Mumbai Residential Property: Striking A Balance..

Reduce Unit Sizes To Improve Affordability

by Mr. Ramesh Nair, JLL India 

India's Financial Capital Mumbai has a high inventory of residential properties of 67,000 units, equal to sales of 34 months. While the underlying demand is strong, it is not being converted into transactions due to the high property prices.

From a developer’s point of view, low absorption is a source of worry; however, due to high costs of land acquisition, raw material, labour, finance and new costs like fungible FSI, lowering prices beyond a point seems difficult.
Ramesh Nair,  JLL India

Is there a way to end this stalemate?

It is important to understand exactly where the problem actually lies – in high property price or high ticket size?

While property prices are largely location-driven, ticket size is a combination of size of the apartment and property price. As per the developer community, there is not much possibility of reducing the prices attached to locations.

The answer seems to lie in developing projects with smaller apartments. But what made developers focus on larger configurations in the first place?

The answer can be found in the past.

Types of Property Buyers..

There are 2 types of buyers – those who believe locational advantage is more important than larger sized apartments, and those who believe the opposite.

The former opted to compromise on size and continued to live in the same locations. The latter, with the objective of living in larger apartments at relatively lower ticket sizes, moved to the suburbs and extended suburbs.

However, this second class of buyers - while achieving the primary objective - also compromised on their standard of living.

Not the least of the backlash was long and uncomfortable daily commutes between home & work place.

Understanding buyer requirements, developers / promoters started focusing on apartment configurations of 2 BHK and above. Larger configurations help developers to provide better amenities within & outside the apartment, and consequently to charge corresponding premiums.

Such properties also require a lower number of buyers compared to smaller apartments.

Mumbai Residential..

The Formula Crumbles

This strategy worked well till 2008, as the absorption more or / less equaled launches. However, between 2003 and 2008, property prices increased substantially &  ticket sizes for the same configurations went beyond the common man’s reach. Post 2008, property prices rose by another 36 %.

Due to this, a buyer who could buy a 2 BHK in Mumbai within a budget of Rs. 80 lakh in 2008 needed to shell out another Rs. 10 lakh to buy just a 1.5 BHK. Similarly, the cost of a 1.5 BHK in 2008 equals that of a 1 BHK today.

Another problem was that smaller-configuration apartments were available largely in the suburbs and extended suburbs.

This affected senior citizens who had spent their entire life in the Island City. Meanwhile, existing structures became increasingly more dangerous to live in, even as families grew in size.

Lack of sufficient options with smaller configuration forced these individuals and families into suburban and extended suburban locations during a phase of life in which life is ideally supposed to be easier rather than harder.

Fast Forward To Today..

Today, developers in Mumbai are faced with a reduced demand for larger apartments, and the option of reducing property prices is limited. The only strategy open to them is to focus more on smaller apartments and offer reduced prices to the extent possible.

While nothing can be done about non-selling larger configurations but reduce prices or sit indefinitely on unsold inventory, the fact is that new developments must be configured for smaller sized units, and therefore greater affordability, if the Mumbai residential property market is to see a significant revival.

About the author..

Mr. Ramesh Nair is COO (Business) at  Jones Lang LaSalle India

Ramesh Nair
COO – Business, India
+91 22 6620 7575

ramesh.nair@ap.jll.com

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