Bombay High

That was just a ‘one-off’ deal says Abhinandan Lodha, builder and son of the richest Member of Legislative Assembly Mangal Prabhat Lodha, who has premium building projects springing across two of the expensive real estate belts: South Mumbai’s Napeansea Road, and Worli seaface. But, ask Lodha the under-construction price of apartments in his Napeansea Road one floor-one flat project and his answer gives you a different story. ‘‘The apartments are all above Rs 10 crore and sold out. My buyer is paying as he wants to feel exclusive.’’

LODHA’S building might be one-off, but his figures definitely aren’t. The ‘‘reality boom’’ as many call it, is quoting rates double of the New Delhi market—Rs 25,000 to Rs 35,000 per sq ft for premium south Mumbai.

A Rs 45,000 per sq ft deal in Manhattan recently got the New York real estate market buzzing, or closer at London, flats in prime downtown can cost you Rs 12 crore depending on the amenities, according to industry sources.

Some projects in south Mumbai when completed in 2006 would see a jump of another few thousands, offer realtors who are equally flummoxed at the price levels. Even a Malabar Hill’s prime property—the sea facing Suneeta—a highrise occupied by industrialists and investment bankers—which realtors agree is one of the most expensive property, has not gone beyond Rs 35,000 for a complete flat.

But then how would you explain central Mumbai figures: say diamond merchant’s seat in Charni Road, where existing ramshackles fetch a sale value of Rs 60,000 to Rs 80,000 per sq ft today. Or flats at central Mumbai’s Lower Parel—the second business mart—going for Rs 16,000 to Rs 18,000 per sq ft, some jacked up after some good deals that shook the market.

Deepak Parekh, chairman, HDFC dismisses this boom as a ‘bubble’ waiting to burst. ‘‘This is not driven by people buying for self occupation,’’ he says, ‘‘It’s ridiculous and definitely not affordable. Nowhere in the world do property rates go up on this scale. Prices are going up everyday. It’s a fraud.’’

His anxiety can be explained: Sellers of a basic 3-bedroom apartment in premium areas do not negotiate for anything below Rs 4 crore for a second-hand flat. Interestingly, even realtors are surprised that the age old business maxim still works: There is a buyer for every price. ‘‘We have all corporate chief executive officers as buyers for the south Mumbai flats, while our Worli flats at Rs 5 crore have gone to management heads and also to a lot of non-resident Indians who want to invest in India,’’ prides Lodha.

A SUPPLY starved market, an over-enthusiastic demand, bullish stock market, and a fattening GDP—all put in one sentence today translates into a property price mechanism. The infrastructure many others say is also a culprit. ‘‘If the government were to improve the infrastructure then the city would be stretched and the price mechanism would be different,’’ offers Rajiv Sabharwal, chief operating officer, ICICI Home loans.

So while Chanakya Chakravarti, joint managing director, Cushman & Wakefield India, might not really agree to the Mumbai—New York analogy—‘‘the prices of a few premium flats are not reflective of the entire market’’—he sure agrees that ‘‘there is some element of speculation in the market.’’ The land locked in mill land when opened, many offer, could be the corrector, along with redevelopment of areas like Dharavi or opening of eastern sea front.

‘‘The prices are going to remain firm for another 12 months as the fundamentals are different from what the 1994-95 boom was: Today it’s demand driven, it was solely speculation driven then. Today people have that kind of money,’’ offers Chakravarti.

SO, is ‘that kind of money’ easy to gather. ‘‘People are taking home loans from us, adding some of their own money and buying during the under-construction period. Once it’s constructed, they sell the property at a higher price, adversely affecting property rates,’’ explains Parekh. The Reserve Bank of India annual report quotes gross bank credit outstanding in housing loans in 2005 at Rs 75,173 crore—a 44 per cent jump compared to 2004’s Rs 51,981 crore. This is also due to the fact that banks do not question the profile of the buyer and only base credit worthiness for giving loans.

According to Rajiv Sabharwal, chief operating officer, ICICI Home finance, one also needs to shift their attention to the current interest rates, to understand the boom.

‘‘Six years ago, the interest rates were over 15 per cent. Today it stands at an all-time-low of 7.5 to 8 per cent.’’ Simply put, low cost of funds would mean ‘higher loan eligibility.’ But, this also means that with a slightest hint of interest rates sprinting up, there could be a twist.

Sabharwal, adds: ‘‘If it’s a buying versus renting decision, these days families go for buying,’’ but, Chakravarti cautions, that real estate will make for a good buy only if the use is immediate. ‘‘If one if looking at a long term investment option then opt for property in emerging areas with minimum capital erosion. Otherwise, please wait till this frenzy is over. It’s a cycle and the prices are definitely not sustainable. You might burn your fingers.’’