Mumbai is denying the luxury of buying a new property by owning exorbitantly priced real estate. Most of the population living in Mumbai live in houses that were bought long before prices went through the roof or live for rent or in the Pagadi system. The Pagadi system is an old rental system followed in Mumbai since the time of World War II. It is very similar to the rental system that is prevalent worldwide, but the only difference is that the tenant also becomes a co-owner of the land.
The system protects the tenant more than the traditional rental system. The landlord will not be able to evict the residents easily and the tenant has the right to sell the house! The tenant has the right to the house but not to the land. The home can be sold to a new tenant for a percentage of the equity value and a percentage of the money earned goes to the tenant, while the majority is returned to the owner. The tenant pays a nominal amount as rent to the land owner! Banks do not support this system of renting or buying a house, understandably!
This system causes many legal problems, especially for the landlord who has to go through a long and painful process if he decides to evict a tenant. In addition, the Rent Control Law had protected tenants who pay a fixed rent and also their right to the property rented by the Pagadi system is transmitted by inheritance.
However, the Maharashtra state government has now decided that it will no longer include residential properties of less than 500 square feet and commercial properties of less than 800 square feet under the Rent Control Act. This will directly affect the Pagadi residents of Mumbai who have been residing for years in the rented houses! Nariman Point and Marine Drive, two of the most expensive real estate locations in Mumbai, are dotted with Pagadi properties. A total of 52,000 people are estimated to still live under Pagadi!
This is good news for homeowners who will now have the power to enforce rent based on equity and tax. It will also allow homeowners to relocate people if they are unable to pay the property taxes the government seeks to collect.
Although in a sense it seems that the unfair balance with the owners has come to an end, it should be noted that many of these Pagadi residents have also paid their owners huge sums of money and asking for more would put them in a bind. The solution would be for the owners to take the remaining money and register the property in the name of the tenants.
Residents of South Mumbai will be the most affected by the change in legality as many properties are under the Pagadi system.
