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PROJECT REPORT ON
REAL ESTATE- Rise and fall
(With special reference to Mumbai residential market)
BACHELOR OF MANAGEMENT STUDIES
SEMESTER V
2009-2010
SUBMITTED:
IN PARTIAL FULFILLMENT OF RECRUITMENT FOR THE AWARD OF DEGREE OF
BACHELOR OF MANAGEMENT STUDIES.
BY:
Smruti Agrawal
ROLL NO: - 105
BIRLA COLLEGE OF ARTS, SCIENCE & COMMERCE
MURBAD ROAD, KALYAN (W).
PROJECT REPORT ON
REAL ESTATE- Rise and fall
(With special reference to Mumbai residential market)
BACHELOR OF MANAGEMENT STUDIES
SEMESTER V
2009-2010
Submitted:-
In Partial Fulfillment Of The Requirements For The Award Of The Degree Of
Bachelor Of Management Studies
By:-
Smruti Agrawal
ROLL NO: - 105
BIRLA COLLEGE OF ARTS, SCIENCE & COMMERCE,
KALYAN (W)
BIRLA COLLEGE OF ARTS, SCIENCE, & COMMERCE, KALYAN
(Conducted by Kalyan Citizens’ Education Society)
(Affiliated by University of Mumbai)
BACHELOR OF MANAGEMENT STUDIES
CERTIFICATE
This is to certify that Miss.Smruti Agrawal Roll No. 105 has satisfactorily carried out the
project work on the topic ““REAL ESTATE- Rise and Fall (With Special Reference to
Mumbai Residential Market)”, for the V Semester of T.Y.B.M.S., in the academic year
2009-2010.
Place:-Kalyan
Date:-________
__________________ ______________
Signature of Examiner BMS Co-ordinator
CERTIFICATE
I, Mr. Anand Dharmadhikari hereby certify that Miss. Smruti Agrawal, of
T.Y.B.M.S (Sem V), Roll No. 08 has completed project on “REAL
ESTATE- Rise and Fall (With Special Reference to Mumbai Residential
Market)” in the academic year 2009-2010. The information submitted is true
and original to the best of my knowledge.
Place: Kalyan
Date:
___________________
Signature of Project Guide
DECLARATION
I, Smruti Agrawal, student of T.Y.B.M.S semester V (2009-2010) hereby declare that I
have completed the project on “REAL ESTATE- Rise and Fall (With Special
Reference to Mumbai Residential Market)”
I further declare that the information imparted is true and fair to the best of my
knowledge.
SIGNATURE
SMRUTI AGRAWAL
ROLL NO. 105
Acknowledgement
Before going on with the project study, I would like to extend my sincere gratitude to a
few people without whom this project just wouldn’t have been possible. First and foremost I
would like to thank my Project Guide Mr. Anand Dharmadhikari for having spent considerable
time and providing very useful information. I also express my thanks to all who have either
directly or indirectly supported me in shaping the project very well.
I would also like to extend warm regards to Project Finance Evaluation Manager
of Kalpataru Pvt.Ltd. Mr.Sachin Agrawal & Sales Executive of Regency Towers, Thane
Mr. Sanjay Sarode for shelving out some of their precious time to provide the
information required.
I would like to thank the University of Mumbai and the College Authorities who
gave me an opportunity to present my views in form of this project. I also want to express
my heartfelt gratitude to our Course In-charge Mr. Anil Tiwari for believing in me and
my caliber.
It was an amazing experience working on this project and I would once again
wish to thank all the people related to it for making the task worthwhile and so much fun.
INDEX
SR.NO. PARTICULARS PG.NO.
Executive Summary
Preface
1 Real Estate- Introduction 1
2 Participants Involved In Real Estate Market 6
3 Mumbai City: A Conundrum Unexplained 10
4 Mumbai Residential Market 24
5 Market Segmentation 28
6 Rentals In Mumbai 39
7 Factors Affecting Real Estate Prices 43
8 Mumbai Property Boom 48
9 Impact Of Recession On Real Estate Market 55
10 A Picture Of Fall In Property Prices In Mumbai After The Crises
60
11 Visit Report 69
Conclusion 75
Bibliography & Wibliography
Annexures
Executive Summary
The term ‘Real Estate’ is defined as land, including the air above it and the
ground below it, and any buildings or structures on it. It covers residential housing,
commercial offices and trading spaces. The main players in the real estate market are
landlords, tenants, developers, builders, real estate agents, tenants, buyers etc.
In this report I am focusing on Mumbai Residential Market. Mumbai, formely
known as Bombay is a great city. No simple description of the city is adequate. The place
is simply too complex and too diverse. For the last many decades, this island city has
endured an explosion of growth and change, spurred on by an enormous expansion of
real estate, where every assumption of the city’s planners has been overtaken by its size
and form. Residential market in Mumbai is widely spread all over Mumbai and also has
witnessed luxurious amenities, infrastructure etc. with highest prices throughout the
country. Mumbai market is too complex to understand so it’s divided into six micro
markets namely South Mumbai, Navi Mumbai, Western suburbs, Central suburbs, Thane
and Extended suburbs with different property prices in every market and large players in
the market. The rentals in Mumbai have also been a big topic in Mumbai real estate. The
house rents are touching sky which compels a majority of people to live under unhealthy
atmosphere in cramped rooms or flats on a share basis. The rental trends in Mumbai are
high-end rental apartment segment, the terrace flats, villas, pent houses etc.
Mumbai has witnessed a huge amount of people migrating from all over India for
employment, business, studies, etc. Mumbai is considered to be the financial hub of India
attracting huge amount of foreign direct investment and wealth creations. Mumbai
property market has been witnessing a boom in the last decade. People migrating from all
over the country have lead to an increase in demand for housing. Favorable government
policies and such overwhelming demand have seen the property prices touch the roof.
When it was looking like the property prices are moving just one way. Subprime crises
happened. It came as a big jolt in this forward- march. Suddenly the demand for property
had vanished and the real estate industry witnessed a huge financial turmoil. Large
developers were caught in a huge debt crisis and faced heavy losses.
PREFACE
I have given brief description about the project i.e. about “REAL ESTATE” and
its practical implementation in MUMBAI with special reference to RESIDENTIAL
MARKET. And lastly about the Rise and fall in Mumbai Residential Market.
Objectives
1. To study about Real Estate in Residential Market
2. To understand the Mumbai Residential Market.
3. To understand the rise and fall in property prices.
METHODOLOGY
Primary Data:
My primary data was collected through Interviews, Face to face communication,
through email, telephonic responses, from firms and organizations associated with Real
Estate.
I visited organizations like Kalpataru ltd. And Regency Towers and interviewed
the managers in related department.
Secondary Data:
My secondary data was collected from the websites, magazines, books, trade
journals and periodicals.
REAL ESTATE- RISE AND FALL
(With special reference to Mumbai Residential Market)
Chapter 1
Real Estate- Introduction
Introduction
The term ‘real estate’ is defined as land, including the air above it and the ground
below it, and any buildings or structures on it. It is also referred to as realty. It covers
residential housing, commercial offices, trading spaces such as theatres, hotels and
restaurants, retail outlets, industrial buildings such as factories and Government
buildings. Real estate involves the purchase, sale, and development of land, residential
and non-residential buildings. The main players in the real estate market are the
landlords, developers, builders, real estate agents, tenants, buyers etc. The activities of the
real estate sector encompass the housing and construction sectors also.
