Thursday, January 25, 2007

What is wrong with Bombay real estate

There are few cities in the world where the situation on real estate is as bad as Bombay. Prices are sky-high and the quality of facilities is poor. Andy Mukherjee has a fascinating article on Bloomberg about this, where he says:

Draw a circle with a radius that takes in 25 kilometers (15 miles) from the middle of Mumbai's financial district. Sea and water account for two-thirds of the surface area of this circle, compared with 22 percent for Jakarta and 5 percent for Seoul, according to Alain Bertaud, a Glen Rock, New Jersey-based urban- planning consultant for the World Bank.

All major world cities where the geography restricts the availability of land tend to make up for it by growing tall. That's where Mumbai is an exception. Planners confronted a constrained city and flattened it.

The tool they used to create a stunted city is the floor space index, or FSI, which measures how much saleable area a builder is allowed to create on a parcel of land. A higher reading means taller buildings. The index, which ranges from 5 to 15 in most Asian cities, stands at a measly 1.33 in downtown Mumbai. In the suburbs, the figure drops to 1.

A sprawling city is easier to manage. Small piles of garbage, spread across the city, can be left to rot for longer than would be possible if the trash accumulated in large, stinking heaps. More importantly, when the municipality keeps floor-area restrictions tight, it has power over developers. This power can easily translate into bribes.

...

Global banks, brokerages and successful Indian companies are all jostling for rentable space in dilapidated buildings, which should have been torn down and built anew a long time ago.

The reason these eyesores still exist is because they were built before 1964 when the permitted floor space index was 4.5. Today, if a developer were to buy the land to erect a new building, he would lose most of the marketable area.

...

The supply of land has to rise to contain housing price escalation as well as to lower office rents, which are the third- highest in the Asia-Pacific region after Hong Kong and Tokyo.

That would require a repeal of the Urban Land Ceiling Act, a law that has ended up promoting what it was supposed to prevent: hoarding of real estate.

...

The time for half measures is over.

A floor-area index reading of at least 5 is required across Mumbai.

Mumbai needs to rise from the ground. The question is whether civic authorities will have the will and the ability to cope with the peculiar demands of a tall city.

16 comments:

  1. But lots of Asian cities have had multi-decade episodes of high population growth. Bombay is not unique in that dimension. How, then, do you explain how the Bombay real estate market is so messed up?

    ReplyDelete
  2. True. Population is the classic excuse for babus to do nothing. All the good work they do apparently comes to knots because of ever growing population (what good work one wonders). There are higher population density cities that are managed far superior than most Indian cities (not just Mumbai). One more reason to get rid of entire Sch 9 (not just post 1974 additions).

    ReplyDelete
  3. DearAjaybhai,
    As you are saying about FSI 4 & 5 but for that do you think that our infrastrusture is enough? No coz as per govt plan they are going to invest 15.75 lac cr in next ten years only for infra development & this will happen only with the help of corporate/pvt giants so when we are on the way to improve out infra facility then & then only we should increase FSI slowly & gradually.

    Pl revert on this.

    Bharat Rajpara

    ReplyDelete
  4. Prices are ridiculously high with artificial demand created by builders, speculators & investments made by NRIS & rich greedy people with out support of fundamentals, economic support like income of end users.This market is going to crash & Investors wanted to make quick bucks will cry & that will be soon.

    ReplyDelete
  5. I thought the reason for the FSI restriction was that the planners were trying to move the action to Navi Mumbai, which has much more favorable geography. Of course this hasn't worked out, since moving is much more difficult than just paying the additional "tax" of staying in a poorly designed area.

    Not everything in government is corruption and stupidity...

    That said, Mumbai real estate is certainly over-valued at the moment -- we can see this in the disparity between rents and property prices. I've started a blog on this topic at http://bombaybubble.blogspot.com.

    ReplyDelete
  6. not only mumbai, all major cities are suffering from the same problem.

    ReplyDelete
  7. These days real estate sector is going through price correction phase so not only mumbai rather all place of world specially india is going through slowdown.

