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The fortune at the bottom of the pyramid

20th January 2018

Whilst in Mumbai I met up with a property developer, who is the scion of third generation family wealth.  His great grandfather made his money in shipping in the early 1900s.  He wisely invested the money earned into land; lots of it.  To the point they became one of the largest owners of land in Mumbai.  As the generations expanded, the land ownership and wealth got diluted amongst the family members.  However, my colleague had the foresight to buy the other family members out piecemeal by piecemeal.  So now all the wealth has been re-concentrated, under single ownership.

The meeting was a quick lesson in the politics and law applied to land owners, also known as zamindars.

The Urban Land Ceiling Act came into force in 1976 under the socialist policies of the Congress Government.  In essence it meant, if any one person owned more than 500 square metres, it would be sold to the government for a nominal figure.

Unsurprisingly those with land were not prepared to give in so easily.  Instead, they transferred their land to the local mafia at a price higher than the nominal figure offered by the government, this in turn ensured the land was nicely occupied by slum dwellers in very little time, leading to the birth of many of Mumbai’s slum areas.

In November 2007, this act was repealed in Maharastra.  This meant the landowners could reclaim the land back.  The titles were clean, however, they had the added issue of the land being occupied by thousands of slum dwellers, who had by now firm homes and community networks all over them.

There were two ways to solve this situation, by the stick or the carrot.  The stick approach, though told to me verbally is not worth writing about here.  The other approach, the way of the carrot, fortunately is what my colleague chose. He seduced the slum dwellers to vacate the land in exchange for decent apartments.  The term ‘slum dweller’ has very negative connotations.  Perhaps the statistics will put this into perspective, Dharavi, the largest slum in not just India, but Asia, sprawled over 530 acres, produces over $1bn per annum.  Slum dwellers have money, and aspirations.  Many of the families have worked hard and put their children through education in good schools.  They wish now to have stable living accommodation.

This offer led to some horse trading.  Initially, the slum dwellers were suspicious of the deal offered and the paper work involved.  So, they started the ball rolling on a very small scale.  As they realised the promises made where kept, the word spread and now the developer is in a position where every apartment he makes is oversubscribed by the former slum dwellers.  The apartments have conditions set by the government, rather like the council houses do over here.  This means once they have been bought they cannot not be resold for a period of ten years.

But like many laws, where there’s a will (and a good lawyer) there is a way around.

These apartments occupy only 269 sq. ft.  This exercise has now led them to not only offer them to the slum dwellers, but to the wider market at large.  There is a massive appetite in the bottom end of the market.  Real Estate in Mumbai has been rising heavily over the last few decades.  It has now been priced outside of the range of the majority of the population in Mumbai.  This bottom end of the pyramid is very resistant to fluctuation, in stark contrast to the top end of the market.

At the bottom you have the basic human need, in the same way humans need to eat and breath they also need shelter.  Parallels can be drawn in the London market.  Now the fortune is at the bottom end of the pyramid.

Suresh Vagjiani

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