The real estate sector in India has assumed growing importance with the
liberalization of the economy. The consequent increase in business opportunities and
migration of the labour force has, in turn, increased the demand for commercial and
housing space, especially rental housing. Developments in the real estate sector are being
influenced by the developments in the retail, hospitality and entertainment (e.g., hotels,
resorts, cinema theatres) industries, economic services (e.g., hospitals, schools) and
information technology (IT)-enabled services (like call centres) etc. and vice versa. The
real estate sector is a major employment driver, being the second largest employer next
only to agriculture. This is because of the chain of backward and forward linkages that
the sector has with the other sectors of the economy, especially with the housing and
construction sector. About 250 ancillary industries such as cement, steel, brick, timber,
building materials etc. are dependent on the real estate industry.
Features of Real Estate Markets:
In particular, the unique features of the real estate market must be accommodated. These
include:
• Durability
• Heterogeneous
• High transaction costs
• Long time delays
• Both an investment good and consumption good
• Immobility
Overview:-
Indian real estate sector is growing at thirty percent annually. The liberalized
urban policy frame work along with a stable home loan rates by Banks helped this growth
phase to sustain. The parameters for investment are changing and more FDI is expected
to flow into this sector in the coming period.
The Indian real estate sector has witnessed a resounding growth in recent years
due to factors like liberalization of urban policy and increased competition in the home
loan segment. Also the booming Indian economy, favorable demographics transition and
liberalized foreign direct investment (FDI) regime acted as a catalyst in this growth
phase. Growing at a rate of 30 per cent, the real estate sector has emerged as one of the
fastest growing investment areas for domestic as well as foreign investors. The sector will
remain as a booming sector and more investment is expected in the coming years.
Construction and allied sectors are considered as one of the largest employing
sector in India (including construction and facilities management). This vital sector is
linked to about 300 ancillary industries like cement, brick and steel. So this sector has a
strong backward and forward linkages and the growth will translate into an over all
positive impact on these ancillary sectors too. Resultantly, a unit increase in expenditure
in this sector has a multiplier effect and the capacity to generate income as high as 4.5
times.
According to Mckinsey report the average profit from construction in India is
18%, which is double the profitability for a construction project undertaken in the US.
Five per cent of the country’s GDP is contributed by the housing sector. In the next three
or four or five years this contribution to the GDP is expected to rise to 6%.
According to Knight Frank
Research, the new residential space
distribution of Pan India will be more then
that of before. The NCR will be having
maximum of distribution all over India that
is 35%. Total supply all over India is
530.5mn.sq.ft. Distribution in all the places
is as per the demand and availability of
space.
According to ‘Housing Skyline of
India 2007-08’, a study by research firm,
Indicus Analytics, there will be demand for
over 24.3 million new dwellings for self-
living in urban India alone by 2015. As a result of this, this real estate sector is likely to
throw huge investment opportunities. In fact, an estimated US$ 25 billion investment will
be required over the next five years in urban housing, says a report by Merrill Lynch.
With the significant investment opportunities emerging in this industry, a large
number of international real estate players have entered the country. Currently, foreign
direct investment (FDI) inflows into the sector are estimated to be between US$ 5 billion
and US$ 5.50 billion. According to Cushman & Wakefield, foreign investors have raised
nearly US$ 30 billion since March 2005 for investing in Indian real estate. 100% FDI is
allowed under automatic route in townships, housing, built-up infrastructure and
construction development projects (which would include, but not be restricted to,
housing, commercial premises, hotels, resorts, hospitals, educational institutions,
recreational facilities, city and regional level infrastructure) subject to certain guidelines.
Leading companies like Carlyle, Blackstone, Morgan Stanley, Trikona, Warbus Pincus,
HSBC Financial Services, Americorp Ventures, Barclays and Citigroup are some of the
international players who have entered into Indian reality market. Real estate accounted
for 26 per cent of total value of private equity investments, with 32 deals valued at US$
2.6 billion. And according to industry estimates, another US$ 10-20 billion would pour
into the sector in the next three years.
Current scenario:-
The unending euphoria of real estate sector in India witnessed during the last few
years is finally starting showing signs of ebbing. The talks of new malls, complexes,
residential projects being built are all now being kept under bags.
There is an overall slowdown in demand across India as has been experienced
by industry players. Property prices and rentals are correcting which have led to the
erosion in market capitalization of many listed players like DLF and Unitech.
The slowdown is aided by the fall in stock markets as wealth creation does not
happen and there is lack of capital among investors to invest in real estate projects. Also,
to adjust their share market losses, many investors are forced to sell off their real
estate properties.
Other factors that have led to the slowdown is the increase in interest rates
leading to higher costs. Also income levels have not risen in proportion to the increase in
property prices thus forcing many potential buyers out of the market.
Also with rising input costs of steel, iron and building material, it has become
unviable for builders to construct properties at agreed prices. As a result, there may be a
delay in project completion leading to financial constraints.
Many residential buyers are waiting a price correction before buying a property,
which can affect development plans of builders.
Also with IT industry continuously experiencing a slowdown, there may be
further constraints on residential as well as commercial demand since IT/ITES segment
accounts for 70% of the total commercial demand.
So real estate players may continue to face liquidity concerns in future due to
rising costs and unfavorable stock market conditions for further capital raising.
Only those players who have achieved substantial revenues from past deals could
expect to rise against the tide. But the scenario may get worsen if the upcoming
properties are not sold off as it may lead to a financial crisis in the property market.
Chapter 2
PARTICIPANTS INVOLVED IN REAL ESTATE MARKET
Participants in Real Estate
Participants are very important in Real estate as they are the Backbone of Real
Estate market. They are the one who carry out transactions in real estate market. They are
the one who are involved in Real Estate. There are various individuals who all take part
in Real estate. They are as follows:-
OWNER: These people are pure investors. They do not
consume but rent out or lease the property to someone
else. They purchase houses or commercial property as
an investment and also to live in or utilize as a business.
INVESTORS: - A real estate investor is someone
who actively or passively invests in real estate. An
active investor may buy a property, make repairs
and/or improvements to the property, and sell it
later for a profit. A passive investor might hire a
firm to find and manage an investment property
for him. Typically, investors choose real estate for
several reasons: cash flow, appreciation,
depreciation, tax benefits and leverage.
DEVELOPERS: - Developers purchase a tract of land,
determine the marketing of the property, develop the
building program and design, obtain the necessary
public approvals and financing, build the structure, and
lease, manage, and ultimately sell it.
CONTRACTORS: - Real estate contractor can be
described as a person, who carries out a contract that is
related to building of architecture or providing the
building material. In some cases, a contractor also
provides labor for the construction purposes. All real
estate contractors are professionals and licenses that
permit them to perform certain tasks as mentioned in the
license. Some real estate contractors also provide services
related to remodeling of buildings, roofing etc. Some
contractors also provide services after the completion of
the construction work i.e. maintaining the structure etc.
BANKERS: - Real estate investment banker provides
innovative approach to financing of real estate. There are
many types of services carried out by real estate
investment banker and these services are far beyond the
traditional banking services being offered. For example,
structuring of various types of real estate projects is one
main type of service provided by real estate investment
banker.
AGENTS: - Real Estate Agents are employed by the seller
to get the best price and conditions for the seller. Real
Estate agents have been helping buyer to buy and seller to
sell the property. Real Estate agents are Present in every
corner of world. They all act as middlemen between the
Buyer and the seller.
BROKER: - A Real estate broker finds buyers for
those wanting to sell real estate and finds sellers for
those wanting to buy real estate. Real estate brokers
help sellers market their property and sell it for the
highest possible price; they also help buyers purchase
property for the best possible price. Once the broker
successfully finds a buyer, the real estate broker
receives a commission for his or her service.
LESSOR: - They have the complete ownership of the
property but they lease or mortgage their property to
someone else. High amount of rent is charged by the
renters. These people are pure consumers.
MORTGAGER: The security created on the property by
the lender, which will usually include certain restrictions on
the use or disposal of the property (such as paying any
outstanding debt before selling the property).
