Why Mumbai Real-estate is Unaffordable

Why Mumbai Real-estate is Unaffordable
Aug 2017 , by , in Property Talk

Mumbai has always been in news for its sale of affluent properties in South Mumbai to the ever-increasing affordability gap for middle class home seekers. Shubham Singh gives an overview of the Maximum city’s realty market.


Mumbai is a peninsula bound by the Arabian Sea, as a result unlike circular development in other cities; Mumbai development has always been unidirectional from south towards the northern suburbs. Factors such as distance from the prime South city centres to the suburbs and lack of robust infrastructure connecting these places, has led to prices surging in the prime city centres and the immediate peripheries. The restrictive government policies with regards to ready reckoner rates can also be seen as one of the factors responsible for the increase in property prices. Aniket Haware, Managing Director, Haware Builders explained, “The ready reckoner rates set by the state governments for each area to calculate registration charges and stamp duty have been gradually increased. This determines the lowest value at which property can be sold. Maharashtra government has increased the ready reckoner rate by an average of 7 percent.”


Besides, the floor space index (FSI) regulations that determine the vertical length and size of a construction as per location and municipality haven’t been changed much by MCGM since 1964.

Since FSI limits stayed static and demand continued to mount, scarcity has also mounted driving up the prices of property to higher levels. Giving a positive outlook, Ashok Mohanani, Vice President, NAREDCO West said, “Mumbai’s Development Plan 2034 is slated to bring about a lot of positive changes to the Mumbai’s realty market. The DP intends to provide efficient guidance to real-estate development with a variation in the FSI. By enhancing the FSI, the plan aims to work on cluster redevelopments and rehabilitation of slums. It has given a great significance to variation in the FSI along with transit-oriented densification and development.”

Mumbai continuing expensive property market

Island City: With limited horizontal expansion possible, vertical growth is the only way forward and this pushes up the cost. Furthermore, the new developments by way of redevelopment or Slum Rehabilitation programs are costly options.

Regulations: The FSI/FAR of 1.33 is ridiculously low which is limiting the construction potential. Mumbai Coastal Regulation Zone (CRZ) restrictions too obstruct the land available for construction.

RERA: With introduction of RERA, small developers will either cease to launch new projects or cartel with large developers to complete existing ones thereby reducing the supply of projects and pushing the rates higher.

Restrictive Practices: Due to the lock-in periods and exorbitant transfer fees by developers, investors are unable to sell the assets for 24 – 36 months. This leads to lower effective supply and increase in prices over time.

Global Demand: With international companies opening offices in the city, there is a perpetual demand for high-end real-estate and branded residences that add to the rise in the real-estate prices.

NRI Destination: NRI community generally makes a long term investment for future self-consumption. The asset gets locked up for a number of years and limits the floating stock available for sale.

Demand & Supply Economics: The phenomenal 35% increase in property rates over the period of June 2013 to March 2017 are a direct factor of demand and supply mechanism and market forces.

Vipul Patel, Founder – Mortgageworld

Cluster Redevelopment & Slum Resettlement

A significant size of Mumbai’s prime land is locked in slums and dilapidated buildings. However, attempts by the state government to move the residents have met with very limited success due to poor implementation.Amit Wadhwani, Director, Sai Estate Consultant stated, “The Bombay high court’s order to vacate the stay on cluster development has paved way for the redevelopment of over 50,000 old and decrepit buildings in the Mumbai suburbs. This will provide a large number of affordable housing tenements. Through cluster development approach, better facilities can be created for the residents, thus incentivising affordable housing. Although, some realtors feel that the slum rehabilitation scheme is a win-for-all situation in urban cities, others regard it as a government’s charity to the private developers. Working with a lot of developers, I have come to realize that although the government has provided an additional aid of Rs 1 lakh from its own resources, developers in MMR, where construction prices are among the India’s highest, are dubious to this option.”

Nirvana Realty is one of the developers that is doing a lot of Cluster development in its projects Wollywood and City of Music. Punit Agarwal- CEO Nirvana Realty clarified, “Cluster redevelopment enables economies of scale as we offer a lot of common amenities for a larger number of flats which reduces our cost per flat. This makes our projects affordable yet offering all the world class amenities. On the other hand, in slum resettlement projects, most of the owners are slum residents. The slum dwellers either sell their flat or give it on rent as soon as they get possession in order to gain profit. Hence, even though SRA projects are working towards the government’s aim of providing housing for all there is yet a lack of authority that can overlook the process of house possession.”

The Infrastructure Boost

The pricing of real estate properties with better infrastructural competences and contemporary facilities are expensive than those without these.  Development and growth of infrastructure is one of the most vital factor influencing realty prices in Mumbai, But, slow progress of infrastructure  projects such as the Mumbai Trans-Harbour Link (MTHL), Coastal Road Network, Navi Mumbai international airport and  various phases of the proposed Metro links have failed to provide connectivity to suburban developments and decongest the city. Referring to Mumbai’s infrastructure projects, Shailesh Puranik, Managing Director, Puranik Builders said, “Increasing good infrastructure in the MMR will promote investments in the peripheral areas contributing to availability of affordable land parcels and ultimately economical housing.”

