India’s commercial capital is seeking to curb soaring rents and prices for offices and homes by easing a 30-year-old law that limits the amount of land available for development in the city of more than 17 million people.
Lawmakers in Maharashtra may next month vote on changes that could add as much as 500 hectares (1,234 acres) of space to the city’s property market, Vilasrao Deshmukh, the state’s chief minister, said in Mumbai on 2 June.
Mumbai, the state capital, is pushing a $12 billion (Rs48,624 crore) plan to upgrade infrastructure stretched by its transformation from a textiles and port city into a financial hub that’s attracting global banks such as Citigroup Inc. and Goldman Sachs Group Inc. Office rents in Mumbai’s financial district of Nariman Point last year rose at least three times as fast as in New York and Hong Kong.
“Prices have to decline when more land stock is released and developed,” said Lalit Jain, chairman of Kumar Builders, a developer of low-cost houses in cities including Mumbai and Pune. “Prices of land rose over the years as a shortage was created. Builders earned a lot of money as a result.”
Deshmukh expects the state legislature to start considering in July changes to the Urban Land Ceiling Act of 1976, which limited an individual to developing no more than 500 sq.m. The state government is determined to change the law in the next assembly session, he said.
Known as Bombay until a decade ago, Mumbai is home to India’s biggest companies and the main trading centre for stocks, gold, diamonds and oil. India’s $854 billion economy has grown by an average of 8.6% a year over the past four years. The expansion of houses and offices hasn’t kept pace with Mumbai’s burgeoning economy and about half its population live in slums, Deshmukh said.
The development programme includes Rs10,000 crore over seven years to develop Mumbai’s Dharavi region, Asia’s biggest slum, replacing unregulated huts with houses connected to water and electricity.
New York rents rose 12% in the first nine months of last year to reach $37.50 per sq.ft. in September, according to Cushman & Wakefield. Office rents in Nariman Point rose about 40% in the same period and extended those gains through March this year to a monthly average of Rs350 per sq.ft. as of March, the highest in more than 11 years.
Hong Kong office landlords raised monthly rents by an average of about 18% in the first nine months of last year, according to a Jones Lang LaSalle LLC report. Grade “A” Hong Kong office rents averaged Hong Kong $80 ($10.24) per sq.ft. in the first quarter of this year, according to DTZ Holdings Plc.
“Changes in the Urban Land Ceiling Act will be a positive development,” said Rajiv Sabharwal, head of housing loans at ICICI Bank Ltd, the biggest provider of consumer loans. “Its removal will help bring in more land to the city.”
The development programme, which calls for the involvement of private companies, also includes $5 billion for a new elevated rail network to ease congestion on the city’s trains, which transport half of Mumbai’s estimated 11 million daily commuters. Mumbai and its suburbs may house as many as 22 million people by 2015, making it the world’s third-most-populous city after Tokyo and Dhaka, according to a United Nations report.
The Anil Dhirubhai Ambani Group will build the initial 11 km by 2010 for Rs2,400 crore. The network, when complete, will cover 146km.
(Kelvin Wong in Hong Kong contributed to this story.)