TENANT:-When a land owner or a house owner allows some one to use his/her land
or house in some way for some time period, then the person who takes for lease from
the owner is called as a tenant and the relation between them is called as tenancy.
The tenant will pay the rent for the leased property to the owner.
BUYERS: - Buyers are one who purchases the property.
Buyers are the one who have bargaining power. They pay
for the property. The property can be in any form.
(Residential, commercial, retail).
Chapter 3
MUMBAI CITY: A CONUNDRUM UNEXPLAINED
Real Estate in Mumbai
Mumbai City
‘Mumbai, formerly known as Bombay, it is a great city…….. but a terrible place
with a very large population!’ Mumbai is India in microcosm in the true sense as it
represents all facets of modern India. Once a humid tropical archipelago of seven islands,
today it's a teeming metropolis and commercial hub of one of the world's most promising
economy. This city is aptly called the commercial capital of India as forty percent of
India's taxes come from this city alone.
Being the
commercial capital of
India, it houses important
financial institutions,
such as the Reserve Bank
of India (RBI), the
Bombay Stock Exchange
(BSE), the National Stock
Exchange of India (NSE)
and the corporate
headquarters of many big
Indian companies as well
as Multinational
companies. Besides this India's Hindi film and television industry, Mumbai is home to
Marathi television and Marathi film industry as well. The city is base to conglomerates
like State Bank of India, LIC, Tata Group, Godrej and Reliance. The industry base has
diversified from textile mills and the seaport to IT, Telecom, engineering, diamond-
polishing, healthcare and atomic research. The city also has the Chhatrapati Shivaji
Terminus (earlier named Victoria Terminus) and Elephanta Caves as UNESCO World
Heritage Sites. Besides these, must visit places include Gateway of India, Prince of Wales
Museum, Nariman Point, Marine Drive, Girgaum Chowpatti, Juhu Beach, Malabar Hills,
Crawford Bazaar, Kalbadevi, Essel World, Hanging Gardens, Film City, Flora fountain,
Tomb of Haji Ali, Siddhivinayak, Mumbai Devi Temple and Mahalakshmi temple.
Charles Correa’s famous remark encapsulates the challenge of defining the
essential spirit of Mumbai. No simple description of the city is adequate – the place is
simply too complex and too diverse. For the last many decades, this island city has
endured an explosion of growth and change, spurred on by an enormous expansion of
real estate, where every assumption of the city’s planners has been overtaken by its size
and form.
Alongside this growth, until very recently, urbanization of Mumbai occurred
almost completely without adequate finance and with very little local government
responsiveness – other than to enforce a very tightly-controlled regulatory system. It was
a system which effectively froze large blocks of real estate stock that could respond very
slowly to changing demands. It also produced a shortage of basic infrastructure capital,
and created very expensive price points for consumers. The complete morphology of
Mumbai’s real estate is too elaborate, complex and beyond the scope of this study. But
the following part of this section would attempt to provide a broad understanding of the
various dimensions of this city: physical, regulatory, governance and transportation.
Though the city’s real estate has many more dimensions, this section adequately
highlights the assortment of some limited issues that are hampering the spatial growth of
Mumbai.
Geographical constraints:-
In India, riversides and sea-sides are the sites of many important cities. Three of
these cities – Mumbai, Kolkata and Chennai – were created by the British as trading
centres connected to international maritime trade routes. They therefore owe their very
existence to the peculiarities of geography that enabled them to become important ports.
Mumbai city, as one of the foremost port cities of South Asia, occupies 437
square kilometers of area on a long and narrow piece of land that juts out of the western
coast of India into the Arabian Sea. It is separated from the mainland on the east for most
of its length by the Thane creek. It is also one of the rare big cities with a natural forest
within its limits. The Sanjay Gandhi National Park, a protected forest, drives a large
wedge into the land mass in the northern part of the city. Add to that the Mithi River,
which connects to the Mahim creek as well as the region along Malad creek.
Mumbai’s development has basically been a negotiation with the edges of each of
the seven islands as well as of the larger island of Salsette which houses the extended
suburbs is the major part of the city’s footprint today. The edge condition is a huge part
of the city, also due to a variety of human interventions like the urban rail and road
transport corridors. The linearity of the city’s geographical base is further heightened by
the manner in which the two railway lines and two major interstate highways break it up
into thinner strips.
Mumbai’s seaside on the east and the west has a very different relationship to the
rest of the city. Broadly, the eastern edge is currently occupied by the port, oil refineries
and related activities of storage and manufacturing, which virtually cuts the city off from
the sea. Much of the land along this edge is owned by the Mumbai Port Trust, a state
body, and is the bone of contention between the trust and civic activists for
approximately 400 hectares of high value land in the island city. It is argued by some that
with the greater success of Nhava Sheva port across
the water on the mainland, much of this land could be handed over to the city for its
developmental needs without disturbing the port’s activity. On the north-eastern
extremity of this seaside edge is the large and sensitive installation of the Bhabha Atomic
Research Centre at Trombay. In many ways then, the eastern edge is a zone of restricted
access, which has been off limits to the public. The southern tip of the city where the
eastern and western edges meet is again largely inaccessible to the city, being under the
control of the Indian Navy. The space of the city as a whole truly begins to connect with
the Arabian Sea from Cuffe Parade northwards, the connection being consolidated truly
for the first time at Marine Drive. On the contrary, the western edge of the city is the
most sought after area, having witnessed maximum real estate development and
characterized by high density of population.
To look at the hinterland of Mumbai, it is instructive to observe the decay and
growth of its mill lands as well. The eighteen square miles covering central Mumbai,
sandwiched between the business districts of the southern island city and the expanding
suburbs to the north, were, for over a century been the lifeblood of Mumbai’s textile
workers. It was in the late seventies, when hoarding of urban land and the non-
implementation of the Urban Land Ceiling Act 1976 caused a rise in real estate values. At
this point in time, many businesses and industries sold their lands for a profit and moved
elsewhere. However, the mills and mill-owners could not avail of this profitable
opportunity. According to municipal development rules, the mill lands are reserved for
industrial use, as they were by and large given to the mill owners at concessional rates by
the colonial Bombay Government in the beginning of the century. Resultantly, these mills
fell into wide-spread bankruptcy in the 1970s and in early 1980s.
The new Development Control Rules of 1991 framed by the state Government, in
response to structural adjustment polices of liberalization and echoing the need of global
and domestic capital permitted the sale of 15% of land in these textile mills. These new
regulations in urban land-use rules repealed the older zoning regulations. Today, the
occupation of these mills by corporate and service sector industries is seen by many as
symbolic of the shift in Mumbai’s political economy, away from the grimy industrial
stage of growth, symbolized by the chimneys of the mills and and chawls around them, to
a post-industrial, service-centred economy. Some economists have called this
phenomenon “deindustrialization”, reflecting the closure of manufacturing and industry
as it existed in the city.
Regulatory landscape:-
Mumbai is one of the few developing country cities to undergo a process of de-
industrialization, which has left large portions of central city land – the Port Trust and
Mill Lands – idle for more than twenty years. This freezing of a significant share of
central city land, in what is among the most topographically-challenged of the world’s
largest cities, has caused a dramatic increase in real estate prices. Cities with such
constraints on supply of land typically compensate in two ways: by increasing the height
of buildings; and by building bridges to connect the various land masses. This is why
cities located on islands (New York, Hong Kong or Singapore) are well known for their
skyscrapers while cities located in flat plains without major water barriers (like Paris,
London and Berlin) are not. In contrast to other topographically-constrained cities,
Mumbai’s development has been drastically restricted by the building height restrictions
embodied in Floor Space Index (FSI) regulations. FSI is the maximum permissible
ratio of floor space (or built-up) area to plot area that was first introduced in 1964.
