Why property prices are sky-high in Mumbai

A cartelisation of Mumbai's real estate, one of the costliest in the world, in the matter of transferable development rights has put upward pressure on prices and has also caused concern in policy circles.

In a recent development, just six-odd builders and developers hold 70 per cent of the 2.5-3 million sq ft TDR available. The price of TDR has also surged to Rs 2,500-Rs 3,000 per sq ft from Rs 800-1,000 sq ft in the past six months.

TDRs are rights granted by the civic or state agency to a property developer who surrenders land to the government and, in exchange, is allowed proportionate or more development rights on land in the vicinity or northwards. He may sell that property so developed or sell the right itself, the TDR; these are transferable.

Realty sector sources said the Mumbai cartel had meant a rise in TDR prices practically every month. The development is a sequel to a 2008 order of the High Court here, which stayed a state government decision to allow 33 per cent extra building rights (measured as more of Floor Space Index, or FSI, the ratio of what can be erected on a plot of land to its area) in return for more premium.

The order was in response to a public-interest suit on the issue.

A state government official, who did not want to be quoted, said the government may approach the court shortly to reiterate its plea for additional FSI (they may even go to the Supreme Court to get the stay vacated, say officials). The higher FSI, if allowed, will stop the builders' cartel from jacking up prices at will, he said.

Maharashtra's minister of state for housing, Sachin Ahir, said: "The government will take all necessary measures to curb cartelisation in the use of TDR in Mumbai."

Sunil Mantri, chairman, Sunil Mantri Realty, said, "Prices of TDR are unaffordable."

However, Nainesh Shah, executive director of Everest Developers, argued that TDR rates can be brought down only by an increase in the stock of land and the government is the only entity who can make this happen. "More land needs to be released," he said.

Ashutosh Limaye, associate director, strategic consulting, Jones Lang LaSalle Meghraj, said  TDR trading follows the open market principle. For areas that are popular and in demand for real estate development (Bandra, Chembur, Vile Parle, etc), land prices is high and it makes sense to buy TDR even at a higher rate.

Mumbai's own peculiarity is that TDR, in practice, can only be deployed in the northern suburbs, while it is generated in the area south of this. This contributes to the upward pressure on its price. The government order which the court stayed, on allowing more FSI on payment of a premium, had sought to widen the supply, was the official argument.

Opponents of the way TDR has worked in practice, including those who went to court on the issue mentioned, argue that it has led to congestion in the suburbs, haphazard and unplanned development, and intense pressure on infrastructure. It may be noted that this policy, pioneered in Mumbai, has since been adopted by state and civic agencies through the country.