Up a flight of creaky wooden stairs, young real estate agent Hemant Surve guides a prospective renter around a damp two-bedroom apartment overlooking the sea in the country’s teeming financial capital.

Flaking paint and dilapidated toilets leave his client, an American expatriate from New York, distinctly unimpressed but Surve says its dysfunctional plumbing and dour colour scheme is all she will get for her budget of $2,500 a month — plus bills.

“Many are willing to pay anything for a flat like this,” Surve says as he gestures at a bare sitting room, whose arched windows open on to a heap of ugly road construction material and huge cranes.

As global firms and some of their overseas staff flock to India to tap opportunities in its burgeoning economy, premium residential rents in cities like Mumbai and the capital, New Delhi, are going through the roof, Indian media reported

Add a rising number of high-income Indian professionals and a shift to a nuclear family from the traditional extended one, and the number of people looking for good homes is pushing rents to levels seen in the more desirable parts of London and New York.

“Mumbai is drawing big luxury liners and small ships alike,” said Sandeep Sadh, chief executive of online real estate firm www.realestatemumbai.com.

“Be it an expat worker or an Indian professional, the mind-boggling demand for high-end rented homes will continue.”

While residential rents have gone up across the board, they have surged 31% in the last quarter in Mumbai’s top-end areas like the financial district of Nariman Point, named as one of the world’s 10 most expensive locations in a recent CB Richard Ellis survey.

Tenants drawn from banks, information technology companies, securities traders and headhunters are driving the market in the city of 17mn people, property dealers say.

In New Delhi, upmarket southern suburbs have seen rents appreciate by 30% in each of the last two quarters.

“Values in New Delhi will remain buoyant as there will be no substantial supply in the next 12-15 months,” said a consultant with real estate firm Knight Frank. “The demand-supply situation in the premium segment is the same in Mumbai and New Delhi.”

In Bangalore, home to major IT firms, property prices have risen as much as 50-60% in the past six months, but have since fallen and stabilised at a rise of about 15% after new construction met part of the huge demand.

The high-end property market in Mumbai is witnessing a bizarre drama, where rents for some two-bedroom apartment can either match those in New York or Tokyo, or cost only a few dollars.

The cause is a six-decade-old rent control law - framed to insulate tenants from unscrupulous landlords - which millions of renters use to hold a large chunk of prime property, paying rents at 1940s prices.

The politically popular law has been extended more than 20 times and currently applies to roughly 60% of the thousands of buildings in the city centre.

Landlords, who cannot raise rents or redevelop their assets without the permission of tenants, have watched helplessly as market prices have soared and their properties have disintegrated.

“A change in the rent laws will free up a lot of premium properties, most of them commercial,” said Sadh.

“Thousands of properties could be available but even then it wouldn’t be enough to meet the demand in the residential segment.”

Mumbai’s high-end rental property mainly comprises decaying once-glamorous Art Deco apartment blocks, lining a seafront sweep in the south of the city.

In many such buildings, where rents can range from $2,000-5,000 plus bills, modern amenities are absent and even the lifts can be unsafe, pulley-worked contraptions from the 1960s.

Real estate developers and brokers say a combination of archaic tenancy laws, restrictive regulations for new buildings and shoddy infrastructure underlie many of the problems.

A lot of the properties are so old that their owners are long dead. With property titles unclear, builders avoid getting involved in evicting old tenants.

The pressure on the high-end property market has forced companies and individuals to look at the city’s northern suburbs, which are also seeing a rise in rentals and capital values.

But poor infrastructure connecting these northern suburbs to the rest of the city is a problem.