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Tuesday, June 26, 2012

Property in Mumbai - the biggest metropolis of India


It is but natural that people flock to cities – a city life, however miserable could be is the dream choice as millions of village youths [both men and women] chase their pipedream – once it was believed that at least 50 girls land up at Egmore Railway station  from small villages down south, aspiring to get a role in the silver screen, thinking it to be the gateway to prosperity. 

Amongst the 4 metropolis, to most Mumbai represents the most posh, cosmopolitan, wealthy, progressive,  city of opportunities.  We tend to think that in Mumbai people live in plush flats chasing wealth…… here is an article read in ‘The Economist’ –  which gives a newer perspective to Mumbai life. 

Property in Mumbai  :  The minimum city
Is the world’s weirdest property market strangling the city that hosts it?   Jun 9th 2012 | MUMBAI | from the ‘economist.com’

IN THE minds of Mumbai residents, whether they sleep on streets or silk sheets, property developers loom large. In films and novels, skyscraper-erecting baddies bring wealth and renewal—and often misery and violence. Yet in reality, buildings do not loom as large as you might think in Mumbai.

Take the view from one of the towers clustered in midtown, owned by Abhisheck Lodha, a razor-sharp American-educated tycoon making billion-dollar bets on transforming the city. The odd skyscraper erupts out of low-rise clutter. There are pockets of tall buildings on old mill land and along the city’s west coast. But much of Mumbai—supposedly a rival to Hong Kong, London and New York—looks flat and knackered. To the east the vista is of derelict factories, rotting low-rise rent-controlled buildings and the odd slum. To the south lies the ossifying old city centre, with its ageing port, colonial showpieces and Soviet-style offices and bureaucrats’ flats. The nearest green spaces are a racecourse and a club on whose ample lawn members feed stray dogs buttered toast.

Mumbai has perhaps the most extreme statistics of any metropolis. Its land mass is small, stuck like a crooked blade into the Arabian Sea. It has poor transport links, so people who work in the city live near it. That in turn means it has the highest population density of any big city. But it is also low-rise. Panama City has a taller skyline.

The result is tiny living spaces of 4.5 square metres (48 square feet) per person, compared with 34 square metres in Shanghai. And prices are high. Mid-town flats cost $1m-3m. The average price of a 1,000-square-foot pad in the city is perhaps $250,000, or 90 times GDP per head. With flats out of reach, the share of people in slums has risen to perhaps 60%, compared with 20% in Rio de Janeiro and Delhi. Of the rest, about half live in rent-controlled digs, sometimes propped up by wooden staves, or flats for public-sector employees.

Other cities confined by the sea, from New York to Hong Kong, have soared upwards. Many think Mumbai has had an epic building boom. There has been dense activity on old mill land and in some suburbs where rules are laxer. But the city has 31 buildings over 100 metres high, versus more than 200 in Shanghai and more than 500 in Hong Kong and New York. Perhaps $10 billion-20 billion has been spent on land and building in the past decade, not much given that the population has risen to 12m. At the current rate it will take over six decades to build everyone a home.

Much of the building has targeted the well-off with often magnificent complexes. But are there enough wealthy people? “It’s hard to find homeless millionaires,” says a developer. At the current pace of sales it would take three years to clear the stock of 28,000-odd unsold flats in the city which are complete or being built, according to Ashutosh Limaye, of Jones Lang LaSalle, a property-services firm. Pankaj Kapoor, of Liases Foras, a research firm, puts the figures at 38,000 and four years.

So inefficient and cartelised is the market that prices are still rising, despite the overhang, a weak economy and the debt troubles of some builders. (Listed Indian firms which make public their accounts, and are about a fifth of the industry, are often in poor shape.) One builder, from his private drinking den in the city’s north, is full of foreboding about his trade. “All the bad karma is coming back. All the Porsches and Lamborghinis, all the bodyguards and security details; it’s all coming back.”

Flat-packing humans
Three things explain Mumbai’s predicament: regulations, financing and graft. The city, reckons Edward Glaeser of Harvard University, has “some of the most extreme land-use restrictions in the developing world”, designed to deter new migrants but which have backfired. In much of the city the ratio of a new building’s floor space to the plot it is built on is capped at 1.3 times (compared with over five times in New York and Hong Kong). Rules inhibit new construction near the coast. Because of the thicket of red tape and litigation, only 3% of 15,000 rent-controlled buildings have been redeveloped, says Subodh Kumar, who retired as Mumbai’s top official in April. Bits of idle land, including the old port, lie stranded because of vested interests. Rare free plots can command staggering prices.

Finance also plays a role. Mortgages are common but banks cannot fund land purchases. Developers finance construction by forcing customers to pay upfront, often without redress if the project stalls. The industry says it has cleaned up its act and attracted institutional investors. Still, it is not unusual to make an under-the-table cash payment of at least 20% in addition to the stated price. The limited role of banks protects financial stability, but has other costs. If builders are nervous about demand or short of cash, they can halt construction, having already got customers’ cash. And non-bank finance is not always kosher. One fraud expert reckons 80% of money-laundering in India uses property.

In Navi (or “New”) Mumbai, across the bay from the city, lots of newish flats have empty balconies and no air-conditioning units—clues they are vacant. Local agents say they are held as investments. Without banks breathing down their necks, developers and owners sit on empty flats, rather than cut prices; this is a housing market where more borrowing might be helpful. And if illicit money is involved, there is little impulse to sell since the only thing it can easily be recycled into is more real estate.

Corruption adds a final twist. Many firms say times have changed and things are above board. But it is clear that some builders still bribe officials and politicians. The prizes range from being allowed bigger balconies to the support of politicians with “vote banks” in slums being redeveloped. Mr Kumar tried to clean things up after finding that “builders and architects worked the system”. Another official says, “politicians and all kinds of manipulators are made sleeping partners” in projects. One boss says the height rules are “the biggest mafia scam in India” and are a vital source of funding for political parties.

The only way is up
The textbook solution for Mumbai is better transport and many more high-rises, to increase the supply of flats and lower prices. It might help if the city had more political autonomy, as Delhi does. (At the moment Mumbai is part of Maharashtra, a giant, partly rural state.) That is some way off. Still, there are rays of hope. The first overhead metro line, in the north of the city, and a short stretch of monorail running north-to-south, should open in a couple of years. Ajay Piramal, who began the redevelopment of mill land two decades ago and who is re-entering the industry, says graft has fallen since Mr Kumar’s crackdown. Officials say they are trying to spur pockets of redevelopment. And a new national property regulator is in the works.

Yet, says P.K. Das, an urban planner, the system is just too rotten to allow a Hong Kong-style building frenzy. The industry is “feudal”, has “subverted” the law and may need to be nationalised. While the city needs more skyscrapers, an unregulated building spree would be counterproductive unless the state gets cleaner, and better at planning and providing infrastructure such as roads, sewage and water. Already many feel the city is falling behind Delhi and Bangalore.

Great cities are not built by prudes—New York had its share of crooks and fat cats once. But Mumbai is already four times more populous than New York in 1900, and is in a hurry. The conspiracy theory, held by the man on the street and captains of industry, is that transport projects are delayed and arcane rules survive because a small elite finds the status quo lucrative, even while the city’s development is strangled. If Mumbai is to become a global hub and offer more people a decent life, its politicians, officials and builders must prove the conspiracy theory wrong.

Reproduced in its entirety – as found interesting read :  http://www.economist.com/node/21556584

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