Why are Property Prices so High in Mumbai?

Why are Mumbai’s real estate prices so high and mostly unaffordable for a large chunk of the buying population? Here is an attempt to unravel the reason behind the sky-high property prices in India’s Financial Capital.

Why are property prices so high?

In Mumbai?

It could almost be out of a popular movie song, considering that we’re talking about Maximum City, also the Financial Capital and richest city in India, home to its highest number of billionaires and multi-millionaires as well. Mumbai has always been India’s costliest city for buying a home. In fact, the bar keeps getting pushed higher when you hear of billionaire Radhakishan Damani buying a Malabar Hill bungalow for more than Rs. 1,000 crore, Mukesh Ambani’s (India’s richest man) Antilia, possibly one of the costliest personal residences in the world and the Poonawalla family’s acquisition of Lincoln House for Rs. 750 crore as per estimates. These are only a few stories of astonishing real estate deals that will boggle your mind for sure!

So in an attempt to demystify the core question- Why are Mumbai’s property prices so high?

Geographical Issues

The biggest issue, according to many industry experts, is the geographical location and placement of Mumbai. In case you forgot, Mumbai is an island city, surrounded on three sides by the Arabian Sea. Hence, circular development has never taken place in Mumbai in the manner of other cities. Development has always happened in a single line to the north from the south. There is very little scope for land expansion or development in Mumbai. Hence, supply of land for housing is extremely limited. Whenever supply is outstripped by demand, prices jump up to unimaginable levels.

Reclamation is the only future option for increasing physical land supply in Mumbai according to industry experts. Add to that the overwhelming population density and factors like the distance to the suburbs from the super-prime city centres in South Mumbai and the absence of proper connectivity in many locations and you get the picture. The latter aspect has led to prices touching record levels in the city centre and its immediate surrounding zones like prime northern locations (Juhu or Bandra) and South Central areas like Chembur or Byculla for instance.

Policy Issues

Policy issues have sometimes contributed towards the sky-high real estate prices in Mumbai. Ready reckoner rates have increased steadily, notably by 15-20% in the 2013-15 period alone! These determine floor prices which are clearly expensive. The FSI (floor space index) laws have remained quite similar from 1964 onwards. They influence the vertical size and length of constructions and may differ across municipalities and locations.

FSI limits were assigned once to various Mumbai localities at a time when these limits were set much higher in comparison to then-demand. With the FSI limits at static levels and soaring demand, the lack of space also became a pressing issue. This made property prices touch unimaginably high levels over the years.

Locked Land Parcels

In a space-starved and densely populated city like Mumbai, there is a lot of land that is locked in dilapidated structures and slums. The land has to be released by offering financially viable choices to developers and rehabilitating occupants suitably.

Slower Infrastructure Growth

Mumbai has certainly witnessed skyrocketing development of infrastructure but several projects like the Mumbai Trans-Harbour Link (MTHL), Coastal Road, International Airport in Navi Mumbai and several metro railway links are taking a long time to be developed. With congestion and traffic piling up by the day, end-users are still paying an arm and a leg to live in established locations near the city centre where they get access to good infrastructure. They keep neglecting upcoming locations without these advantages.

High Investor Volumes

Mumbai is the Financial Capital of the country and witnesses huge investments in its real estate market. Both Mumbai’s residential and commercial realty markets witness huge investments from institutional players and NRIs alike. With favourable currency rates, NRIs witness higher affordability levels for properties in Mumbai, one of the country’s most coveted locations to own a home. Investment activity is high in the market, contributing towards prices remaining at sky-high levels for average buyers.

Continued Demand

While property prices remain unaffordable, housing demand continues unabated as well. Mumbai has one of the highest rates of inward migration of workers, professionals and students in the country, scaling up housing needs greatly every year. The per-capita income in Mumbai is also double of the national average. Hence, developers and landlords hold onto higher prices/rates owing to the continual migration and soaring housing demand.

In fact, several studies highlighted how Mumbai remained the most unaffordable property market in the country for 2021. As per these reports, it was seen that Mumbai required average households to spend at least 53% of their overall income for covering home loan EMIs. Yet, conversely, reports have also highlighted how registrations of property in Mumbai jumped up by 70% in 2021 as compared to 2020, with more than 1.10 lakh units officially registered! In fact, this was even 40-45% higher than the figures in 2019. The Western suburbs continued to account for the bulk of transactions along with the Central suburbs as well. So that means that the market is alive and how! With upcoming developments like the expansion of metro railway lines and the Coastal road project, prices will rise even further in Mumbai.

At the same time, only a handful of realty players and developers own almost 2/3rds of development rights in the city, indicating that the power to determine pricing rests in the hands of only a few big names. The same holds true for a few large landowners in Mumbai who hold a major chunk of land parcels in the city. These are some other factors behind skyrocketing prices in the City of Dreams.