These development Control Regulations (DCRs) prescribed FSI as high as 4.5 for
CBD compared to 1 for suburbs, in step-wise decrease based on the concept of one-third
ground coverage. However, they were substantially reduced through the modified 1991
DCRs to the range of 1.33 in the city to 0.5 in the areas beyond suburbs (in rural areas),
while confining to the one-third ground coverage rule. The spatial distribution of FSI
restrictions in Mumbai is shown in the above map.
What we see here is that beside the low overall FSI (compared to global cities)
there is also lack of variation in FSI across the city. This pattern is in sharp contrast to
most other cities where even if the overall FSI is low, it is not low everywhere. For
example, it is common for the ratio between the highest FSI value, in the CBD, to the
lowest in the suburbs to be 30 or more. For instance the highest FSI in residential areas in
New York is 15 while it is 0.5 in the suburbs, a ratio of about 30. In Mumbai, the highest
this ratio become is about 4 (2 in Bandra Kurla, 0.5 in North West Suburb of Gorai.
However, for 90 percent of the municipal area the ratio is only 1.33 (1.33 in the Island
city and 1.00 in the suburbs), that isles than 4 percent of the ratio of 30 that characterizes
New York.
Density regulation is an important development control regulation, which is a
part of the larger system of land use regulation in Mumbai. Development control
regulations (DCR) in Mumbai cover provisions in land use zones density zoning in terms
of dwelling units per unit area and the total development area. They form an integral part
of the development plan prepared by the municipal corporation of greater Mumbai
(MCGM). However, there exists another class of development regulations that operate
through building bylaws laid by the MCGM in the same DCRs. These building bylaws
use parameters like ground coverage, maximum height, light angle and height in relation
to width of road to control the volume of built-up area on a given plot of land.
The intervention by state for urban land market was first articulated in Land
Acquisition Act 1894, and was subsequently amended in 1984, for compulsory
acquisition of land for public purpose. The Act required that market value (and not
registered value) of land as the basic principle of determining compensation for land
acquisition. Registered price is typically lower than the market price due to the
prevalence of parallel economy in land and real estate markets. The second important
piece of legislation is in the form of Maharashtra Regional and Town planning Act
1966. Under this act, after the publication of a draft regional plan, a development or any
other town plan, acquisition of land can proceed as it is deemed to be land needed for
public purpose. Similarly, through Slum Improvement Act 1971, the execution of any
work of improvement of any slum area or redevelopment of clearance area is considered
a public purpose. Similar provisions enabling acquisition of land at less than market price
are found in other legislation such as Mumbai Metropolitan Region Development
Authority Act 1975 and the Maharashtra Housing and Area Development Act 1976.
Urban Land Ceiling Act 1976, which got repealed recently, specified the ceiling limits
applicable to different categories of urban agglomerations. The Act did not achieve the
objectives it was enacted, and the provisions resulted in increase in land prices.
Moreover, the process of obtaining exemptions helped rent seeking behavior and made
the land market more oligopolistic. Another restrictive legislation has been the Rent
Control Act 1947, which froze the rents to their 1940 level for all buildings rented at that
time. Wherever the properties were already rented (when the Act was brought in) the
landlords lost their interest in the upkeep of the buildings. Apart from this direct impact,
the Rent Act had a serious impact on city’s ability to raise resources. Property tax which
is levied on the basis of annual rent could not fulfill the objectives of land taxation.
Under the above mentioned regulatory framework, the earliest strategic response
of Mumbai was in 1930 – 1960, when nearly 3000 hectares of land was brought under
development through town planning schemes. This was not very successful, and was
followed by first regional plan of Mumbai Metropolitan Region (MMR) during 1967- 70.
This plan recommended development of a new town of 2 million populations across the
harbor of Mumbai as a counter magnet of Mumbai. In 1970 CIDCO was established as a
new town development corporation for developing Navi Mumbai. By 1993, 14,105
hectares of land was acquired and 1501 hectares leased out. However, large scale
acquisition became increasingly difficult as farmers started demanding high share of the
proceeds. It became clear from this experience that public ownership of land alone cannot
promote development of new town which could attract growth away from Mumbai. The
Revised Regional Plan of MMR proposed that the land development should be left to
the market, and only a structure plan showing arterial road network and critical land uses
were prepared. This process is guided by a system of incentives by way of bonus FSI. For
example, if certain portion of land is developed in the form of small plots and are handed
to public agencies at predetermined price, bonus FSI could be used on the remaining
plots. In such a scenario, as the real estate prices increased, market would willingly
provide for using land for public use instead of resisting it. As is evident from the above
analysis, the policy makers of Mumbai realized the limitation of strong intervention in
land market and instead started using market oriented policies to the extent feasible
development of land and real estate.
The Mumbai real estate planners have adopted some other innovative approaches
as well. According to development control regulations, the development right on the land
reserved for public infrastructure (like roads) could be transferred by the land owner to
his remaining land if he agreed to had over the land to local authority free of cost and
encumbrances. This principle has been extended further in the Development Control
Regulations 1991 in the form of Accommodation Reservation and Transfer of
Development Rights.
Accommodation Reservation:
The land owner can develop the facility for which the land is reserved, hand it over to
Municipal Corporation free of cost and then utilize the development right equivalent to
the full permissible FSI for his own purpose. In case of Mumbai, this measure succeeded
as land prices are several times higher than construction cost.
Transfer of Development Rights:
Where the land has to be exclusively put to reserved use or where no building
construction is possible (as in case of a garden), the regulations allow the land owner to
transfer development rights elsewhere, if the land is question is surrendered to municipal
corporation free of cost and free of encumbrances.
In both the schemes, the land owners are expected to agree to transfer their
development rights from high value area to generally low value area, without any
weightage to price differential. The government has also provisioned to invite private
investment in the reconstruction of such buildings, where 50 percent of the floor space
required for rehabilitation of existing tenants as the bonus FSI. Offering extra FSI or
development rights is now seen as a panacea for many of Mumbai’s problems – obtaining
land for public purpose, providing free houses to slum dwellers and the tenants of the old
rent controlled buildings and generating financial resources. There are various types of
Transfer of development rights (TDR) or incentive FSI available (Road TDR,
Reservation TDR, Slum TDR, Heritage TDR, dilapidated building incentive FSI and
schools, hospitals and hotel incentive FSI), and the planners have tried to see that TDR
flows from congested areas to relatively low density areas. In effect, though, almost all
the experts are of the opinion that the FSI availability in Mumbai is a constrain in the
growth of real estate space and needs to be relooked along with the other factors on urban
infrastructure.
The adjacent graph depicts the plan for Coastal Regulation Zoning of Mumbai. As is
evident, a large part of Mumbai falls into the Coastal Regulation Zone (CRZ) area.
This basically implies that no construction
is allowed on the seaward side of existing
roads or authorized structures. Based on
this regulation, the city is divided into three
zones as:
• CRZ I (Blue colour): Area between the
high tide and low tide line, where no
development is permitted
• CRZ II (Yellow colour): Where
substantial development has already
occurred, but further development is
controlled
• CRZ III (Green colour): Where sporadic
development has occurred, and only repairs
and reconstruction is allowed
Out of total area 437sqkm, 133sqkm is in
CRZ I, 100 square kms is in CRZ II, and 25
sq km is in CRZ III. While these regulations are justified to protect coastal zones in rural
areas it seems odd that this law exists in a city built on a narrow peninsula. It
has been argued by some experts that with such regulation in place cities like Manhattan,
Hong Kong, Singapore, San Francisco and Rio de Janeiro would have never been built.
The CRZ regulations further reduce the supply and have had an impact in accentuating
the paucity of land in the city.
