Reel Estate

There was some talk about demolition of a building with 12 apartments, each of 868 sq ft. The plot area is 3 grounds = 7200 sq ft. The current FSI (Floor Space Index = ratio of total area of all flats to the plot area is currently 1.5. FSI can go up to a maximum of 2.0. This raised the topic of whether the old building could be demolished and new flats constructed. A friend of mine contacted me with the details. I responded with real estate calculations:

Quick back of the envelope calculation:

Currently we have 3 grounds =7200 sq ft.

Total flat area = 12* 868= 10400 sq ft

FSI currently = 10400 / 7200=1.45

With FSI =2, builder can construct total 2*7200=14400sqft

Meaning 14400-10400=3600 extra sq ft.

Assume Rs20000/sq ft rate as the price for a new flat.

Assume  the cost of construction, including demolition, of 14400 sq ft = Rs3000 / sq ft. Total cost for builder =14400*3000=4.3 crore.

Assuming each of us wont have to shell out any money for getting a new flat, the builder needs to recoup at least his total cost of construction = Rs4.3 crore. This means he has to get 4.3crore/20000(rate of new flat per sq ft)= min 2100 sq ft out of the extra 3600 sq ft that we get from new FSI =2.

This means the 12 of us together get 3600-2100=1500 sq ft. 

Which is 1500/12 = 125 sq ft each in the new flat. In essence we will get rid of a 868 sq ft 30 years old flat to get a new 1000sq ft max flat assuming we don't pay extra cash. 

Of course the rates i mentioned are approx. You may use different or more realistic rates for cost of demolition + construction and price per sq ft new flat. But ballpark seems to be about 125 sq ft extra for each us. 

(125 sqft is the max we can get. Builder will need some profit margin. 125 sq ft assumed that the margin was zero.).

Consider also the intangible cost of moving some place else until new flat is ready. I am not sure what the LTCG tax implication would be even if there is no net money receipt. Maybe because the gains are "reinvested" in the new flat there may not be any.