Why has Mumbai Evidenced a Hike in Property Prices?

By: Sumita Roy   

The real estate market of Mumbai continues to grow despite sky-rocketing property prices. Most of the expert forecasts of imminent correction have fallen flat for the last three years. Instead, the prices of the properties have escalated by an average of 66%. It is true that logically, such a correction is inevitable going by the rampant inflation. But the ground reality of the market is working against the end-user. Some factors noticed in the market were: 

1. The universally accepted concept of the surfeit of unsold inventory for market correction in not occurring in Mumbai due to its consistency in demand. 
2. Residential projects have encountered a steady increase of approximately 66%. Some of the localities have seen an even greater hike. The Malad-Borivali area has seen an increase of 85%. Thane is accounting a rise of 70% and Navi Mumbai, 74%. After the Lehman fiasco, Mumbai stands highest among all the cities of India in regard to the cumulative price escalation figures. Whereas, during the same time, Gurgaon and Bangalore, two other hot real estate markets, saw an increase of 52% and 46% respectively. 

The entire scenario is completely ludicrous if viewed from a distance. But the real estate background of Mumbai throws light on this situation and makes the condition appear more logical than was previously perceived:

1. Mumbai is facing a scarcity of ‘clear’ land. Unlike Bangalore and Chennai, Mumbai does not have a good supply of free plots to construct new projects.
2. The number of new launches in Mumbai have decreased consistently in the period from the first quarter of 2011 to the second quarter of 2012. This happened because of the slow approval of various projects.
3. During this period, in order to check the boom, the government raised the lending price to approximately 12 times of the existing rate.
4. The builders’ input costs also increased during this period. In addition, the investors, who had invested during pre-launch, pressurized them for returns. As a result, the property prices rose to a great height. 
5. The high volatility in the fields like equity, coupled with high debt and high land value, had the builders’ left with minimal options. 
6. During this debacle came in the new development control rules. These caused many projects to immediately come to a steady halt, and those that were still in the process of construction had struggling architects making their projects adapt to the mandatory set of guidelines.
7. The builders and the investors who spend benchmark prices based on just a few high profile launches of a particular locale have prevented the deceleration of property value.

Due to the surging demand for investment, as well as the increasing number of consumers of residential projects, the prices of property have remained unperturbed in Mumbai. The consistent increase of second home buyers and the investors’ firmly entrenched belief that real estate prices in Mumbai will never decelerate has led to this trend.