The fortune at the bottom of the pyramid

Tuesday 16th January 2018 06:28 EST

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In November 2007, this act was repealed in Maharashtra.  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.  

Agony Agent is here to help!

Q:  My tenant is potentially looking at ending her tenancy early.  What should I do?  The tenant has only just recently signed into a Fixed Term Tenancy; however, she is struggling financially and may be separating from her partner, who is also a named tenant on the agreement.

A:  Ending a tenancy agreement early depends on having a break clause or an understanding landlord.  This is unfortunately a fairly common issue for landlords, and I have been asked many times as to what the responsibilities are of both.

What is a Fixed Term Tenancy?

A Fixed Term Tenancy is a tenancy agreed for a term – in most cases as an Assured Shorthold Tenancy – this is between 6 months to 3 years.  We are seeing a definite increase in the demand for longer term tenancies.  The tenancy will have an agreed start date and end date, and unless there is a significant breach of the agreement, or the agreement contains a break clause, this agreed term is contractually binding on both parties, and may be enforced by either party.

A Fixed Term Tenancy may include a break clause allowing both to terminate the agreement early.  If you give a Fixed Term Tenancy with no break, you will only be able to seek possession if one of the grounds for possession in the Housing Act 1988 apply, and if the terms of the tenancy allow for it to be ended on any of these grounds.

Ending a tenancy agreement early with a break clause

A break clause is a term in a Fixed Term Tenancy agreement, which allows either person the right to end the agreement before the end of the agreement.  Having a break clause can give both parties flexibility to end the agreement early.  At times tenants and landlords like the flexibility provided by a break.  It seems sensible when including a break clause, that both parties can give the same notice period, e.g. two months.

Mutual agreement between landlord and tenant

In the situation above you are not under any obligation to agree to ending the tenancy agreement early with the tenant.  Regardless of the tenant’s personal circumstances they are contracted to pay the rent to you for the remainder of the fixed term.

Personally though, I would prefer not to have a tenant living in my property who is struggling financially, and always having to worry whether the rent will be paid on time every month.  I also prefer to have a positive relationship with my tenants, so I’d choose to work with them to come to an agreeable solution.

As part of our full management package, we have worked with many landlords and tenants to reach a solution to ending a tenancy agreement early.  This usually requires the outgoing tenant to continue to pay rent until a new tenant is found and they would also agree to pay for the cost of finding a tenant.  Once a new tenant is found and referenced, the landlord would agree to an early termination date.

Richard Bond

Lettings Manager

Sow & Reap

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