In short
Floor area ratio is the ratio of total enclosed construction area permitted on a plot to the plot's own area. On a 1,000 square metre plot with a ratio of 1.50, a total of 1,500 square metres may be built. It is also referred to as KAKS.
Alongside it sits a second ratio: TAKS, the ground coverage ratio. The floor area ratio limits the building's total size, while TAKS limits its footprint on the ground. When the floor area ratio stays the same but TAKS falls, the building becomes narrower and taller, which directly shapes the project's design.
Which areas count towards the ratio is a separate question. Parts of shared spaces such as parking, shelters and stairwells may be excluded, and these exemptions vary with legislation. So "a ratio of 1.50" is not enough on its own; how the calculation was made must also be asked.
Why it matters to an investor
Land is priced directly on this ratio. Between two neighbouring plots, the one with the higher ratio carries the higher price per square metre. It is also the starting point of any revenue-sharing negotiation: the ratio determines the total sellable area that will exist.