priority basis for orderly development of housing sector. But even before that, there is an urgent need to stop  the violations that are currently going on and punish violating developers exemplarily.

Violating the FAR Norms

There are more than a dozen of group housing projects are enmeshed in various court cases on the issue of illegal sanction of purchasable FAR out of which one famous case of one of the big shots in the sector, Supertech came into light last year.

The case was based on the increase in Floor Area Ratio (FAR) after obtaining approval from the New Okhla Industrial Development Authority (Noida) authority. This case also makes us focus on the fundamental problems in Indian real estate sector. Let’s have a brief look at the case.

The case was brought into light by the Resident Welfare Association (RWA) of Emerald Court, a residential project of Supertech. The project had 15 towers initially and later Supertech, the developer, applied to build two towers (Tower 16 – Apex, Tower 17 – Ceyane) with 24 floors each. Later the number of floors was increased to 40 and this was approved by the requisite authority.

The residents complaint of the unawareness of the new approvals and came to know about it through Right to Information (RTI) act. The RWA president stated that the two new towers were being built in close proximity to tower 1 and this was in violation with the building regulations of Noida, 2010 and the National Building Code, 2005. As per the writ petition filed by the RWA, the approval and construction of the two towers, Apex and Ceyane, violates the Uttar Pradesh Apartment (Promotion of Construction, Ownership and Maintenance) Act”.

The petition also stated that as per the earlier plan each tower was supposed to have only 24 floors but the Noida authority has permitted to raise the height of the two towers. Also, it is mandatory to maintain a distance of 16 metres from an adjoining building block. Raising the height of the buildings without maintaining the stipulated mandatory distance has made the buildings unsafe and also blocked air and light.

On 11 April, 2014, the Allahabad High Court ordered the demolition of the two towers because the specified minimum distance for fire safety was not maintained between the two blocks. The HC also asked the developer to refund money to the buyers.

The Supreme Court has agreed to hear Supertech’s plea against HC’s order. A bench comprising of Chief Justice RM Lodha, Justice Madan Lokur and Justice Kurian Joseph has ordered status quo to be maintained on the two towers under-construction and has directed the developer not to sell/transfer flats located in any of the two buildings.

The Supreme Court has also issued notices to Noida authority and Supertech based on a petition filed by the original petitioner of the Allahabad case who had objected to increase the number of floors in the buildings.

The Supreme Court has raised questions on the increase in number of floors during construction and has stated, “It has repeatedly come to notice that builders, by joining hands with officers of the development authorities, flout every conceivable rule, including building regulations.” The Apex Court expressed surprise on Noida authority’s decision to allow the construction of the 40-floor buildings and mentioned that the authority must face the consequences if the buildings were to be demolished and must refund the money to buyers as it has given permission for raising the height of the two towers.

In another case of building by-laws violation, the Allahabad High Court while ironing out the creases in the UP Apartment Act, delivered a landmark judgment and held that builders cannot change the scheme without the written consent of all the allottees.