A Warning Sign in India

by on May 30, 2007 at 7:30 am in Economics | Permalink

In Maximum City, Suketu Mehta reports on a prominent sign in an office building.

                                                Attention
This building is unsafe and likely to collapse.  Persons entering the property do so at their own risk.  The owner of the property will not be liable for any damage to life and property.  Owners.

Inside the building are not drug dealers or homeless people but law firms, accountants and merchant bankers.  So what's the explanation?  This should be an easy one for MR readers but there's a hint in the extension.

Mehta also reports "The offices themselves are sleek, modern, air-conditioned, with computers blinking and flashing.  Only the building’s public areas are decrepit.  Gaping holes mark the first floor where windows should be…"

13 comments

Mustafa Sabuwala May 30, 2007 at 8:13 am

The Rent Control Act doesn’t give any incentive to the owners to actually maintain the property.
The rentals for some of these offices are the same as they were in 1950s.

nelsonal May 30, 2007 at 8:58 am

Is this a tricky way of showing transaction costs are lowish there (low enough that it’s worth investigating the soundness of the building for law firms/accountants) but not for drug dealers and other single person firms?

Shiraz Allidina May 30, 2007 at 9:17 am

This sounds like an office condominium to me, which is common in the developing world. Each unit is owned by the respective tenant. Common areas are governed by a condominium association agreement, with specific covenants, conditions, restrictions and obligations to maintain. If these obligations are de facto unenforceable due to a poor legal framework or high transactions costs, the common areas will become decrepit rather rapidly.

d.cous. May 30, 2007 at 10:27 am

The book looks interesting, do you recommend it?

Trevor May 30, 2007 at 11:15 am

You can’t really disclaim liability, but only high-end tenants are sophisticated enough to know this?

fmb May 30, 2007 at 12:14 pm

Perhaps it reduces the risk of theft.

vish May 30, 2007 at 1:22 pm

Usually, the problem in Mumbai is that the value of the land is so high and the rents so low under rent control, that the building owner is no longer interested in upkeep. He is waiting for the building to collapse, and then rebuild. So, he is no longer performing the usual maintenance of the public areas.

It is also probably a way to scare off the tenants’ employees, and thus hurt his tenants, to encourage them to move sooner.

Person May 30, 2007 at 3:49 pm

But … but … the building is still likely to collapse, right? So why do high-earning people expose
themselves to such risk? They typically wouldn’t gamble that way, right?

Alex Tabarrok May 30, 2007 at 4:16 pm

I should have quoted this also, the landlords “are getting, by force of law, almost nothing in rent for their land. So they will put nothing into repairs for the building; all they can do is put up these cautionary signs, which they hope will frighten away the clients of the businesses within.”

Thus, most of the buildings occupied by real businesses are probably pretty safe but as the previously quoted comments indicate it seems that some of the worst buildings do end up abandoned and dangerous eventually.

MattXIV May 31, 2007 at 6:52 pm

Tom/Shiraz,

Perhaps the landlords are actually prohibiting them from altering the common areas. They’d probably be the ones setting the policy regarding alterations to common areas and if the gains from clearing out the tenants and rebuilding are large enough to offset the benefits of tenant-provided repairs, they would have an incentive to prohibit the tennants fixing the place up.

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