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Why Mumbai has such appalling real estate

Why Mumbai has such appalling real estate

Sixteen out of India's 40 richest business tycoons call Mumbai home. So do hundreds of Bollywood actors and directors, more than a dozen of whom have taxable incomes exceeding US$1 million a year.
Then there are the bankers, consultants and other professionals whose pay is fast approaching global levels.
The city, a diamond-trading hub, also has enormous family wealth going back to the 19th century when Mumbai financiers made a fortune selling raw cotton to Manchester and opium to China.
Looking at Mumbai real estate, however, you will get no inkling of this prosperity.
For a start, the shortage of good housing here is acute.
With almost 19 million people, Mumbai and its suburbia comprise the second-biggest urban agglomeration in the world after Tokyo. Every second person in the extended city lives in a slum, according to the 2001 national census.
The odd geography of the main city - a narrow peninsula jutting out into the Arabian Sea - is to blame.
Draw a circle with a radius that takes in 25 kilometers 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.
Dilapidated buildings
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.
In the business district around Flora Fountain, near the central bank and the Bombay Stock Exchange, you see the full horror of this administrative straitjacket.
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 redevelopment business works on replacing shorter buildings with taller ones. How does one make money the other way around? A compromise solution has been to make floor-area norm a tradable commodity.
Since 1991, builders who gave up land to the government for public purposes have been compensated with "transferable development rights," which allow them to add floor area elsewhere. This has, of late, created a craze for redevelopment in the posh Mumbai neighborhoods, such as Bandra and Juhu.
Even in less fashionable areas, owners of old housing blocks are thrilled to swap their apartments for newer ones, which are also typically 30 percent bigger.
The builder even pays rent to the temporarily displaced families for the time it takes for the new building to come up.
Shantytown makeovers
The profit for the builder lies in developing and selling his additional floor space entitlement. Given the housing deficit, that's hardly a worry: At US$300 per square foot, Mumbai suburban apartment prices are among the steepest in India.
Then there are shantytown makeover projects, where the government rewards builders with tradable floor area in exchange for their building low-cost housing for the poor. This, too, is a money spinner.
There's nothing wrong with redevelopment except that taller buildings need, among other things, access to wider roads.
This has clearly not happened. Citizens are complaining of congestion and traffic snarls. Also, if en bloc sales keep pushing up apartment prices in suburbs, the renting middle class will not be able to become homeowners.
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.
'Heading for trouble'
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.
Three years ago, the government of Maharashtra state, of which Mumbai is the capital, set up a taskforce of eminent persons to lay down a blueprint for creating a world-class city.
The group recommended that builders be given a floor space index that assures them a 20 percent return on investment.
That demand is still unmet. "If we do not have higher FSI, we are heading for trouble," businessman Adi Godrej, one of the city's many billionaires, told a panel discussion organized by Columbia University and the Asia Society in Mumbai this month.
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.
Andy Mukherjee is a Bloomberg News columnist.


Updated : 2021-05-16 08:47 GMT+08:00