Why are homes in Mumbai so expensive?
by gross fixed capital formation. The current stance of the RBI also underlines its concern that despite a total of 125 bps cut in the repo rate by the RBI till September 2015, banks have not yet transmitted enough benefits to the end consumers.”
However, a large section of realtors believe that the RBI monetary policy announcement keeping repo rates unchanged did not meet the expectations of the real estate industry.
“I welcome the RBI maintaining the status quo in policy rates with the repo rate remaining at 6.75%. Since January the RBI has cut rates by 125 basis points. However, for sectors like real estate to thrive, housing loans need to be stimulated by further rate cuts,” says Prashant Solomon, MD Chintels India Ltd and Credai NCR Treasurer.
Agrees Sanjay Gupta, senior vice-president, marketing, M3M Group. “We were expecting a rate cut which would have helped in improving market sentiments in these stagnant market conditions. Rate cut would also have brought some respite to customers with their existing home loans,” Gupta says.
“We believe that RBI will surely use its scissors to cut rates in the forthcoming review. However, we expect that the financial institutions will pass on the entire benefit which has been already extended by the RBI in previous reviews and lending rate will come down further,” says Manoj Goyal, director, Homestead.
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.
Geography: 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 f rom t he 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).
G ove r n m e n t p o l i c i e s :
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.
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 t o i n developed countries. Inhabitants of the city’s far While many Indians aspire to move to first world countries i n order t o i ncrease t heir income as well as lifestyle quotient, this is an option only for those with the right education and skills. The relatively lowskilled 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 percapita 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 on to 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. Many of them are second or third generation members of families from outside the state that settled here. T he ever- i ncreasing cl amour for a rationalisation 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.