As Vinod Rohira, Managing Director, K. Raheja Corp aptly puts it, “Affordable housing is directly proportional to good public transport system and social infrastructure development. If a micro market in a far off suburb is well connected to the city centre and has quality living amenities, it immediately opens up availability of affordable homes where people would like to move.”

Amit Ruparel, Managing Director Ruparel Realty added, “We also believe that the Mumbai draft plan will help establish a framework for the city. With the updated FSI and Transfer of Development Rights (TDR) it will enhance the plot potential for Mumbai.”

Addressing the Situation

Mumbai has been an attractive destination not only for white collared professionals from other cities and unskilled immigrants from all over the country,but NRIs too want to invest in Mumbai real-estate. This gives affordability a range of meanings for range of people. “Affordable housing as a concept needs to be clearly defined as per the micro market.  Essentially it is driven by affordability of a particular mass or segment of people in a particular micro market,” concurred Rohira.

The situation of rising input costs and government taxes too is detrimental to affordability of housing. As Puranik commented, “GST, Stamp duty, labour cost, construction material prices, all are going up. In fact, if you see in the last three years, there has not been a price rise in the Mumbai market in spite of the rise in costs and inflation.”

For the past decade, Mumbai was deprived of 400 acres of mill land for public housing and open spaces. Amendments to DCR 58 will mean more accessibility to land for affordable housing and public facilities. It is essential to redevelop mill lands in the centre of the city as it will have a great impact on Mumbai’s economy. The Dharavi redevelopment too gives hope of an established and comprehensive plan, “said Wadhwani optimistically.

Agarwal puts forth some other points, “Cost and hardship for land acquisition are one of the many factors that affect the property prices. Markets are moving slowly so we have to spend a lot of money for marketing and conversion are lower than before. So per sale cost is increasing consistently.Mumbai proposed draft development plan 2034 is an excellent approach to tackle with the growing population and demand of Mumbai. More FSI and transparent area calculations will make projects more viable and customers will enjoy the benefit of better prices in the coming times.”

In Mumbai, due to both natural and artificial supply constraints much of the housing demand is left unmet. Thus, reclamation becomes the only option to increase the supply of physical land. Haware briefing on the option said, “The basic scheme for the redevelopment of all the old buildings jointly, instead of redeveloping individual building will mean organised development of Mumbai. The New scheme visualizes, that if a developer acquires the consent for 70% of the land, the state government can interfere to obtain the rest of the land. A minimum carpet area of the redeveloped flats will be 300sqft. Buildings having an age of more than 30 years qualify for cluster redevelopment. Cluster development will be an incentive to take up these clusters in order to provide large number of affordable housing.”

With the recent amendments to the Development Control Regulations (DCR) 58, the government stated that one third of the entire land would go to the Maharashtra Housing and Area Development Authority (MHADA), one-third would be allotted for developing open spaces and the remaining would be given to the mill owner for redevelopment. According to Ruparel, under the new structure, this will aid the development of affordable housing, which is a boon to builders and citizens alike and is a welcome move. Summing up the discussion, Mohnani feels, “Government’s Affordable Housing scheme is a mammoth assignment which will require the developers and real-estate agencies to take initiatives and introduce affordable projects in Mumbai for the common man.

Initiatives required for enhancing low and middle-income housing supply

“The biggest opportunity is available by unlocking lands which are stuck in various forms of mitigation or quasi-judicial control of the government.” Vinod Rohira

“Rationalisation of taxes by government, infrastructure development, opening up land parcel across MMR and streamlining of approval process through online procedures is required.” Shailesh Puranik

“Although the purchasing capacity is lower for lower-income groups, there exists a large demand. The government’s housing for all initiative if implemented correctly will give the private developers an opportunity to explore this segment to the best possible extent.” Amit Wadhwani

“Additional FSI and benefits for the developers for affordable housing schemes in the City, incentives for cluster developments and faster clearances will enhance the housing supply for low-income segment.” Punit Agarwal

“Under the ‘housing for all’ mission, the approved unit size is 30sqm. The same should be applied to slum rehabilitation projects as well. Mumbai has about 13 lakh slum dwellings eligible for rehabilitation.” Aniket Haware

“The state government has allocated 800 hectares of revenue land to achieve its goal of affordable housing and is set to construct 1.41 lakh houses in Mumbai. Initiatives like this, as well as slum redevelopment will help meet the city’s housing requirements.” Amit Ruparel

“To accelerate absorption, reduction in levying of taxes such as, GST and Stamp Duty will help in making the vision of housing for all a reality”. Ashok Mohnani

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