US Elections & Mumbai Realty : The Common Conundrum

 

 

 

 

Economic Power v/s Political power is a challenging task faced by these institutions and in addition they have to balance a third critical factor.

 

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US is the most diverse nation in the world, and Mumbai - the most diverse city in India. This diversity has led to a strange conundrum that is common to both.

 

During the last 50 years, large cities in India have seen large migration as well as rapid changes in consumer aspirations. Resultantly, we had two faces of these cities - the old establishment or the core city ; and the new zones (Island city vs Suburban Mumbai, Delhi vs Gurgaon/Noida, Bengaluru city vs Whitefields/Devanahalli etc. ).

 

Historically, the core city would house the powers centres - govt offices, key markets, centres Arts & Entertainment etc. making it more sought after and hence with expensive real estate.  The migrant population, typically with lower budgets, moved to the newer zones. Slowly, the population of newer zones started dominating the population of urban conglomerate. As the centre of gravity of cities shifted, so did the emerging power centres - Malls, Multiplexes & Corporate offices. Further, new locations also offered buildings with modern tastes. Gradually, the original gap between the soft powers of old and that of the new narrowed down significantly.  Realizing this, the old city residents also aspired to live in modern buildings. Moreover, many old buildings had become dilapidated, so they had to anyway be reconstructed. The issue was – who will pay for reconstruction? The problem was more complex since old buildings typically housed protected tenants (representative of the politically critical - lower and middle class). 

 

In this situation, Govt of Maharashtra was the first one to find a creative solution. In 1990s, it came with the concept of “Incentivized Redevelopment”. Any building within the core city that decided to redevelop was allowed to build additional area, which could be freely sold in open market and thus generate revenues to finance the entire redevelopment. With the core city home prices being very high, redevelopment became super-lucrative business for Developers. As a result, tenants got free homes in modern buildings and the Govt received political dividends.  Tasting this success, the Govt permitted Incentivized Redevelopment to all areas within Mumbai city. What followed was a sense of “entitlement” of “Free Home” among residents wanting redevelopment.

 

Now, over the period, increasing cost of construction and rising aspirations of tenants of old buildings in the form of larger area and better amenities escalated the costs of redevelopment projects significantly.  This made new homes expensive, creating resistance for movement of migrants into the city. Govt realized that lack of migrants would make Mumbai economically uncompetitive. To manage the above situation, the Govt further increased the incentive FSI for redevelopment. This solved the immediate problem but with a future cost to the city – lesser open spaces and increased pressure on city amenities – leading to poor livabilty. If this trend of increasing incentive continues, the city risks reaching a stage where poor livability would make both old residents as well as migrants unhappy. Therefore, the challenge before the Govt of Mah (and in future for other state government) is to find the right balance between

 

The Economic Power  (the migrants are needed to keep city competitive and thus keep a property prices low)   

v/s

The Political Power ( the tenants and owners of old buildings, who would continue to expect free homes of larger size which is possible only when home prices are high, bcoz only with high prices  can a Developer cater to tenants’ demand of free homes with larger areas )

 

AND amidst this battle, also to balance the living experience in the city

 

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A nation that desperately needs to attract migrants to retain its status as the Economic Power of the world is United States. However, the Political Power in US lies with the traditional residents of US. To remain internationally competitive, US will have to keep the wages low which is possible only by relaxing laws for migrant workers, however that would make the traditional residents unhappy as they look high wages as their “entitlement”. AND amidst this battle, US will also have to consider the impact on its livability. The key to US’s high livability has been - democracy, freedom and the bon homie among residents. Increased rift between old and new can disturb the livability.

 

The balance between Economic Power and Political Power while balancing the livability is a challenge that leaders of both these institutions will face.  November 2024 is the time for decisive inflexion. And post their elections, Mumbai Realty and US Economy are both looking at creative solutions from their future leaders. The hope is on…!

 

• DEEPESH SALGIA

          is the author of REAL ESTATE : The Good, The Bad and The Unanswered