Urban infrastructure:-
Mumbai means different areas for different people and many citizens are only
dimly aware that it ranks as a mega-city with more than 12 million inhabitants. This is
partly because Greater Mumbai, the city proper, occupying 466 square km is often
confused with the Mumbai Metropolitan Region, which is almost ten times bigger (4,355
square km) and includes the outlying townships of Kalyan and Thane, which are 1
million-plus cities in their own right.
About a third of Greater Mumbai’s population lives on the southern ‘finger’ of the
island, with more than two-thirds of the jobs located there. Attempts to shift jobs to more
accessible areas of the region have initially not succeeded; Navi Mumbai on the other
side of Thane creek has vast amounts of housing and office buildings that are slowly
beginning to be occupied. This is largely seen as a result of real estate speculation and
greater interest in developing South Mumbai, where the chronic shortage of office space
promised far higher returns.
The main city continues to grow at an
astounding pace. According to some
projections, Mumbai will have around
27 million people by 2020. In the last
quarter of the 20th century though, a
distinct change in the spatial
distribution of population was
observed within Greater Mumbai. Till
1971, the population in island-city
increased steadily and was always
more than that of the suburbs during that period. However, during the last three decades
population growth in island city has been negligible, whereas, that in the suburbs have
increased at fairly high rate. The western suburbs have more population than that residing
in eastern Suburbs. Gross density of greater Mumbai is increasing and was found to be
24806 persons per sq. km. in 2001. The area around marine lines continues to have the
highest density of 112,734 persons per sq. km.
According to the International Institute of Population Studies, only 480 people
come into the city every day. According to the last census in 2001, Greater Mumbai had a
population of just under 12 million; thus it has presumably a population of somewhere
close to 15 or 16 million now. Migration as a proportion of the total population is also
declining. In the 1970s, the proportion of migrants was close to 70 per cent with a natural
increase of 30 per cent. The proportions have now that formal employment in the city is
declining, with the closure of mills, chemical factories and even some multinational
industries. While the rate of growth may not be dramatic, size does matter. The outlying
areas of the metropolitan region are expanding faster than the core, especially the 100
square km of the island city. According to the Washington based Population Institute, the
metropolitan region in 2020 will be the world’s most populous at 28.5 million, with
Tokyo trailing at 27.3 million.
Government in Mumbai operates much the same way; national and state
government has the same ostensible mission as local government - to represent and
provide services to citizens-yet the scale on which authorities are created still matters
greatly. A common misperception about the city is that there is a single “Government of
Mumbai, or that the city’s structure can be represented with a list of agencies and
functions. The power to both make and implement policy in Mumbai is indeed divided
between a number of actors: some, such as the Municipal Commissioner (who is
appointed by the state of Maharashtra) and councillors on the Municipal Corporation
(that are locally elected) along with Mumbai-specific entities created by state or federal
government (such as the Mumbai Port Trust) and other broad state agencies which
operate both in Mumbai and in the rest of Maharashtra.
In addition to exercising direct authority in Mumbai through the commissioner,
Maharashtra has also created a large number of uni-functional bodies for the city, which
exercise at times unilateral control over huge policy areas, which includes Mumbai
Metropolitan Region Development Authority (MMRDA). This body has jurisdiction
over an area almost 10 times the size of the 437.71 square kilometres Municipal
Corporation. This authority was charged with implementing a state devised and approved
redevelopment plan, which delineated a 4,355 square kilometre “Metropolitan Region.”
In this capacity, the Authority directly funds and partially implements many of Mumbai’s
recent major “Projects,” including Transport and Urban Development, and is the direct
recipient of World Bank funding. This means it has the power to not just coordinate
regional planning across jurisdictions, but can also itself build roads, rails, and other
infrastructure, and even manage traffic.
In a city like Mumbai which has a number of topographical constraints, the value of
connectivity is even more pronounced. The suburban railway system in Mumbai has been
its lifeline since its inception way back in 1925, but in the last few decades, it has shown
signs of decay. There is a great emphasis on the road projects in the city. Transport
projects are already under implementation in the city through the Rs 4,526 crore, World
Bank supported Mumbai Urban Transport Project (MUTP), the Rs 2,648 crore Mumbai
Urban Infrastructure Project (MUIP) supported by the GoM, and the Bandra-Worli toll-
way sealink project. While the MUTP is for the mass transportation, the MUIP is to
supplement MUTP, with the main objective of road network improvements and efficient
traffic dispersal system in the city.
However, a lot of initiatives are underway to improve the transport infrastructure
of the city. This includes proposals for an ‘inner ring rail loop’ (linking Goregaon,
Andheri, Bandra, the Bandra-Kurla Complex and the Andheri-Ghatkopar stretch), an
‘inner ring freeway link’ (between the under-construction Bandra-Nariman Point sealink
and the proposed East Island freeway), and an ‘outer ring-rail and freeway link’ (that will
connect the island city eastwards and northwards to Nhava Sheva and the Mumbai-Pune
expressway, then back to the Vashi-Belapur expressway and Kurla in the eastern
suburbs). There is also a proposal for Mumbai metro, construction of which has now been
awarded to a private company.
A program of transforming urban infrastructure in Mumbai has dimensions of
institutional, fiscal financial reform that merits a separate analysis. Solving the problems
of Mumbai requires a shift away from an immediate focus on a few high-profile projects
(such as the second airport project or a metro project), and dwell more on building the
institutional foundations for a healthy city. Although, such projects are essential, they are
not the mainstay and can only have an incremental impact in resolving the land and other
urban problem.
It will be imperative for policy makers to improve the built-up area and/or land
prices relative to income levels. Ratio of land cost per sq meter to per capita GDP is 2 in
Kuala Lumpur, 6 in Sydney, 7 in Bangkok, 12 in Singapore, 52 in Bangalore, 100 in New
Delhi, and as high as 115 in Mumbai. This clearly is not a sustainable position and the
future growth of Mumbai’s real estate will rest a great deal on policies are maneuvered to
accommodate the above mentioned conundrum of geographical, regulatory and
infrastructure movements.
Chapter 4
MUMBAI RESIDENTIAL MARKET
Mumbai
Residential Market
Introduction:-
Mumbai is a squatters’ paradise. In the world’s seventh most expensive city,
buying a home remains a dream for most expensive city, buying a home has always
remained a dream for most even if they earn seven- figure salaries. Some real estate
markets in Mumbai have been prone to pronounced bursts of development activity while
others have been characterized by smooth pattern of development over time. Mumbai
though is unique, where along with the bursts of activity it has always had supply-
demand dynamics evolving in the last fifteen years. The natural and regulatory restriction
on the land supply has resulted in a situation where a substantial increase in demand has
more than proportionately increased the prices of residential space.
Mumbai Real Estate Market records the maximum realty rates in India in certain
areas like Cuffe Parade, Marine Lines, Nariman Point, Malabar Hills, and Nepean Sea
and in South Mumbai and Khar and Santacruz in western sub-urbs. More economical
residential realty options are available in Mahim in South Mumbai, Kalyan and
Ambernath in Central Mumbai, Panvel and Kalamboli in Navi Mumbai and Mira Road,
Bhayander, Vasai, Nallaspora and Virar in western sub-urbs.
As the financial capital of India, the city is not just a gateway to almost all the
multinational firms but also appear prominently as a location preference for corporate
office of Indian industry. With the opening of Indian economy in the early 90s, the city
has seen manifold increase in the demand for space. Year 1995 saw a peak in real estate
prices across Mumbai and from 1995 to about 2001 the market saw a downtrend and
stagnation. Since then the market has managed a spectacular recovery and the market was
back to the 1995 levels in 2005 even surpassing it at some locations, but now again
market saw a fall due to economic recession in country.
Overview:-
Mumbai is unique city with linear shape and is surrounded by sea on three sides.
South Mumbai and CBD (commercial business district) have limited supply of land
parcels for residential development, leading to high cost of real estate. It is the fifth most
expensive city in the world. Peak rates in CBD have lead to growth in suburban areas.
