Rs 1,200 per sq ft: Mumbai realty bribery rate is half of the actual building costs.

3 min read

If you are wondering why real estate prices in Mumbai never fall despite the lack of buyers, look no further than a corrupt, rent-seeking bureaucracy. If the amount of money being sought as bribes by the municipal authorities for building clearances are any guide, the quantum siphoned off in corruption could pay for the bulk of basic building costs – excluding land and taxes.

According to a report in The Times of India today(24 October), bribes cost a builder anywhere between Rs 5-30 crore per multi-storeyed building and bribe demands in the island city are a whopping Rs 1,200 per sq ft, Rs 800 per sq ft in the Bandra-Andheri belt and up to Rs 600 per sq ft in the city’s eastern suburbs. Compare this with basic building costs of Rs 2,500-3,000 per sq ft.

In Maharashtra, it takes anywhere from one to four years for approvals to come in. A builder has to obtain about 60 approvals to build a property in this state. “Obtaining the various approvals raises the project cost by 35 percent,” laments Lalit Kumar Jain, national president of realtors body Credai. Builders then pass it on to consumers, and extend the circle of corruption and cash.

Earlier, the municipal body would clear projects with unusually large flower beds, car decks, etc, which were not included in the building’s floor space index (FSI). These concessions allowed the developers to build an additional 50-70 percent above the permitted built-up area and then sell the free spaces to buyers at the market rate. In fact, some developers would double the size of the saleable area by illegally merging FSI-free spaces into habitable areas.

However, now engineers intentionally hold up approvals to rake in the moolah from builders. Several builders told TOI that at every stage, officers and engineers demand Rs 5-20 lakh for basic permissions to start construction. “The all-important occupation certificate could set back a developer by over Rs 1 crore,” they said.

In other words, to fix things at their end, developers then resort to bribery and accounting malpractices. Such processes eventually have a spiraling effect on everything that the developer does: how they set prices for their projects, how they account for revenues, how they make payments to their suppliers, how they determine the value of their land holdings, and so on.

But we are not even talking of the biggest focus of corruption: land. Politicians are a big reason why urban land is scarce as people with political connections hoard large tracts and prevent the extension of city limits to push up prices. South Bombay is the best example for this. If a trans-harbour link connecting south Mumbai to the mainland were to be built quickly, thousands of hectares of land would be available for development. This is exactly why the trans-harbour link project may never take off till all south Mumbai land is redeveloped and sold. If the trans-harbour link is built, property prices in South Mumbai would crash. In fact, currently, it is the most indebted property developer in India.