Mumbai Builders Plan to Squeeze Salaried Class

The government is chasing the wrong cartels and creating an eyewash for the residents of Mumbai. Instead of chasing steel, cement, wheat and rice cartels, it is very safely ignoring the real-estate cartels who are historically more ruthless as a junta than any other.

Armed with slush money and cheap PE funds, Mumbai realtors have now acquired muscle power to hold on and squeeze residents a wee bit more. The cartel has been reported to have decided to hold on to exorbitant prices of Mumbai apartments until Diwali 2008. They are also enthused by the rise of the stock markets and the noises that the US recession may actually not happen at all.

Their main aim: Frustrate salaried people who have no choice but to own a home in the city, and close deals before the slump actually rears its ugly (or beautiful) face, depending on which side of the fence you are.

Over the weekend, I met with a friend -- a really middle-class chap -- who had booked at 1000-sq-ft apartment in Bandra, for Rs 80 lakh in 2004. This he had managed by selling his 1-room home in a colony, and a loan from a bank. Today, someone offered him Rs 4 crore for this apartment. He is an average hard-working business man himself, and said he was boggled by this. He said that 20 years of running a very popular food outlet had not made him this much money. Neither does he expect to make as much in the next 20.

He also gave me an example of his neighbor who now rents his apartment for Rs 65,000 a month, which pays off the EMI of his flat, and makes him enough money. The person has now taken more bank loans and purchased another property at current rates, in the hope of renting it further. Perfect, because this is how the cycle of real estate works, until a time comes when the rents do not pay for the cost of the mortgaged flat, thus creating a negative asset, and consequently distress sales, driving the spiral downward.

For now, of course, rates in Mumbai, seem to be held on to by the builders. Although there are the usual denials of cartelization, it is indeed a fact that despite sales having dropped 40%, and a dud April, where hardly any home sales have happened in Mumbai, and with the CRR hike, applicable from May 24th, and more importantly, the prospect of serious 8% inflation -- at the retail level -- the strategy to hold on to prices till Diwali could be the last gasp of an industry waiting to fall under its own weight.

Meanwhile, if the salaried class has nowhere to go, they will just fall in to the searing spikes of Mumbai's realty developers.

Read the TOI story here

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