    ReplyDelete
  8. It makes me laugh when i see builders & resellers are asking ridiculous prices. There are no fundamental to support this prices. Every where in world prices falling below 50% still there are no buyers. I do not understand when in USA & Europe interest rate is 6%, population has much better income & still prices dropping & greedy people think this market not going to affect. Did not we think about stock market the same & look at this now 9000 from 18000. Realestate prices will drop more than 50% and still no one will touch.

    ReplyDelete
  9. K. Gopal Rao Says:

    16 August 2008 at 9:15 am
    Resp.Sir,
    Sub:Police Inaction in the case of house grabbing by Deepak Niranjanath Pandit
    Superitendant of Customs,Air Cargo Complex,Mumbai,brother of producer/Director Ashok Pandith by misusing official power /and connection at high places

    We, Mr&Mrs.K.Gopal Rao aged 75 years and 65 years are the Legal owners of flat no 803 Brookhill Tower,Andheri(w),Mumbai.Mr and Mrs. Deepak Pandit are known to us through Ravi Suvarna who is also Superirendant of Customs ,
    approached to us for temperory shelter for a period of 2-3 months,since in the society in which they stay do not have lift and Mrs Arushi D.Pandit was undergoing a major heart surgery in Leela Hospital and need one bedroom in our flat.Hence,we allowed Mr. Deepak Pandit to stay in our flat with his wife and son(One son is away in angalore),by providing one bed room and allowed them to use common hall and kitchen
    on humanitarian and medical ground with out charging a single rupee.

    In Sept 2007, we visited our native place in Karnataka,and locked other 3 bedrooms apart from which has been used byDeepak Pandit and his wife Arushi Pandit by showing blind faith
    and trust and handed over the keys of main entrance.When we came back from our native place,we found our other two bed rooms locks were broken and the bedrooms have been used
    by Mr.Deepak Pandit and Mrs.Arushi D. Pandit.When we asked about this mischief,Mr Deepak Pandit very rudely replied that we people should vacate the flat along with our belongings.We were
    shocked and surprised after this incident.
    Then we immediatly contacted Ravi Suvarna and Ravi Suvarna contacted Deepak Pandit about vacating the flat.He bluntlydenied to vacate the flat and also threatened with dire consequences and that his brother Mr Ashok Pandit is a very influential political person,and Deepak pandit himself is a Custom Officer and by virtue of his position/post he will grab our flat.
    Further we approached to one/two reputed persons in the society and narrated the things which have been going on and requested them to mediate the dispute.He refused to meet the
    persons and asked us to pay Rs 10 lakh otherwise he will not vacate the flat .At the same time he mentioned that we will see how he will grab our flat.

    Recently we have come to know that other than his house in
    Juhu (no 214)juhu Shantivan co-operative Housing Society,bldg
    no 13,gulmohar cross road no 6,Andheri(w),he has got one house
    at Takur Complex, kandivili(E),and one at Andheri(E). He has rented
    out all these houses and took shelter at our place on sympathetic/humanitarian grounds.

    We have approached the oshiwara police and lodged written complaints dtd 4/10/07 and 28/02/08 but to no avail.Police have threatened to arrest our grand daughter if she doesn’t vacate the house and she was forced to leave the house at 0400 AM on 05/10/07(By SI Gaikwad,Kadam on the instruction of the PI Sonawane of Oshiwada Police Station).As we are old
    aged and can not run from pillar to post,I kindly request yourgoodselves to Publish this issue on your Paper because this kind of acts by people by misusing the legal provisions to their advantage and grabbing only shelter of senior citizens by taking the help of police and security staffof the building.This is nothing but breach of trust and they know that if it goes to court it will take years together.These kind of issues should be debated and people should be educated about this kind of offences/crimes(misuse of legal provisions) which were probably made to safeguard poor tenants

