Developers are busy constructing six feet wide flower-beds in their properties for hiking FSI
Developers in Mumbai are vigorously using the super-built up area and misleading consumers. In November 2008, the Maharashtra government came up with a housing policy which stated that sales of all properties should be done on carpet area basis. However, developers still do not sell the properties on carpet area basis because they get a chance to play with the free Floor Space Index (FSI) areas by including it as part of the super built-up area and they charge the consumers for the same.
The regulation was supposed to become a law within three months of the draft legislation. By March 2009, it should have been a law, but it is not being followed. Builders are still constructing properties on super built-up basis without passing on the benefit of the free FSI to consumers.
“The Brihanmumbai Municipal Corporation (BMC) only allows four feet flower beds,” said Pranav Desai, a Mumbai-based architect.
Most new properties have huge spaces dedicated towards flower beds, which are given to the developers free of FSI. “Today developers are talking of flower beds, which are 12 feet wide—how can you call it a flower bed? Developers are bucking the system openly and blatantly and no one is telling them anything,” said Pranay Vakil, chairman, Knight Frank (India) Pvt Ltd.
If you glance through the brochures of various developers, you will come across a common feature—they mention the super built-up area, built-up area and (in brackets) the carpet area. They are following the law, but only indirectly. One high-rise at Peddar Road, south Mumbai, has not received the occupation certificate because all the balconies are flower beds, which are approximately six feet wide.
An industry expert pointed out that after the law was passed, all the properties have to be sold on a carpet area basis. However, a few developers have cleverly converted the total built-up area into carpet area, which has eventually raised the price of the property. It has not made any difference to the developers, but consumers have had to suffer.
“Developers have drastically raised the super built-up area of the new properties. From 50% super built-up area, it has almost reached 100%,” said Pankaj Kapoor, founder, Liases Foras.
However, with the increase in super-built up area, the cost of properties has also doubled over a period of time. Consumers are getting lesser space at a higher cost. For example, if an apartment of 1,000 sq ft carpet area had a saleable area of 1,400 sq ft in Kandivali (a Mumbai suburb) in 2005, at that time, the apartment was priced at Rs2,500 per sq ft. The total cost came to Rs25 lakh. But now, an apartment of 1,000 sq ft is quoted as 2,000 sq ft saleable area. Taking the current cost into consideration, it is priced around Rs8,000 per sq ft. The total cost of the apartment has jumped to Rs1.60 crore.
Despite government initiatives, the NPS has not generated enough interest among the masses. What needs to be done to prop up this excellent scheme?
Investors have not responded with much enthusiasm to the ‘Swavalamban’ initiative extended by the government under which it will contribute Rs1,000 per year (for a period of four years) to every New Pension Scheme (NPS) account opened this year with at least a matching contribution from the subscriber. Citizens in the non-government segment continue to abstain from investing in the NPS. The number of non-government subscribers to NPS registered as of 30 April 2010 has touched 5,532. Although the figure is more than double that of October 2009 when non-government subscribers were 2,321, the absolute numbers are still small.
The total central government employees registered under the NPS have gone up to 6,09,376 from 5,38,276 in October last year. However, there has been a large increase in numbers from among the state government employees during the same period. The number of subscribers under this category rose to 2,55,903 from the earlier 1,10,024.
An officer from one of the point of presence service providers (PoP-SP) pointed out that there have been no significant additions since the budget announcement. He said, “The momentum has not picked up much despite various initiatives from the government and banks. We have been told that this product should be bought and not sold. So we are not expected to advise customers in any way. The policy is that we wait for the customers to approach us. We are fully equipped and ready to accept subscriptions in the NPS.”
Incidentally, this PoP-SP has commissioned more than 300 of its branches to provide NPS registration facilities to the subscribers. Several other banks have also mobilised a chunk of personnel and designated a part of their infrastructure for catering to the NPS subscriptions. Another PoP service provider confirmed, “Although there is an improvement in the NPS accounts, it is not as much as what was expected.”
Commenting on what needs to be done to popularise the scheme, the official stated, “We need to approach private sector companies and talk to employees about the benefits of the scheme. The government could also probably offer a minimum dividend or guarantee as people may be worried about what they will end up with after so many years. Things will change if the scheme assures a minimum return.”
Speaking about the possible actions being considered to promote the scheme, an official from the Pension Regulatory and Development Authority (PFRDA) said, “The Swavalamban initiative has seen a slow and steady rise from the earlier rate of enrolment. The first phase of implementation is almost over. We are now looking at various promotional and monetary incentives for enrolment. We are considering media campaigns and strengthening the regulatory mechanism through monitoring the PoPs more closely and how to make them promote the scheme better.”
The still lukewarm response to the NPS is unfortunate considering that it is a product that is actually tailor-made for the requirements of the masses. It is among the least expensive balanced investment products in the market and the cheapest pension product in the offing, which would make a huge difference to long-term wealth.
Lack of confidence in the product is also a mitigating factor. Investors are wary about how much they will end up with after the contribution period. Investors should be advised by the PoPs regarding the portfolio allocation to debt and equity before investing. Awareness among the masses still remains a concern for the pension regulator and hence, its plans to promote the scheme need to take shape for the NPS to achieve its true potential.
Steel prices are not likely to fall in the near future, as import rates for raw material are likely to rise
The Steel Authority of India (SAIL) has announced a price cut in long products. Are steel prices likely to fall in the coming weeks? SAIL’s price cuts are no indication of an overall fall in steel prices, as the cost of future raw material imports is likely to go up.
SAIL had announced a price cut of Rs2,000 per tonne for its long products effective from 1 May 2010. However, this is not an indication of any future fall in steel prices. Taking the current raw material import rates into account— which have risen—steel prices are not likely to soften.
The import price for steel products in stock is around $650 (or Rs32,000) per tonne. Reportedly, this inventory at the import price of $650 is already out of stock. According to research reports, the current market prices for flat products are around Rs36,000 per tonne.
While the stock at the import rate of $650 per tonne has already run out, the current import rates for these products have increased. Import prices are hovering around a minimum possible price of $720 per tonne for most types of steel products—other than ss400 grade coils between 4mm to 12mm thickness. Even the ss400 coils are trading at a minimum import price of $690.
Ergo, steel prices are not likely to fall further as import prices for raw material are on a rise. Any change in the current steel prices will not match the raw material equilibrium at current import rates.
Going forward, raw material imports after May are likely to fall. This might again lead to panic buying, similar to the activity witnessed in March.
An industry source said, “International prices in flat products are not softening, but remain steady in India, as there is an overhang of imported inventory at low dollar prices held by small traders, which they are clearing in a panic. Raw material inventories are already subsiding.”