Thursday, July 05, 2012

Markets in Everything: Rent Control Millionaires

Bloomberg: "Thousands of rent-controlled tenants in India’s fast-growing financial hub are becoming millionaires as developers tear down crumbling colonial mansions to build luxury towers for the rich.

Mea Kadwani, 78, has lived in the same apartment in the Mukund Mansion in Mumbai since he was a toddler. Thanks to rent control laws, he paid less than $20 a month for decades, and $23 a month recently, for a 2,600-square-foot space in the upscale Nepean Sea Road neighborhood, where rents typically top $2,000 a month. Now he’s moving on: After three years of negotiations, he and his wife pocketed $2.5 million from a real estate developer planning to turn the building into a garage for residents of its 29-story Villa Orb tower under construction next door."

MP: Amazing what government price controls can do to distort markets and create that kind of phenomenal "phantom wealth."  

3 Comments:

At 7/05/2012 8:57 PM, Blogger Gale L. Pooley said...

Wealth for the tenant, not the property owner. The government essentially gave this property to the tenant.

 
At 7/05/2012 8:58 PM, Blogger Don Culo said...

This comment has been removed by the author.

 
At 7/06/2012 5:35 AM, Blogger Kevin Carter said...

With an national, non-adjusted average income of Rs 53,331 ($961 USD), $23/mth is a not unreasonable 28.7% housing to income ratio; however, pre-development the average income of this area was likely closer to Rs 35,993 ($648 USD) (adjusted from 2004/2005 figures) which would be a dangerous 42.6% -- not much of a much of a bargain.

Reading the rest of the original article, it strikes me that it was more likely Rs 2.5M ($45,082 USD) unless this was a unique payout to a single hold-out tenant.

If developers want to transform coastal and other formerly poor (by Western standards) areas of India into prime real estate, it's only reasonable to my capitalist way of thinking that they absorb the associated costs, including what is effectively either relocating or rehousing the local population.

Similarly, the former owners have now been generously compensated for what must have been very profitable rental properties considering the extremely low original cost (again, by Western standards) and very inexpensive maintenance and upkeep typical in India.

The developers are making money, wealth is being redistributed, and jobs are being created: It seems to me that this is a success story that demonstrates just one of many reasons why India is full of investment opportunities.

 

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