Risk factors: All about property measurements

L RAMAKRISHNAN Posted online: Saturday, Mar 08, 2014 at 0000 hrs
Property measurement has wide variations within and across countries. There is a coalition currently working towards evolving a universal standard, but the challenge is to get governments to adopt them

India follows the international system for weights and measures where distance is expressed in kilometres, weight in kilograms and volume in litres. Even as this has been accepted widely across the country, this, however, does not extend to the measurement of area and especially so for property.

The problem is not about acres and hectares, or square yards and square metres. Across states, there are wide variations in the very nature of land measurement, and in the case of a built space, the area to be measured for calculation of stamp duty and market value.

“In India stamp duty and registration is calculated based on the carpet area. However, its market value or rent is calculated on the super built up area or gross leasable area,” says Subhankar Mitra, Head – Strategic Consulting (West), JLL India.

Even if the definition of carpet area remains more or less the same across cities and states, there is a difference while calculating super built up area or gross leasable area. Every city has different norms for floor space index or FSI.

“The area exempted from the calculation of FSI is also different. For example, in Mumbai, lobby, flower bed, balcony etc. are not considered in FSI but calculated separately under fungible FSI for which a premium is charged from the builder. But in Hyderabad, everything is included in FSI calculation,” says Mitra, adding that Tier II cities are better on this score than Tier I cities.

This problem, however, is not restricted to India, but is prevalent across some developed markets as well.

“An example is the way floor space is calculated. In India, the concept of super areas have been used to include outdoor swimming pools, stairs, and common areas such as pavements. In parts of the Middle East, floor areas can include the hypothetical maximum number of floors that could be built on the existing foundations. In Australia, measurements have included outdoor parking spaces, even when they are not physically adjoined to the property itself,” says Sachin Sandhir, MD, RICS South Asia, a body engaged in setting standards and certification for the real estate industry.

RICS, in a study on measuring floor spaces for commercial properties, has come across a variety of practices and the study showed that inconsistencies in measurement could introduce variations as high as 24 per cent.

“Like many other countries India too has irregularities when it comes to measurement practices. The variation could occur in measurement of properties of similar configuration and located within the same area. The inconsistency can be witnessed across states,” says Sandhir.

To begin with, there are wide variations in land measurements. States have commonly accepted units to measure and sub-divide land that has been in place for historical reasons. In Tamil Nadu and Kerala there is a measure called cent, in Maharashtra there is gunta, in many northern states there is the bigha, in Punjab and Haryana in addition to bigha, there is kanal and marla.

There are variations in the sub-divisions too. “These are not uniform across states,” says Ganesan Shyam Sunder, a Chennai-based advocate who has authored a book ‘Property Registration, Land Records and Building Approval Procedures Followed In Various States In India’.

For example, in Assam, one acre equals three bighas and eight chains. The same acre in Bihar equals a bigha. In Haryana that would equal four bighas. States such as Orissa and West Bengal have a measure called decimals where one acre equals 100 decimals. Orissa, however, has a unique distinction, in that it follows two measurement standards within the state. In the Cuttack area, one acre equals 100 decimals, but in the state capital Bhubaneswar, an acre equals 1,000 decimals.

These differences do not matter much when buying agricultural land for agricultural purposes, but such differing yardsticks when adopted for housing, could introduce wide variations, for every inch of space is critical to a developer’s calculation.

Such differences are also seen in building construction. “All states do not follow a common benchmark for building construction. Some states use FSI and others use FAR (floor area ratio),” says Shyam Sunder.

While FSI and FAR are used interchangeably, there is a slight difference. FSI, used in Tamil Nadu, Maharashtra and Gujarat, allows built up area in proportion to the land holding.

If a plot has area of say 2,400 sq ft, and if FSI is 1.5, then the maximum that can be constructed would be 2400 × 1.5= 3600 sq ft. This would be the total built up area across all floors subject to development restrictions.

In the FAR concept, followed in Andhra Pradesh, Karnataka, Kerala, Assam, Delhi, Haryana, Madhya Pradesh, Orissa and Rajasthan, there is also a maximum plot coverage ratio.

For FAR 1.5 and plot coverage ratio of say 75 per cent, not more than 1,800 sq ft can be constructed on each floor for the same 3,600 sq ft built up area.

This leaves only two floors under the FAR concept, while under FSI there can be any number of floors subject to other restrictions.

Such inconsistencies have their impact on property valuation in the absence of a common standard. “Inconsistency in measurement leads to incorrect valuation of the properties. This results in faulty transactions. In a series of events, the government also then shares the burden in terms of reduced or incorrect stamp duty and registration charges,” says Sandhir.

Towards this end, RICS has on a global scale, begun consultations on an International Property Measurement Standards or IPMS. A coalition for IPMS was formed last May after a meeting at the World Bank in Washington. Currently 28 organisations globally are part of this initiative.

In the first phase, the coalition would focus on measurement standards for office space, and standards for residential real estate would be developed in the second phase.

“The biggest long term advantage to a buyer would be that he would be paying for the space that he would be using. It will remove the element of risk for both — buyer and seller, and will ensure the valuation accurately reflecting the usable space within a property,” says Sandhir.

The challenge, however, is to get governments to adopt these standards. Currently only one government, Dubai, has committed to adoption.

Even as the RICS is working on an ambitious scheme to get stakeholders and governments on board for a uniform standard, implementing it India would have challenges.

Sandhir, however, is hopeful that with greater cross-border investments into real estate, that would be a gradual move towards a common standard in the interest of transparency. “I am hopeful that other countries including India will follow in adapting and supporting these standards.”