In Bombay Everything Is Up: Skyscrapers, Shantytowns, Towering Rents : Real estate: Office space costs in prime areas have soared 67% since 1993, and apartments in fancy neighborhoods have risen 54%.

BOMBAY —  One of the world’s most densely populated cities, Bombay has long been a money-driven financial center filled with skyscrapers and shantytowns.

Businessmen driving home at night in air-conditioned luxury cars often pass by sidewalks filled with sleeping homeless people.

But few people ever expected the gulf between the city’s rich and poor to widen as far as it has in the last few years.

Today, rents for prime office space in Bombay are the highest in the world--slightly more than Tokyo and four times more than Manhattan, according to real estate companies.

Office space and apartments have never been cheap in this city of 11 million people, at least for the 40% who do not live in slums filled with migrant workers.

Many of India’s wealthiest families have long lived in Bombay, and most Indian companies set up their headquarters here.

But it was the free-market reforms that the national government in New Delhi began introducing four years ago that ignited Bombay’s real estate boom.

Foreign companies have rushed into India looking for business, and most have opened offices in Bombay.

At the same time, uncertainty over the transfer of Hong Kong to China’s control in 1997 prompted rich Indian businessmen living in the British colony to make a security investment in Bombay real estate.

As a result, office rent in prime areas has soared 67% since 1993 to about $145 a square foot, and apartments in fancy neighborhoods have risen 54% to about $80 a square foot, consultants say.

Tenants also have to pay several years of rent in advance, sometimes as much as five years’ worth, before moving in.

While residential rents are still in line with other major cities of Asia, the commercial boom has made Bombay’s prime office space the most expensive in the world, surpassing Tokyo, Hong Kong, New York, Los Angeles and London.

The trend worries some people in Bombay, who fear businesses may begin looking at other Indian cities as a base for their operations.

“If a company plans to invest $10 million or $12 million in India, it surely does not want nearly $2 million locked up in rents and security deposits,” said Arvind Khanna at the New Delhi office of Richard Ellis, a Hong Kong-based real estate consulting firm.

Already this year, two British companies decided to move either to Bangalore or Madras, said Deepak Parekh of the Housing Finance and Development Corp., a bank for financing developers.

Many other companies have transferred some executives to other cities because they cannot afford to pay their apartment rents.

A modest three-bedroom apartment in a nice neighborhood can cost the equivalent of $5,600 a month, plus a hefty security deposit sometimes equal to a year’s rent. Salaries for mid-level executives at bigger companies range from about $1,600 to $3,200 a month.

Although the soaring rents disturb some companies, the boom is luring big Indian industrial companies into real estate investment in Bombay. And foreign real estate firms are clamoring for a change in federal laws that would allow them in, too.

“The returns on real estate are higher than in industry,” said K. G Krishnamurthi, another official at Housing Finance and Development.

Even low-cost housing is a profitable business. The city needs at least 1 million new homes just to meet existing demand, and an average of 600 migrant families arrive in Bombay each day.

The government is clearing slums off municipal land and tracts once used by textile mills that went bankrupt. Once the land is sold to developers and they build apartments and offices, along with homes for poor people, real estate prices could level off, officials say.

But that possibility is not expected to deter investors for now.

“Bombay is still the place to put your money in,” said Khanna, the Richard Ellis consultant.