The Maharashtra Government's decision to increase rates for properties on a long-term lease has left the builder community fuming, reports Shubhangi Bidwe.
With real-estate prices skyrocketing, the rental market is also on an upswing now. Renting properties on a long-term lease basis is going to become as difficult as buying them as the state government recently approved a new lease rent based on ready-reckoner rates. As a result of this decision, lease rents in Mumbai are likely to increase by almost 18,000 times. The government had originally decided to alter the lease rent policy in 1999. But as most property owners were against the decision, it had to abandon its plan in 2006. Now with the law being passed, builders are again up in arms.
"This is a disastrous move for the industry," avers Subodh Runwal, Director, Runwal Group. "With Mumbai already being unaffordable, this will make it even more so. It is against the national objective of providing affordable housing for all." Vyomesh Shah, Managing Director, Hubtown, concurs, "This revision will not only lead to cost escalation for builders, but will also hit end users as their occupancy costs will go up."
What's more, the government's move to restrict the period of lease to only 30 years has further irked the builder community. Earlier, the property lease used to be for 50 or 99 years but now no property will get a lease renewal contract beyond 30 years. "This move will have far reaching effects on the rental and lease property market in Mumbai," says Paras Gundecha, President, MCHI- CREDAI. "It will put potential leases in a quandary."
Asked about the policy's effect on the city's ongoing projects, Cherag Ramakrishnan, CEO, Equinox Realty, is reticent. "It's difficult to gauge right now, we will have to wait for the results to show," he says. On the other hand, Runwal is more forthcoming. "It will complicate project development further," he avers. "There is no clarity on what will happen after 30 years. With supply getting further restricted, even prices for freehold land will go up." For his part, Vaibhav Jatia, Managing Director, Rhythm Realty, believes, "What are really going to be affected are prime parcels of suburban land, such as bungalows on Juhu beach or premium properties in Bandra. However, it will not affect the general development in the city."
While builders continue to discuss the aftereffects of this proposed law, a pertinent question is the government's intention for proposing this decree. "The government is trying to increase its revenue by burdening the middle class," says Runwal. ôIt is effectively dissuading them from going for lease properties." To this Shah adds, "The government's primary aim should be to make affordable housing available and not raise revenue at the cost of the middle class."
All considered, at a time when the whole industry is reeling under the effects of the global slowdown, this move appears to have worsened the situation. We hope better sense prevails and we see a reformed law soon.
Explaning the dynamics of the change, Anuj Puri, Chairman and Country Head, Jones Lang LaSalle India, cites the example of Mumbai SBD central area. " The leasing activity in Mumbai SBD central was primarily driven by enquiries about leasing space in recent completions or buildings in advanced stages of construction," he states. "Now after the formulation of this policy rents across all the sub-markets, except CBD, SBD North and Eastern Suburbs are expected to grow marginally during 2012 from the 3Q12 levels.
In 3Q12, majority of leases has happened in Indiabulls Finance Center Tower 3 at an average monthly rate of Rs 130 to Rs 140 per sq ft."
In a snapshot
Subodh Runwal, Director, Runwal Group
Vyomesh Shah, Managing Director, Hubtown
Vaibhav Jatia, Managing Director, Rhythm Realty