India’s most important city finally has a good shot at urban renewal. On Thursday, lawmakers in Maharashtra, of which Mumbai is the capital, repealed the three-decade-old Urban Land Ceiling Act, voiding the state’s claim on as much as 500ha (1,234 acres) of private property.
Analysts say the actual amount of vacant land held in violation of the law, although not identified by the government for acquisition, may be 10 times that figure. If all this land becomes available for redevelopment, the city’s acute space shortage will surely ease up. Tenants in Mumbai offices now pay higher rents than their counterparts in the financial districts of London, New York and Tokyo.
The full impact of the change may take a while yet.
“The land needs to be cleared up and approvals have to be taken for development before actual construction can take place,” says Anshuman Magazine, managing director for South Asia at CB Richard Ellis Group Inc., the world’s largest commercial real estate broker.
It is, nonetheless, a change with far-reaching consequences. The Indian government has an ambitious plan to turn Mumbai into an international financial centre. That will require everything from new office towers and apartment buildings to schools, markets and art galleries. All of that has to be accommodated in a city built on a narrow peninsula protruding into the Arabian Sea with limited land resources. Freeing up the property market will go a long way in making Mumbai a financial centre that can compete with more established rivals.
A lousy law
The Urban Land Ceiling Act was enacted by Parliament in 1976 during a 21-month period of emergency rule by then prime minister Indira Gandhi, who suspended civil liberties, put opposition leaders in prison and muzzled the press. The legislation said that any landowner in possession of more than 500 sq. m of property in a class A city, such as New Delhi and Mumbai, would have to surrender the excess property to the state so that the urban poor could be rehabilitated.
However, the law also specified the escape routes. It cited a number of conditions under which the government could be lenient in applying the ceiling, provided landlords ask to be exempted. And thus began a sordid chapter in wholesale bribery. The state acquired very little land; and where owners failed to protect their property through bribery, they went to the court. The real estate market froze up. Rents rose. Good land remained vacant or underutilized.
Mumbai’s pricey loss
The poor and the middle class lost out on affordable housing. Of the 19 million people, who reside in Mumbai and its suburbs, half live in slums. In 1999, almost a decade after India began opening its economy and started correcting the mistakes of its socialist past, the federal government took a bold decision to repeal the land ceiling law.
Once the government had won parliamentary approval for the plan, it advised the states to follow suit and change their own laws accordingly. Most states acquiesced; Maharashtra, and a few others, held out. To get the laggards to fall in line, the government in New Delhi dangled a carrot in front of them. States were told they could tap Union government funds to rebuild their creaky urban infrastructure, provided that, among other things, they removed the draconian land ceiling law from their statute books.
The repeal of the land ceiling law in Maharashtra was “long overdue,” says Magazine of CB Richard Ellis.
The restrictive legislation choked Mumbai just as it was straining to expand. Mumbai, which looked both listless and hopeless even until the late 1990s, began its comeback after the Indian economy, and the stock market, came out of slumber in 2004. This year, a survey of global centres of commerce by MasterCard Inc. put Mumbai in 10th place—ahead of Shanghai, Hong Kong, Sydney, Singapore and Zurich—in “financial flows”.
Already, the National Stock Exchange, based in Mumbai, is the world’s second most active market for single-stock and index futures trading. The cash segment of the equity market has traded an average $4 billion (Rs15,920 crore) worth of shares daily this year, compared with less than $800 million five years ago. The currency market, too, is in the midst of an unprecedented boom. India’s daily foreign exchange turnover in April was $34 billion—almost a fivefold increase since 2004, the Switzerland-based Bank for International Settlements noted in a recent study.
Bollywood, Mumbai’s movie industry, is also doing much better now than a few years ago. All this means more business and jobs for Mumbai, and greater pressure on the city’s cramped real estate. Even tycoon Mukesh Ambani has had trouble this year with the ownership of the land, where he wants to build a house. And Ambani is the richest resident of Mumbai—or rather, one of the wealthiest denizens of the planet—with a net worth of about $49 billion, according to Forbes magazine.
That should tell you how tough it is for ordinary millionaires—the poor investment bankers—to find decent accommodation in the city. Maybe now they will have better luck.
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