Friday, November 23, 2007

Surreal estate

As booms and bubbles go, the stock market is not the only place on which one has to contemplate as Indians celebrate an economic surge. In the fuzzy game where numerical value in rupees and dollars are put on everything from consumer brand names and volatile shares to real estate, sometimes it is difficult to digest the large numbers that come our way, and it becomes necessary to examine the causes that lie behind crazy numbers. Only a few days ago, Kushal Pal Singh, the man who made rural Gurgaon a corporate centre, was hailed as the world’s richest property tycoon after his worth was estimated at $ 35 billion by Forbes magazine. This week comes the news that it costs around Rs 625 per month to rent a square foot of office space at upscale Nariman Point in Mumbai, which is second only to London’s West End, where it costs Rs 1,080. Delhi, with rental costs of around Rs 415 a month per square foot at Connaught Place, is at the eighth spot.

Is all that surreal? Perhaps, but with caveats all the way. It is misleading to apply to an entire city the yardsticks one applies to the main business districts, particularly those that involve a vanity value that has more to do with the pride of the rich than business utility. Also in the news this week is the sale of a Nariman Point apartment for Rs 34 crore by Citibank to an NRI, who apparently bid upwards of Rs 97,000 per square foot in an auction. Who are we to argue with a tycoon who fancies the Arabian Sea breeze from such heights and is ready to pay for it? But having said that, it must be acknowledged that there is a lot at work to generate deep demand for quality urban real estate in India.

Growing urbanisation in general, aided by demographic pressures, have created a general climate of needs and wants for homes and offices. Since infrastructure is still lacking in many areas, location and facilities follow the laws of demand and supply. The growth of world-class offices, resulting from an influx of multinational companies, are creating the financial push that strengthens demand. If one adds the fact that foreign investment has begun to enter the real estate sector to reap the rewards of relatively higher returns, the boom appears very real. However, there is such a thing as the right price. When temporary shortages and vanity purchases drive up prices, it is safe to guess that increased supply will be the answer. But there are no easy answers to how far vanity could or would go.


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