Land Cost
03-09-2024
Understanding Land Costs and Translating Them to Per Square Foot (SQFT) for Profitability Calculation
When discussing land costs, terms like Guntas or acres are often used, which can sometimes lead to confusion or miscalculation when determining profitability. This guide will help you accurately calculate land costs and convert them into a standardized cost per square foot (SQFT), making it easier to compare different land parcels.
Key Factors in Converting Cost Per Gunta to Cost Per SQFT
1. FSI (Floor Space Index)
- What is FSI?
FSI is a crucial factor that determines how much you can build on a given piece of land. It is a ratio that indicates the total constructed area you can have relative to the land area. - Understanding FSI in Context:
For example, if a plot has an FSI of 2.0 and the land size is 1,000 SQFT, you can build 2,000 SQFT of total constructed area. However, with additional allowances like Transferable Development Rights (TDR) and premium FSI, this number can increase.
2. Example Calculation
- Congested Area Scenario:
- Scenario: Let’s say you have a plot in a congested area with a road width of 9 meters or more. The base FSI might be 2.0, with additional TDR and premium FSI loading of 0.3 each. Adding an ancillary FSI of 0.6 gives a total FSI of 4.12.
- Building Potential:
If you have 1,000 SQFT of land, this allows you to build 4,120 SQFT. However, the actual usable FSI might range from 3.6 to 4.0 due to building norms like height restrictions and margins. For this example, let’s use an FSI multiplier of 3.6. - Cost Translation:
If the land costs ₹60 lakhs per Gunta, this equates to ₹6,000 per SQFT for open land. Applying the above FSI multiplier, this translates to ₹1,667 per SQFT of constructed area. This normalized cost per SQFT is a helpful metric for comparing land prices across different city zones.
3.Another Scenario
- Non-Congested Area:
- Scenario: Suppose you have land in a non-congested area with a base FSI of 1.1, plus additional TDR and premium loading of 0.5 and 0.4, respectively, and an ancillary premium of 0.6. The final FSI is 3.2; however, due to regulatory requirements, the actual consumable FSI may be 3.00.
- Cost Translation:
In this case, with the land priced at ₹60 lakhs per Gunta, the cost translates to ₹2,000 per SQFT, which is higher than the congested area scenario discussed earlier.
Summary
When evaluating land for purchase, always aim for an "apple-to-apple" comparison. Normalize land costs to the cost per SQFT of buildable area to ensure a fair and accurate comparison. This approach helps you make informed decisions and better assess the profitability of the land you’re considering.
Nishka Group