The residential real estate construction is largely concentrated in the suburbs, with the
city growing towards north and the development of Navi Mumbai.
Within the existing stock of houses, typical residential configurations are1BHK
and 2BHK. High- rise buildings form around 80percent of supply, while limited township
concepts have been developed in centrally located areas. The average area of the
apartments is smaller in Mumbai when compared with other Indian metros. Typically,
1BHK measures around 600sq ft and a 2BHK, about 800sq ft. a loading of 33-35 percent
(carpet area to super-built up area) is seen on an average.
Due to its unique shape and long distance to be traveled, accessibility of road and
rail is of paramount importance and commands a premium. The other factors that attract
households to a given residential area are proximity to workplace, availability of schools,
infrastructural development, well- developed areas with amenities and proximity to the
leisure world.
The high-end residential market is concentrated in South Mumbai locations, viz.,
Malabar Hill, Napeansea Road, Cuffe Parade, Atlamount Road and Central Mumbai
locations of Prabhadevi and Worli. Suburban locations of Bandra, Khar, Santacruz, Juhu
and Versova are also sought after residential locations due to excellent social
infrastructure and their proximity to the airports and the Suburban Business Districts
(SBD) of Bandra-Kurla Complex, Andheri and Powai-Vikroli. Other western suburban
locations of Goregaon, Malad, Kandivali, and central suburban locations of Powai,
Ghatkopar, Bhandup and Mulund have witnessed large-scale developments in the
residential sector. The most recent trend among many builders is the creation of entire
townships in areas with availability of vast stretches of lionsanduct. Locations like Thane,
Vasai and Virar have seen development of many such townships.
There are large number of players in this market like Hiranandani constructions,
Kalpataru developers, Lodha group, Akruti Nirmaan, Kanakia Spaces Pvt Ltd., Oberoi
Constructions Nirmal Lifestyle group, K Raheja universal group, Shapoorji Pallonji &
Co. Ltd.,Godrej Properties, Runwal group, HDIL, Ahuja constructions, Aditya Builders,
and many more.
Hiranandani Gardens, Powai Akruti Orchid Park, Andheri
Residential Supply and
Demand:-
The residential market in Mumbai is presently witnessing acute shortage of ready
apartments in the mid-end segment. Under-construction projects are being booked at a
swift rate with buyers reserving apartments long ahead. Majority of the newly
constructed or under-construction properties listed in our database have occupancy of
close to 80% depicting strong demand situation.
The residential demand has shifted from South Mumbai to North Mumbai owing
to new supply and comparatively lower price points. In addition, with Suburban Business
District emerging as a favored office. Destination, employees in these organizations
prefer affordable and new accommodations in the suburban locations in close vicinity.
The year 2007 saw as addition of approximately 33 mn.sq.ft. of residential space
to the residential stock. Bulk of this space, amounting to about 75% of the total supply in
2007, is concentrated in the suburban locations from Bandra to Dahisar and Kurla to
Mulund. The residential developments on the mill lands of Central Mumbai have also
added substantially to the current stock.
The year 2008 will see an infusion of about 36 mn.sq.ft. of residential space. This
takes into account the spill over of delayed projects, which were scheduled to be
completed in 2007. Majority of this supply is again concentrated in the suburban
locations.
Chapter 5
MARKET SEGMENTATION
Market segmentation
The division of Residential market in Mumbai has been done into following Six Micro-
Markets:-
1. South Mumbai: includes area from cuffe parade to Mahim
2. Western suburbs:- includes the North Mumbai i.e. Bandra, Khar, Andheri,
Borivali, Malad and many more
3. Central suburbs:- includes area from Sion to Mulund
4. Thane:- includes Glady's Alwares Road, Ghodbunder Road, Pokhran Road No.1
and 2
5. Navi Mumbai:- includes Vashi, Airoli, Belapur, Nerul, Panvel, Kopar Khairane,
Sanpada
6. Extended Suburbs:- includes Bhayander, Kalyan, Ambernath, Vasai-Virar
South Mumbai:-
Located on the southern most corner of Salsette Island, South Mumbai is home to
the elites of Mumbai city. With business centers such as Nariman Point and the Ballard
Estate and Financial organizations such as the Reserve Bank of India and Bombay Stock
Exchange, it is one of the busiest parts of the country. If South Mumbai attracts
businessman from all over the world, with number of museums and tourist haunts it is
equally interesting to the backpackers. South Mumbai hotels such as Taj Mahal, hotel
Oberoi, hotel Searock Sheraton, Chalukya hotel on Elephanta island find favour all over
the world. Lot of employment opportunities have given a rise to residential development
in South Mumbai..
South Mumbai locations of Malabar Hill, Carmichael Road, Napeansea Road,
Cuffe Parade and Atlamount Road witnessed heightened demand for high-end residential
properties due to restricted supply. This can also be attributed to NRIs scouting for
properties here. Most buildings in South Mumbai command a premium as they offer a
spectacular sea-view. Few of the new residential projects that are being launched in this
market command rates as high as Rs.30,000-50,000/sq.ft. Locations of Mumbai Central,
Tardeo Road and Grant Road closely follow the prime locations in terms of price and the
rates here range from Rs.12,000-21,000/sq.ft.
Source- Times Property
The mill lands in Central Mumbai locations of Lower Parel, Prabhadevi and
Mahalaxmi are currently the largest source of land parcels for the residential
developments in the micro-market. Towering residential complexes have sprung up on
the erstwhile mill lands. Prominent among them are Beaumonde Towers on Standard
Mills by Sheth Builders, Casa Grande on Matulya Mills by Ashford Housing, Planet
Godrej on Simplex Mills by Godrej Properties and Ashok Gardens on Swan Mills by
Piramals group. Capital values of these projects range from Rs.13,000-23,000/sq.ft. As
SOUTH MUMBAI Rs./sq.ft
Cuffe Parade 20,000-62,000
Churchgate 18,000-30,000
Marine lines 14,000-22,000
Malabar Hill 20,000-65,000
Napeansea Road 20,000-65,000
Worli 18,000-45,000
Prabhadevi 13,000-24,000
Mahim 8,500-14,000
compared to the South Mumbai and Central Mumbai, capital values of projects in
Wadala, Parel, Sion and Mazgaon range between Rs.7,000-12,000/sq.ft. Knight Frank
research estimates that 8.27 mn.sq.ft. of residential space will enter the Island City by end
of 2009-10, majority of which will be in Central Mumbai locations.
Western Suburbs:-
Over the years, the residential demand has shifted from South Mumbai to North
Mumbai on account of fresh supply and comparatively lesser capital values. Also, with
several corporate houses moving away from Central Business District of Nariman Point
and Fort in South Mumbai to the SBD of Bandra-Kurla Complex and Andheri-Kurla
Road, employees in these organisations prefer affordable accommodation in the suburbs.
In addition to this, many infrastructure development projects, which are currently
underway, are expected to provide better connectivity from North Mumbai to South
Mumbai. This will further increase in the attractiveness of the micro-market of Western
Suburbs.
Prime residential layouts in western suburbs are locations like Bandra, Khar and
Santacruz. Currently, the redevelopment projects underway are the major sources of
residential supply in these locations. Capital values for projects in these locations range
from Rs.14,000-28,000/sq.ft. Andheri, Vile Parle and Juhu have also gained prominence
as residential hubs over the past few years. With capital values ranging between Rs.6,
500-17,000/sq.ft., these locations are favoured by the upper middle income group. Huge
residential complexes are mushrooming in the suburbs of Goregaon, Malad and
Kandivali. There has been a perceptible shift of interest of the middle income segment to
these belts. Some of the large-scale complexes in the western suburbs include projects by
Lokhandwala Constructions, Oberoi Constructions, Keystone Group, K Raheja, Mayfair
Housing, Evershine Group, Kalpataru developers and Ekta Supreme. Capital values here
are in the range of Rs.4,500-7,000/sq.ft. and the demand here is higher for 2 BHK and 3
BHK apartments with varied amenities.