    We kindly request your goodselves to take up the matter so that people will get educated about such kind of abuse of legal provisions and also wrong people who misuse the provisions of law to their advantage which were made to safeguard the weeker sections by using official power and connection at high places.As we are old aged and can not run from pillar to post,We kindly request you to publish in your paper after investigating the case and being convinced as an issue(House grabbing).He has made an extra(double) door in our absence and now he is not allowing us to enter the house with the help of Oshiwada police.If a public servant can behave like a goon and grab only house of senior citizens then we are in the same age old tradition of slavery.(We are ready to produce any kind od evidence reg the fact that he is forcefully/illegally stying in our house).He has not got any papers/reciepts

    Yours sincerely,

    Mr.&Mrs. K.Gopal Rao.
    76/41,14th cross,PadmanabhaNagar,
    Bangalore-70
    Cell No 09343952727
    So many people have suffered or lost their houses due to this kind of planned tactics(Khabja). If you publish the article/News,it will definately help people who go to help people innocently and get trapped.I hope there should be amendments in the legal provisions to safeguard genuine cases.As the legal process takes years together and culprits enjoy the possession merrily.Here the system(Law and order/police and legal system has also to be blamed).If things like this continues people will lose humanity and stop helping even in genuine cases.Please help us atleast in educating(legalities) people about this Khabja

    ReplyDelete
  10. The current market scenario has brought everyone on his toes. One should be careful before investing in real estate. Do confirm prices by other builders/other sources.
    Idaho Real Estate

    ReplyDelete
  11. This comment has been removed by the author.

    ReplyDelete
  12. This comment has been removed by the author.

    ReplyDelete
  13. Misdirected good intentions again?

    The efforts by our current CM and MCGM Commissioner are definitely well intentioned, but are these efforts to stop granting concessions to builders going to address the underlying problem in the real estate industry in Bombay? Is the underlying problem that builders are asking for too many concessions, or is it that the current Development Control Regulations of Bombay do not address the realities of the city today? Is it the case that most builders in Bombay are corrupt and want to earn free money through concessions, or it is the case that the development control regulations of Bombay are so out of date, archaic and inefficient that these laws incentivise or push builders to ask for these concessions?

    What are development control regulations? With an FSI of 1.0 in the suburbs and 1.33 in the city, the amount of supply of real estate in Bombay is very low given the demand. This causes the prices of land to trade at very high values which then results in flats becoming too expensive for most people to buy.

    Since affordability of real estate has become a major concern in Bombay today, MHADA has now stopped asking for Premium in its projects and has applied a blanket 2/3 and 1/3 rule that is not financially feasible for most projects where the selling price is less than Rs.8000 to Rs.10,000 per square foot. Does this sound like the well intentioned socialistic policies that were economically and financially defunct that India adopted until the liberalization in 1991? The result of financially and economically defunct policies will be that the free market will bypass these policies by paying large unofficial payments. Instead of this, should we not adopt a policy actually addresses affordable housing that is also financially and economically feasible?

    Apart from the FSI, there is no single authority that is responsible for creating the masterplan for Bombay. Is it the MMRDA or UD? Also, MHADA, SRA and MOEF independently set their own development regulations in plots that are in their jurisdiction without adhering to an overall direction or plan for the development of Bombay.
    Also, what about CRZ? Why has protecting our mangroves and developing away from the coast become such a contentious issue that most people and the MOEF are adamantly against it? Are we really protecting the coast of Bombay? Please note that prior to the 18th century, there was no Mahalaxmi or Andheri or Mulund...these areas were formed by reclaiming land between seven islands...in effect, the coast was artificially created by the British.

    (http://upload.wikimedia.org/wikipedia/commons/thumb/5/51/Seven_Islands_of_Bombay_en.svg/347px-Seven_Islands_of_Bombay_en.svg.png)

    ReplyDelete
  14. Today, if there is a need to increase the density in Bombay to make real estate affordable for most, address slum development, etc., how are we damaging the environment and the mangroves, when that environment was basically artificially created by reclaiming land for the purpose of housing people? If anything, we should reclaim more land to house the millions of people that don't have homes and then plant more mangroves beyond the new reclaimed land. Please note that I share the same desire to protect the environment as most, but Bombay's coast is not the same as the coast of Goa or Gujurat or Orissa or Kerala that have biodiversity, ecological and environmental issues to deal with. This is key: it is quintessential to realize that applying CRZ regulations that should apply to Goa, Gujarat, Orissa, Kerala, etc., should NOT apply to Bombay. Bombay should have regulations that take into consideration its OWN realities.

