Why are homes in Mum­bai so ex­pen­sive?

HT Estates - - HTESTATES - Anuj Puri

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.

Sup­ply-side fac­tors

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.

De­mand-side fac­tors

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.

HT FILE PHOTO

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