Western Suburbs Rs/sq.ft
Bandra(E) 7,000-11,000
Bandra(W) 16,000-28,000
Khar(E) 7000-11,000
Khar(W) 13,000-18,000
Santacruz(E) 9,000-12,000
Santacruz(W) 12,500-18,000
Vile Parle(E) 7,500-11,500
Vile Parle(W) 10,000-17,000
Andheri(E) 6,500-9,500
Andheri(W) 6,500-14,000
Jogeshwari 5,000-8,000
Goregaon(E) 4,500-7,000
Goregaon(W) 4,800-7000
Malad(E) 4,500-7,500
Malad(W) 4,000-6,500
Kandivili(E) 4,000-7,500
Kandivli(W) 4,500-6,500
Borivili(E) 4,500-6,500
Borivili(W) 4,000-6,500
Source- Times Property
This micro-market has the highest quantum of residential projects in the pipeline,
accounting for almost 37% of the total supply. By the year 2009-10, approximately 29.56
mn.sq.ft. of residential space is expected to be infused in the Western Suburbs.
Central suburbs:-
Increased residential prices in the Island city have led to the Central suburbs,
stretching from Chembur to Mulund, to gain popularity among the middle income group.
Widening of the LBS Road, Eastern Express Highway and the construction of flyovers on
this major artery has transformed these once unpromising neighbourhoods into
favourable options of today. Powai and Chandivali continue to witness heightened
activity and demand, not withstanding the fact that property prices have gone up by
almost 50% in 2006. At present during reccession the residential capital values range
between Rs.3,750-9,500/sq.ft. Most of the residential projects in these locations are high-
rise buildings offering acres of landscaped gardens and state-of-the-art amenities.
Cental Suburbs Rs./sq.ft.
Byculla 8,500-11,000
Wadala 5,000-8,000
Sion 6,500-9,500
Kurla 4,000-6,500
Powai 4,500-9,000
Chembur 5,500-7,000
Ghatkopar 4,500-7,500
Bhandup 3,750-6,000
Mulund 3,750-7,000
Source- Times Property
LBS Road, stretching from Sion to Thane, also has numerous premium housing
projects being developed on erstwhile industrial and factory lands. Notable among them
are Kalpataru Group's 'Kalpataru Aura' at BOC India Ltd., Runwal Capitaland's 'Orchard
Residences' at John Wyeth Industry, Neptune Group's 'Living Point' at GKW Estate and
Runwal Group's 'Runwal Infinity' behind Ralliwolf.
Besides, new buildings are also being added on to some existing complexes like
Great Eastern Gardens and Nirmal Galaxy. Residential developments totaling to
approximately 18.96 mn.sq.ft. are slated to enter this market by 2009-10. Capital values
on the LBS Road range from Rs.5,000-8,000/sq.ft.
Thane:-
Thane has witnessed large-scale residential developments over the last few years.
The key reasons for these are the availability of vast stretches of land due to shutting
down/relocation of industries, proximity to Mumbai and fast developing infrastructure.
There has been a steady growth of high-rises and self-sustaining townships in Thane
leading it to emerge as a new residential location for the middle income group and
upper middle income group. The demand for residential spaces, is high especially in 2, 2-
1/2 and 3 BHK apartments segment. Current capital values for Grade-A apartments range
from Rs.4,000-6,000/sq.ft.
According to Knight Frank Research, Thane will see an infusion of close to 7.07
mn.sq.ft. of Grade-A residential space by 2009-10, with major residential developments
coming along the Glady's Alwares Road, Ghodbunder Road, Pokhran Road No.1 and 2,
and the Eastern Express Highway. Property rates in thane range from
Rs.4,000-6,000/sq.ft.
Some of the prominent large-scale residential projects of Thane are Hiranandani
Estate and Hiranandani Meadows by Hiranandani Constructions, Vasant Lawns by Sheth
Developers, Lodha Paradise by Lodha Group, Siddachal, Kalpataru Hills and Tarangan
by Kalpataru Group, Neelkanth Heights, and Neelkanth Palms by Neelkanth Group,
Raheja Gardens by R.Raheja, Runwal Garden City, Runwal Estate and Runwal Pearl by
Runwal Group. Thane also has Neelkanth Woods by Neelkanth Group, one of the first
gated community of villas within the Mumbai city limits.
Navi Mumbai:-
Navi Mumbai is arguably the world's largest planned city. It was initially planned
with a specific purpose: to decongest Mumbai and become an alternative haven for the
multitudes that throng Mumbai from different parts of India. Today, Navi Mumbai is a
close competitor to Mumbai in every respect. Basic infrastructure worth Rs.40,000
million (US$1.14 billion) is already in place with numerous flyovers, broad roads, and
parking lots.
Navi Mumbai, the largest planned new city in the world, has fast emerged as an
attractive option for residential buyers. Factors like the announcement of the new
international airport at Kopra-Panvel area, SEZ coming up at Nhava Sheva and
development of some of the major IT Parks like Dhirubhai Ambani, Knowledge City
(DAKC) at Kopar Khairane, Millennium Business Park at Mahape, International Infotech
Park at Vashi, Airoli Knowledge Park at Airoli and Thane Belapur Industrial Belt have
invigorated the demand for residential apartments in this micro-market. In addition,
infrastructure development projects like the proposed Trans-harbour link and Mass Rapid
Transit system will also help in easing the long commutes to the mainland of Mumbai.
New residential developments are concentrated along the Palm Beach Marg,
which stretches from Vashi to Belapur and runs parallel to the Thane creek. The
residential capital values range from Rs. 2,000-5,500/sq.ft. Several high-rise buildings
offering an unrestricted view of the Thane creek are under construction on the eastern
side of the road. Nodes such as Koparkhairne, Airoli and Sanpada are also seeing
substantial development.
Navi Mumbai Rs/sq.ft
Vashi 3,250-5,500
Airoli 2,500-4,000
Koar Khairane 3,500-5,000
Sanpada 3,000-5,000
Nerul 3,000-5,000
CBDBelapur 3,000-5,000
Kharghar 2,000-4,000
Kalamboli 1,400-2,200
Panvel 1,800-2,700
Source- Times Property
Major developments in this micro-market are by Kesar Group, Haware Builders,
Prajapati Group, Arihant Universal, Goodwill Developers, Regency Group etc. The
capital values which range between Rs.2,200-4,500/sq.ft., have registered a rise of 30-
40% in 2006. Close to 9.06 mn.sq.ft. of residential development will enter this micro-
market by 2009-10.
Extended suburbs:-
With the prices in the suburbs on an upward trend, the far-flung suburban belts of
Kalyan and Dombivili on the north-eastern side and Mira Bhayander and Vasai-Virar on
the north-western side and Panvel on the harbor route are increasingly gaining
prominence. These belts are emerging as popular residential destinations for the lower
middle class and the middle class people. Around 5 lakh acres of developable land is
largely available for which the flat prices hover between 1,000 sq ft. to 2,200 sq ft.
Relatively lesser-polluted environment, availability of 1, 2 and 3 BHK apartments
at affordable prices, provision of ample open green spaces within the residential projects
have acted as powerful 'pull' factors for the residential developments in this belt. The
residential property rates currently range from Rs.1,000-2,200/sq.ft. with locations like
Mira Bhayander and Kalyan, Dombivili commanding higher prices than Vasai-Virar and
Ambarnath.
Extended Suburbs Rs/sq.ft.