    What about other world class cities? What about New York, Hong Kong, Shanghai, London, Singapore, Beijing, etc? Given that these cities have successfully addressed their density, public transportation, affordable housing and slum issues, what can we learn from them? Do they restrict FSI close to the waterfront? Do they restrict FSI to 1.0 stating that there is no infrastructure, or do they build infrastructure simultaneously while increasing density? I would recommend those that use infrastructure or the lack thereof, as an argument against increasing density to visit China to see and learn how the Chinese have addressed their urban development issues.

    What about the process of obtaining permissions for development? Why does it take 12 months or more to obtain basic permissions, and why are the unofficial payments so abysmally high? Why is the process of obtaining permissions like a labyrinth or an endless maze? Why doesn't the government increase the wages of its employees so that the demand for unofficial wages is not so ridiculously high? We definitely are a poor country running very large fiscal deficits, and to some extent is it understandable although cannot be condoned.

    Hence, what I've tried to do is to make aware the fact that despite the lack of clear regulation, haphazard planning or no long term planning, poverty in the country that shows up at the agencies that provide approvals as unofficial payments, illogical and misplaced sense of environmental concern, lack of a single accountable authority, the builders in Bombay still manage to run their businesses. Surprised? Hence, please think twice before knocking down a builder for the sake of populism.

    ReplyDelete
  15. The simple fact of the matter is that unless there is a single agency like a Mayor's office that is democratically elected that first creates a masterplan or a vision for Bombay for the next three decades, and also has the power to demand accountability from the MCGM, SRA, MHADA, MOEF, UD, etc., Bombay will continue to grow like a local fish market. The planning will look forward for two to three years, the cost of real estate will be abysmally high, the infrastructure will be creaking, the approvals process will be an unending maze and the environmental concerns will be misplaced, and when the builders try to find solutions to his maze by developing their projects in two years, the public, media and the government will continue to throw stones at the builders instead of addressing the underlying issues of a creating a 30 year masterplan that takes into consideration affordable housing, slum development, free market development, sewage, water, public transportation, etc.

    In conclusion, instead of throwing stones at builders, we must,
    1. Create a vision or a masterplan for Bombay for the next 30 years:
    This masterplan must not be created by bureaucrats that do not have any prior experience or training in urban planning, but must be done by seasoned urban planners, public policy specialists, economists, architects, etc. This masterplan must take into consideration free market housing, affordable housing, slum development, water and sewage treatment, public and mass rapid transportation, etc.

    2. Create a democratically elected Mayor's office for Bombay.
    This office must be accountable to the citizens of Bombay and must coordinate the efforts of all the independent authorities such as MCGM, SRA, MHADA, MOEF, UD, etc. This office must report and be held accountable for the implementation of the masterplan.

    There is no doubt that there have been some builders in the recent past that have gone overboard, but this is not necessarily the rule in Bombay. Also, if it is only the builders, then why do builders in other cities like Bangalore, Hyderabad, Chennai, Delhi, Kolkata do the same as builders from Bombay. Bangalore, Hyderabad and Chennai ALL have new masterplans that have addressed their density issues, affordable housing issues, public transporation issues, etc. Why aren't we doing so? If we feel that the density of Bombay is too high as is and cannot sustain more people, then we must build more cities like Navi Mumbai in Vasai, Kalyan/Dombivali Panvel, Karjat, etc. We either have to increase density or build new cities, or do both, or else history and corruption will repeat themselves.

    ReplyDelete

Please note: Comments are moderated; I will delete comments that misbehave. The rules are as follows. Only civilised conversation is permitted on this blog. Criticising me is perfectly okay; uncivilised language is not. I delete any comment which is spam, has personal attacks against anyone, or uses foul language.