There is a huge real estate mafia which holds prices unrealistically high in Mumbai. I have no grievances – but it is mispricing all the services available in Mumbai.

A trust which owns a school in Santacruz, Khar, Ghatkopar or Chembur (just 4 suburbs) can charge whatever fee it wants. Does it mean the teachers are paid well? NO. The answer is no.

Schools, hospitals, nursing homes, hotels….are all getting a HUGE RENT – using the word economists like. Rent is got by somebody who has occupied a position where a new person cannot come. So a bribe by a government officer is also rent.

Now this has meant complete shutting out of supply of schools, colleges, hospitals. Since it is difficult for children to travel people pay exhorbitant fees for bad schools – proximity of rich people is good for a school. To justify the fees the schools shifted from SSC to CBSE / ICSE ..and then to IB. Doctors are taking patients to Pune / Hyderabad for surgeries – a case of INTERNAL medical tourism?

A hotel situated just outside the railway station – immaterial of whether it is VT, Thane or Malad can charge such a huge premium it is not funny.

One day when prices in Mumbai falls (most top heavy things fall, do they not? look at Tokyo) all these hotels, hospitals and schools will have to reprice.

However if the fall in price is because the middle class shifts to Pune, Baramati and Hyderabad, then prices will not just fall, it will crash.

Related Articles:

Post Footer automatically generated by Add Post Footer Plugin for wordpress.

  1. Hi Subra,
    Do you really feel this is likely to happen ? I see so many people coming to Mumbai to make it big and settle down here.

  2. 2 Prime Reasons for the above.

    1. Lucky to be unregulated.

    2. Emotional Appeal.
    a. Dream to own a house.

    b. My Child should have the Best of Education – Fees immaterial

  3. i like Kishore’s response better than Sachin’s. In my life time, a black man became the President of US, in my life time a backward caste woman is likely to become the PM of India, in my life time we had a Sikh president, a Christian controlling the country, a Muslim president.

    Have seen the Berlin wall fall, oil prices at $ 150, Sensex at 100 and at 21,000. ….the list goes on.

    There is no logic about a lot of prices. Do I see a lot of people coming to Mumbai? Yes, but at the lower end of the buying pyramid, not at the upper end. Lower end jobs have to shift out of the expensive parts of Mumbai to the outskirts (we love to call it Navi Mumbai…right up to Pune).

    so let us see what happens. If the land mafia is broken (not easy) prices will come down. If more people are laid off…how will they pay the EMI..

    THIS blog is not about predicting. It is about forcing people to think.

  4. mumbai has already seen a big housing crash -not that far back. starting in 1994 ,house prices kept softening till 2001-2002.

    agree about rent seekers.also need to point out about rent deniers -those in south mumbai who pay a pittance because of their protected status under mumbai’s rent control act.
    the rentiers benefit,at the cost of rest of us.ofcourse,the rentiers are a vocal minority with appeal to the votecatching MPs.

  5. All this hype of rising housing cost will never going to crash is false, but I wish I know the correct timing. I visited Bhayender a week back to purchase a house costing Rs3500 per sqr ft now after two weeks when I revisted the same place they said its now Rs3800 psf.
    So many constructions are going on but demand is not rising with the same pace, and this hype of real estate prices never drop is the emotional feeling. How to explain this to my family is another problem.
    RBI is pumping money even after rising reverse repo & repo, which is why it is taking time to suck all fiat money out from the system.
    I feel this bubble in RE will going to brust, wait for sometime.
    DOnt take your emotions to have a home of your own, instead invest the same in some place to grow your kitty and use it when the RE market will drop!

  6. I’m a NRI ….. working abroad and doing pretty well here…. and even then I cant afford a decent flat I like for less than 1 crore….. even in Borivali.. What I get for 1 Cr is a shit hole. I hear that prices are going to drop but the problem is that the builders are earning enough by selling only 40- 50% of the total flats built, hence builders can easily sustain themselves even in a slowdown. They get away with exhorbitantly hiked floor spaces they sell i.e – super build up etc. Who wants a swimming pool? I have a friend who has a swimming pool in his building but it has never seen any water for the last 3 years. These swimming pools are if at all used, are used by men ….. which lady is going to go out in her swim suit for the entire building to ogle at her? Thats what I think… may be I’m not a very open person. I have waited for last 18-24 months or so ….. and its frustrating….. Only pray that everyone gets some sense and put their foot down and resist. Only a few resisting is not going to help. Forums like these are a great way of making people think.

  7. hasmukh saheb levanu nai…after all if we do not buy, they cannot sell! People buy houses much bigger than what they need and keep it closed. If all the people who own houses give it on rent, rents will come down. If rents come down real estate prices will come down.

    funny people keep money in banks. Banks lend to builders. Builders hoard flats and keep prices up.

    However the share prices of real estate companies are not doing well…it is a vicious circle of high prices and low interest rates.

    As more people refuse to buy in Mumbai – and buy all over the other parts of the country, things will change – otherwise this will happen.

  8. Subra, you hit the nail on the head when you say ‘this space is to make you think and not to predict’ – the unrealness of Indian RE is because ‘us morons’ we fail to think (too lazy) and yet want to buy flats in complexes with gyms and pools (some irony for sure) – for all who debate and manage to use their discretion to defer a buy rather than succumb, will do well to read this recent article in the NYT (see the link) –
    http://www.nytimes.com/2010/08/23/business/economy/23decline.html?_r=1

  9. “However if the fall in price is because the middle class shifts to Pune, Baramati and Hyderabad, then prices will not just fall, it will crash.”

    This seems likely (gradually though) as 3 of my very few friends (who did not basically belong to Mumbai) have shifted to other cities (2 to Pune and 1 to Hyderabad) due to affordability issue (of which Home is the most important) and are very happy there.

    Those who were already mumbaiya’s are well settled there as they need not bother buying a house (as there ancestors have solved this problem for them).

    It’s not only in my friend circle but also in there friend circles…

Leave a Reply

Your email address will not be published. Required fields are marked *

You may use these HTML tags and attributes:

<a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <s> <strike> <strong>