Who Can Afford To Live In Mumbai?

March 27, 2012 7:59 am by

Taking up residence in Mumbai, or for that matter, in its metropolitan regions, is just getting harder. And wherever they can help, the authorities and the real estate barons are making sure that it does get harder. Be it renting or buying a place.

And yet, the Municipal Corporation of Greater Mumbai thinks the city is going to be populated by more people in the next two decades than it was in the past decade. The growth had slowed down, as Census 2011 pointed out, despite reaching an all-time high of 1.24 crore people. One does not have to look far for a reason: living is hard, and finding a home is harder.

Though flow of people to Mumbai, and now to its satellite cities, is not an exercise of a choice of residence but only livelihood, determined the city’s contours—economic, cultural, familial dimensions included within—over period, going by the latest census figures, it has also forced a slowdown. This has not been grasped by the civic body.

So using perverse logic, the city government thinks that to prepare for more arrangements—the grand word is infrastructure—it needs to build a corpus and that would be by increasing water charges. That the city needs to ease the congestion already existing has been forgotten and money has been spent towards enabling crowding—building high rises where none existed before. Those who built them did not pay for the congestion they were bringing in.

Even if the population has to anchor itself in the shanties which houses more people than any city does its entire population in the country, there is scarce space to put up a slum. You see more slums coming up in peripheral cities and towns because even slum spaces are not easy to come by anymore.

For the poor and the blue-collared, it is the slums. For the white-collared, it is rental flats, where a 10 feet by 12 feet space has a grand descriptive of being a hall. The landlord and the broker make rents steeper in a variety of ways. Now the revenue-strapped government thinks levying a whopping 160 times higher charge on registering a leave and licence agreement is a lark.

It has failed to understand that this can break the back of a tenant who keeps moving in a merry-go-round every 11 or 22 months anyhow because the owner does not want the occupant to grow roots and get ideas. The broker helps because he has a vested interest: every time a lease is worked out, he gets his one months’ rent as commission from the tenant and another from the owner.

The broker also helps by rotating tenants around, for each shift counts for another commission and keeps the landlord secure that the tenant would not be given scope to become an interloper.

If the landlord decides to provide another extension, even then the broker steps in for his commission. He, after all, helps, doesn’t he, by greasing his way through the registrar’s office? Try getting your lease agreement without a broker and you’d know you can’t even get to the counter.

So what does a person without an owned home do? Remain a tenant.

That helplessness seems to spur the monopoly decisions on levies and this perhaps would drive the man to the slums, where incidentally, about half the dwellings are under tenancy, the leave and licences drafted being a clone of the formal housing sector. They are unregistered but enforced using muscle.

The high cost of real estate which has left the buyers cold is one reason why tenancy is preferred. Those who want to invest don’t know if the property, booked at a cost beyond what the pocket plus the high-cost loan on a mortgage is, would be delivered. Delays mean a double whammy: uncertain tenancy, constant shifts from apartment to apartment, and endless delays in getting possession.

If there is an unsold stock, the builder waits till he conducts a sale and uses it for his next round of construction costs; he does not risk his equity. It does not matter what the long-suffering, waiting buyer has to go through.

According to a finding by Liases Foras, a real estate research agency, there have been time overruns on as many as 4,091 projects, a large proportion of them up to two years, which leaves the buyers in limbo, upsetting their personal finances to an extent that they may get caught in a debt spiral.

That is why the preference seems to be the rental option because, as a World Cities Review by London-based realty agency Savills said, not only are the realty costs high in Mumbai but the transaction costs are the highest. What a buyer spends towards transaction costs is equivalent to about four-and-a-half years’ tenancy costs. That, rest assured, is not the case with any other city in the world.

Simple arithmetic shows that even before he gets the property in his hands, the buyer who waits indefinitely, and with uncertainty hovering over his deal as to the bona fides of most real estate developers and builders, is spending twice as much on rentals alone, even as he services his mortgage.

And four-and-a-half years means at least two shifts from apartment to apartment. Each shift costs him brokerage plus now the mooted higher levy while registering the leave and licence.

The dice cannot get more loaded.

This story by Mahesh Vijapurkar was originally published on Firstpost.com.