I have been following several reports on Mumbai real-estate being in the hunt of a house. Most reports I have been reading are positive that there is going to be a correction this year, and the real-estate bubble in all major cities in India including Mumbai is definitely going to burst. Unfortunately for the poor buyer, reality usually is bleak.
Here is why I think Mumbai is a terrible place to buy a house.
- The number one is of course the highly extortive rates charged in Mumbai. It was hilarious to see a reputed builder come out with a new housing scheme for affordable housing. Well, the affordable house was at Rs 95L+taxes for a 1bhk and around Rs 1.4Crores in the suburb of Chembur. Since when indeed did figures of Rs 1Crore become so affordable for all!? So called ‘luxury’ housing by the same builder started at more than Rs 3 Crores for a 2 BHK (about 1000sq ft) in a farther off suburb. Really wouldn’t you rather shell out Rs 50,000 per month for the next 10 years (60L) for a similar house and still make more money on interest in a fixed deposit?! (2L per month @8% simple interest).Despite the sops offered by various builders in the form of 20:80 schemes (Schemes where one pays 20% now and 80% after a certain level of construction is complete), free cars and motor bikes, slashed rates, the market appears to be still bleak to the buyer. Lower rates of interests can make sense only if the capital cost were lower making EMIs affordable.
- The already inflated rates, cannot seem attractive however many sops are offered. Far flung suburbs with no less than 2 hours of commute from the city at present, try and entice buyers with the promise of new infrastructure projects which are likely to get completed soon (they mean the ones, which have been barely mentioned by MMRDA, and not even the approvals processes are complete).
- If you are unmindful of the commute, just look around the city of Mumbai. Broken roads and pavements, garbage dumps galore, slums right outside the building, illegal encroachments, improper entry roads to buildings, and a complete lack of parking and horrible traffic wherever you go. For this kind of pathetic infrastructure, the city of Mumbai is rather too pricey than any other in the world.
- After the recent building collapse in the Mumbra region, municipal corporations have gone on a rampage bringing down other illegal buildings. Where were they when these came up in the first place? My heart goes out to the people who were living in these buildings and have now been rendered homeless because the crafty builder built an illegal building. No less than 35 permits and approvals need to be taken at various levels to build a building. Various inspection approvals also need to be given while the building is being constructed. Several certificates, such as the Occupation certificate are given by the municipal corporation after the building is complete, and the society is formed. The problem here is, most houses are sold, at the time they get approval to just build it (commencement certificate). How discerning then, during the ‘launch’ of the building, can a buyer indeed get? If that be the case, no builder should be allowed to sell under construction flats. What it really takes, is that the inspections really happen instead of being on paper, and the approvals are honestly given so that the builder builds a good quality building within all the required norms. How can a buyer be evicted from a building where he has trustingly put in his hard earned money believing the builder has flouted no norms?
- There is another component that makes it further unpalatable for the salaried buyer that no one speaks about. It is the component of ‘black’ money that needs to be shelled out to buy a house. The ‘going rate’ in Mumbai as I understand it currently is a whopping 40-50% of cash. This is just so that the buyer/seller evades tax or can channel the enormous cash funds that the either the corrupt or the businessmen community gathers. In earlier years, when property rates were much lower, the component of black would run into lakhs in single digits, but now with rates being a minimum of 10K per square feet in Mumbai in suburbs, no less than 30-40L has to be doled out in cash for a tiny 1-2 BHK. For a poor salaried worker, who gets money into his bank account, pays taxes dutifully (as they are deducted at source unfortunately), declares his income to the last penny, how on earth really, can he get this cash? ‘Jugaad’ as they say ‘ho jaaata hai’, spewing another level of transactions which should not be happening. I haven’t even started talking about the difficulty in trustingly and willingly giving away lakhs of hard earned money in cash to some stranger! This makes it further impossible to zero in on that dream home that can be bought in full ‘white’ money without any law-breaking
- As a buyer, even as I understand there is a lack of affordable housing in the city, I do get irked that the shanties across the building get free houses in the same vicinity while buyers shell out crores of Rupees for them. And of course, they continue to live in the shanties after renting them/selling them out to new dwellers. Even as slum rehabilitation projects come up, more and more shanties continue to proliferate. And most of them continue to be progressively legalized when elections are around. They require no permissions to get legalized really.
Forgive me for making the clichéd comment, but the system truly needs to be completely overhauled from the root, uprooting the builder-politician-municipal corporation nexus, and a political will to bring the housing issue under some form of control. A few things that I think need radical change are –
- Reduce the number of permissions builders need to take that increase costs in the form of bribes to be doled out and ensure that buildings are really inspected and anomalies reported. Bring about transparency in dealings.
- 50% of Mumbai is landlocked in slums. Encourage slum rehab projects by easing regulations to help to release this space. And please stop any further illegal encroachment of scarce land!
- Increase FSI so cities can grow vertically and there is more space
- Reduce taxes such as stamp duty which further push up costs and encourage cash transaction deals. If prices stop going up, profiteering will reduce – speculative buying by investors will reduce and tax on income made will automatically reduce discouraging fraudulent dealings.
- Find ways to curb dealings in black money so a whole segment of speculative buyers who try to channel their ill-gotten wealth can get eliminated pushing up supply of houses to legitimate buyers.
Till any such major changes are made, buyers and house owners will continue to suffer from over priced housing, buildings of suspect quality, and helplessness because of a complete lack of options that guarantee good quality at a decent price. And I will continue to hope that speculations stating there will be a major correction in this market will come true!
