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Why Are Homes
In Mumbai So Expensive?
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Mumbai’s real estate
prices are never out of the news. From the sale of spectacularly expensive
trophy properties in South Mumbai to the ever-widening affordability gap for
middle class home seekers, the city’s residential real estate market is under a
constant jaundiced limelight.
What are the factors
that have been driving Mumbai’s real estate prices so high over the years? To
understand this phenomenon, one needs to examine it from the two primary real
estate variables of demand and supply.
Supply-Side
Factors
·
Geography
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| Anuj Puri, JLL India |
Geography is one of the
primary factors responsible for Mumbai’s astronomic real estate prices. The
city is surrounded by water on three sides; as a consequence, Mumbai has never
seen circular development like most other Indian cities. Development was always
linear (or one-directional) from the South towards the Northern suburbs.
A combination of factors
such as distance from the Prime South city centres to the suburbs, coupled with
lack of robust infrastructure connecting these places, has led to prices
surging in the Prime city centres and the immediate peripheries such as Prime
North (Bandra-Juhu) and South Central (Byculla-Chembur).
·
Government Policies..!
Government policies with
regards to ready reckoner rates can also be seen as one of the responsible
factors. For instance, in the recent years of 2013-2015, the Maharashtra
government has been increasing ready reckoner rates by 15-20% across the city.
This is a significant jump for a city whose prices are already on the far side
of high – and considering that in other major cities, the increase was
relatively moderate. For instance, Gurgaon witnessed an increase of merely
10-12% during the same period. These factors limit the market’s ability to
bring in new supply at speeds that matches with the rise in demand.
·
Locked Land...!
A significant chunk of
Mumbai’s severely restricted land is currently locked in slums and dilapidated
buildings. This land needs to be released by offering viable incentives to
interested developers.
However, the many attempts by the state government to rehabilitate
dwellers of such homes in the Prime city centres have met with very limited
success, either on account of poor implementation or because slum dwellers
cannot be brought to agree on what constitutes a good deal.
·
Slow Infrastructure
Deployment..!
Meanwhile, the slow
progress on infrastructure has not allowed the city authorities to open up new
land parcels for development.
Major projects such as the Mumbai Trans-Harbour
Link (MTHL), coastal road network, the Navi Mumbai international airport,
various phases of the proposed Metro links, etc. have made very slow progress
in decongesting the city.
Consequently, end-users still prefer living in
established localities where they have access to necessary transport
infrastructure – and ignore the upcoming locations which do not offer this
benefit.
Demand-Side Factors...!
·
Investor Activity
High investor activity
always plays a big role in driving up real estate prices, and Non-Resident
Indian investors comprise a significant chunk of residential real estate buyers
in Mumbai, since it offers better returns for property investment when compared
to cities in their countries of residence.
Another reason for high demand from
NRIs for a property in Mumbai is the fact that Mumbai, as a global city, offers
a standard of living that can match what they have grown accustomed to in
developed countries. Inhabitants of the city’s far suburbs would contest this –
but those who can afford homes in the central locations would not.
Indian developers are
constantly courting NRI and PIO investors in their countries, and many even
have permanent offices there for this purpose. Often, as much as half of their
inventory is sold to such investors even before local brokers get wind of the launch.
·
Heavy Inward Migration..!
While many Indians
aspire to move to first world countries in order to increase their income as
well as lifestyle quotient, this is an option only for those with the right
education and skills.
The relatively low-skilled would find it almost
impossible to ‘make it’ there. For the latter class, the more feasible option
is to move to big cities like Mumbai, where per-capita income is nearly double
of the national average even if quality of life is poor. The constant
need-based migration to Mumbai encourages landlords to hold onto high prices.
·
Increasing Local Nuclear
Families..!
Mumbai has been India’s
commercial capital for more than a century, and has attracted droves of the
country’s educated population for several years.
The city’s current
inhabitants, who may be the second or third generation of its residents,
comprise of people that are now require additional homes because nuclear
families are on the rise.
For such inhabitants, the high property prices are
not as big a deterrent as they are for outsiders, given that they already own
property in Mumbai and are well-entrenched in their professions.
The preferred route is
to sell an apartment in a prime area and purchase two apartments in a
relatively sub-prime area with some additional investments in order to
accommodate two families.
In other words, inherent demand from Mumbai’s local
inhabitants is always rising – and this naturally reflects on property prices.
In
short…
The ever-increasing
clamour for a rationalization of Mumbai’s extremely high real estate prices
notwithstanding, the above factors cannot be wished or argued away.
The
fundamentals that drive demand for homes in the city are the reason for Mumbai
developers’ apparent ability to defy gravity and keep residential prices so
high. The fact is that sales are happening for all the above reasons – and they
will continue to happen.
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