Low demand, high construction costs may derail Gujarat's skyscraper dreams

Even as the Gujarat government paves the way for skyscrapers in top five cities by allowing buildings with more than 70 floors, the move might face several challenges.

Recently, Gujarat Chief Minister Vijay Rupani approved new rules which not only permit construction of more than 70 floors in a building compared to 22-23 floors previously, but also apply to buildings taller than 100 metres and with an aspect ratio of 1:9 with provisions for construction to be made in the CGDCR-2017. 

The new provisions will be applicable in D1 category in Ahmedabad Urban Development Authority (AUDA), Surat (SUDA), Vadodara (VUDA), Rajkot (RUDA) and Gandhinagar (GUDA), where permissible base floor space index (FSI) is equal to or more than 1.2. Now, the maximum FSI will not be more than 5.4 under any circumstances.

However, several challenges including construction costs, demand and infrastructure may hamper the state's dreams of boasting of skyscrapers. In terms of construction costs alone, the real estate industry believes cities like Ahmedabad and Surat already see construction cost of anywhere between Rs 2500 per sq ft to Rs 3500 per sq ft for a typical 15 floors building. But building high rises of over 70 floors would easily spike the costs.

"Such high rises will easily see rise in construction costs by anywhere between 50 per cent and 100 per cent," says Balbirsingh Khalsa, national director - Industrial and Asset Services, Knight Frank India & Branch Head Ahmedabad. As a result, costs are estimated to climb to as much as Rs 7000 per sq ft for buildings with more than 70 floors.

According to Gulam Zia, executive director - Valuation & Advisory Retail & Hospitality Knight Frank India, "Skyscrapers are considered to be a sign of prosperity and hence many communities put up high rises as landmarks for their cities. However, high rises come at a steep cost and locations where real estate values are not high enough the cost of construction itself may render the concept unfeasible."

The other challenge is of demand. Rough estimates for sales of 18,000 residential units alone in Ahmedabad in last one year peg the luxury segment at mere 5 per cent. Real estate developers too, believe such high rises, whether built for residential or commercial purposes, will have to be ultra high luxury.

"One cannot offer affordable or mid-premium pricing in such high rises. They will have to be priced in the luxury and ultra luxury segment," says one of the leading city developers and national president of Confederation of Real Estate Developers' Associations of India (CREDAI) Jaxay Shah.

The other challenge will be the pressure on infrastructure. "There are very limited spaces and mostly on the outskirts where such high rises can come up since they require infrastructure in and around them including at least 200 feet roads otherwise they will choke up the existing infrastructure," adds Shah.

Zia too, is of the view that while the state's top five cities like Ahmedabad, Vadodara, Surat, Rajkot and Gandhinagar will have to go for vertical development, there is an infrastructure cost to it.

"Vertical development also puts immense pressure on the physical infrastructure of the locality which includes roads, transportation, water supply, waste disposal, etc. A city needs to first plan and execute the public infrastructure before allowing vertical edifices. Mumbai is a case in point where such high rises were created before putting up the right infrastructure which has created unprecedented pressure on infrastructure including roads, drainage systems etc. The five cities of Gujarat therefore need to be cautious before indulging in the rate race to go higher and engage in proper town- planning prior to sanctioning high – rise projects," adds Zia.

For instance, the new rules provide for construction of such buildings only if the adjoining road is more than 30 meters wide. Minimum plot size is 2500 square metres for buildings that range from 100 to 150 meters, while the minimum plot size is 3500 square metres for buildings that are above 150 meters.

However, on its part, the government has stated that the new rules are aimed at building some iconic skyscrapers that can be showcased to attract foreign direct investment (FDI). "The decision has been taken with an aim to highlight Gujarat on the global map on the lines of countries like UAE and Singapore, among others which are known for their infrastructure and skyscrapers," the government said earlier.

Meanwhile, developers are also concerned about the premium being charged on the additional FSI. Under the new rules, premium FSI will be available on chargeable basis, wherein charges will be 50 per cent of prevailing jantri (ready reckoner) rates of non-agriculture land. 

"As such, the lack of demand for ultra luxury is sub-optimal in these cities. Hence, even if developers look to build high rises with over 70 floors, the premium on additional FSI at 50 per cent of the prevailing rates could act as a deterrent," a Surat-based developer told Business Standard on condition of anonymity.