Wednesday, January 03, 2007

Rents go through the roof in India’s top cities

Indian express article


Changing archaic laws will free up a lot of property in India’s financial capital, but it still won’t meet demand

MUMBAI, January 3 : UP a flight of creaky wooden stairs, real estate agent Hemant Surve guides a prospective renter around a damp two-bedroom apartment overlooking the sea in the country’s financial capital.
Real estate boom to continue: AssochamReal deal: Digital and transparent Foreign funds adding to realty boom: ParekhWhen prices crash, hidden home loan clause may hauntIt won’t bring down the roof

Flaking paint and dilapidated toilets leave his client, an American expatriate, distinctly unimpressed but Surve says its dysfunctional plumbing and dour colour scheme is all she’ll get for her budget of $2,500 a month — plus bills.

“Many are willing to pay anything for a flat like this,” Surve says as he gestures at a bare sitting room, whose arched windows open on to a heap of ugly road construction material and huge cranes.

As global firms flock to India to tap opportunities in its burgeoning economy, premium residential rents in cities like Mumbai and New Delhi are going through the roof. While residential rents have gone up across the board, they have surged 31 per cent in the last quarter in Mumbai’s top-end areas like Nariman Point, named as one of the world’s 10 most expensive locations in a recent CB Richard Ellis survey.

Tenants drawn from banks, IT companies, securities traders and headhunters are driving the market in the city, property dealers say.

In New Delhi, upmarket southern suburbs have seen rents appreciate 30 per cent in each of the last two quarters.

“Values in Delhi will remain buoyant as there will be no substantial supply in the next 12-15 months,” said a consultant with real estate firm Knight Frank. “The demand-supply situation in the premium segment is the same in Mumbai and New Delhi.”

In Bangalore, home to major IT firms, property prices have risen as much as 50-60 per cent in the past six months, but have since fallen and stabilised at a rise of about 15 per cent after new construction met part of the huge demand.

The high-end property market in India’s financial capital Mumbai is witnessing a bizarre drama, where rents for some two-bedroom apartment can either match those in New York or Tokyo, or cost only a few dollars.

The cause is a six-decade-old rent control law — framed to insulate tenants from unscrupulous landlords — which millions of renters use to hold a large chunk of prime property, paying rents at 1940s prices.

The politically popular law has been extended more than 20 times and currently applies to roughly 60 per cent of buildings in the city centre. Landlords, who can’t raise rents or redevelop their assets without tenants’ permission, have watched helplessly as market prices have soared and their properties have disintegrated.

“A change in the rent laws will free up a lot of premium properties,” said Sandeep Sadh, chief executive of online real estate firm But he adds that even then it wouldn’t be enough to meet the demand in the residential segment.

The pressure on the high-end property market has forced companies and individuals to look at Mumbai’s northern suburbs, but poor connectivity to the rest of the city is a problem.

-Krittivas Mukherjee

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