Mira Road 1,800-2,500
Naigaon 1,200-1,800
Vasai(E) 1,100-1,800
Vasai(W) 1,000-1,800
Virar 1,100-2,000
Kalyan 1,400-2,200
Dombivali 1,400-2,500
Ambernath 1100-1,600
Source- Times Property
These micro-markets also offer the advantage of comparatively lower land rates,
rendering an option of owning independent duplexes/row houses for the working class.
Lack of infrastructure in extended suburbs is the major reason for low prices of land here.
For that reason, there can be no other good alternative for builders than looking forward
to these areas. These extended suburbs are set to witness a supply of approximately 9.38
mn.sq.ft. of residential space by 2009-10.
Some of the prominent industry players in the extended suburbs are RNA Group,
Godrej Properties, Kanakia Constructions, Lifestyle group, Mayfair Housing, Agarwal
Builders, Evershine Group, Akruti Developers and Mahadev Construction.
Mumbai Residential Market scenario:-
The Mumbai Real Estate is
considered the yardstick for the burgeoning
Real Estate sector in India. Mumbai is a
mature, demand led market where there are
many more and users are compared to other
speculative markets in the country. There
has been an appreciation in real estate value
due to increase in demand. The investment is thriving with returns increasing manifolds
over past few years.
Currently, the real estate investors are mainly HNFs`, with the relaxation in FBI
regulation, institutional money is expected to be following into this sector.
Mumbai residential segment is performing very well in the current scenario. The
demand for the quality residential leased apartments in south and south central Mumbai
has increased significantly in past one year. The increase in demand in the suburbs is due
to availability of easy loans, with limited supply in south Mumbai the shift has been
towards North Mumbai. The demand is very high in Bandra for sale and lease apartments
but due to quick absorption of these apartments and limited construction activities the
shift has been to the joining areas like Santacruz, Khar where newer constructions are
coming up also there in these areas few pockets have witnessed noticeable capital
appreciation, in last 9-12 months. The lease rentals in Juhu and Lokhandwala are also
under continuous upward pressure due to very limited supply and close proximity to
excellent social infrastructure, airports, Powai.
A largely supply is coming from western suburbs like Goregaon, Malad, Kandivli
while Mulund, Thane, Vikhroli and Chembur belt from the central suburbs.
Availability of vast industrial land provides tremendous scope for planned
development that includes quality housing with ample open space, club house, security,
etc. middle and upper middle class have shifted to the these areas for the new
developments offer better lifestyles to individuals.
Upper and luxury residential apartments are experiencing a strong demand by
MNCs for their executives. Supplies in suburbs have been absorbed due to a very high
demand, the capital values have shown an increase of about 15-20010.
Many developers are expected to announce new projects soon. The end user
demand in the suburbs is expected to continue to be strong. Rental and capital values in
South Mumbai will move upwards due to the short supply. Widening of roads and
western express highway will make commuting far comfortable for the residents living in
these areas like Goregaon, Malad and Kandivli, they will be able to access Powai, Thane
and other central suburbs more conveniently. Thus property prices in these areas will see
further 10-15% increase. To sum of the residential market is on upward swing and prices
trends will continue to be gently upward.
Yields on residential property in Mumbai have been around 5-7%.
Distribution of new residential supply by 2009-10
The new residential supply at the end of
2009 and in 2010 is as per the demand,
availability, prices etc. As shown in the diagram
the island city is divided in six segments. In every
segment demand will be as per the availability
and demand. Maximum demand is seen in
western suburbs which is 36 percent. As many
corporate houses have shifted to western suburbs.
Other segments also have distribution of new
residential supply.
Chapter 6
RENTALS IN MUMBAI
Rentals in Mumbai Residential Market
Residential Real Estate represents a significant
fraction of the investment universe. The ultimate value of
Residential real estate emanates from its rental flow, which
reflects the price that market is willing to pay for the use of
space. Rental of Residential space is a resultant of a
complex interplay between various factors like demand &
supply of residential real estate, existing infrastructure
facilities, proposed infrastructure development, availability of land, economic growth and
many other factors.
Houses on rent in Mumbai have always been a matter of acute shortages owing to
the huge gap between demand and supply. According to a report, the city needs 84,000
houses every year additionally, but the combined effort of private housing companies and
government housing authorities yield only 55,000 houses annually. The deficiency in
supply of houses keeps on propelling the real estate prices to a new zenith every year. As
a result, house rent in Mumbai is hitting the sky, which compels a majority of people to
live under unhealthy atmosphere in cramped rooms or flats on a share basis.
This is not all. In order to rent a house, such as a flat or apartments in Mumbai, it
is often required to deposit a lump sum as a security amount, of course, without accrual
of any interest.
Since the scope for further development of residential facilities within the
peripheral of the city is on the verge of its saturation point, builders and developers are
coming up with their housing projects at the outskirts of the city paving way for the
growth of Mumbai suburbs and satellite cities like Navi Mumbai . Even, the growing
trend of house rent in these areas ceases to bring any relief to home seekers.
Posh localities, such as Bandra, Juhu, Worli, Santacruz and Khar are the most
expensive areas in Mumbai to rent a flat or apartments, which command an average
rental value to the tune of Rs. 4-10 psft per month. While it requires between Rs 8 to 16
psft per month to rent a flat in Worli or Santacruz, the cost to rent home in Juhu or
Andheri comes at a comparatively cheaper rate between Rs. 4-10 psft.
RESIDENTIAL REALTY RATES IN MUMBAI:-
.
LOCATION RENTAL VALUES/
Rs./sq.ft
SOUTH MUMBAI
Cuff parade 70-150
Marine lines 55-90
Church gate 50-95
Malabarhill/walkeshwar 90-190
Worli 65-135
Prabhadevi/parel 55-95
CENTAL SUBURBS
Wadala 18-29
Sion 20-43
Powai 20-75
Chembur 20-35
Ghatkopar 18-30
Mulund 18-30
Thane 15-25
WESTERN SUBURBS
Bandra-E 40-65
Bandra-W 45-150
Khar /Santacruz-E 35-55
Khar /Santacruz-W 40-90
Vile-Parle-E 35-45
Juhu 55-75
Andheri-E 25-45
Andheri-W 35-70
Goregaon-E 25-35
Goregaon-W 25-40
Malad-E 15-35
Malad-W 25-40
Kandivili-E 15-33
Kandivili-W 15-31
Borivali-E 15-29
Borivali-W 18-31
Mira Road-E 9-12
Vasai-W 7-9
NAVI MUMBAI
Vashi 13-21
Koper Khairane 12-19
Nerul 12-19
Belapur 10-18
Kharghar 9-16
Panvel 8-10
Source: DNA NEWSPAPER, 12th June’09
Rental Trends:-
Residential rentals for flat/apartment, independent house and PG accommodation
are more popular Mumbai. Mumbai have far greater avenues for those who are on
transferable job or looking for job opportunities. This has created a good market for those
seeking to invest in Investment property i.e. investing in a property for rental purposes; as
they ensure good rentals on a regular basis
In the high-end rental apartment segment, the terrace flats, luxury apartments and
home, bungalows, villas, penthouses and condominiums are gaining ground as a popular
choice. The segment is also considered a safe investment option as the leased property is
kept under the inspection of the respective housing society. Increased demand of
independent houses or paying guests in Mumbai where the corporate sectors rent
independent houses for their senior executives.
A paying guest or PG accommodation in Mumbai is a convenient accommodation
arrangement where the owner provides meal as a part of the rent agreement, apart from
several desirable amenities like laundry. Even PG hostels and working women’s hostel,
are considered safe and can be availed of on an individual or sharing basis mean big
business.
Chapter 7
FACTORS AFFECTING REAL ESTATE PRICES
FACTORS AFFECTING REAL ESTATE PRICES
Real estate is the second important source which generates economy in our
country. Real estate almost contributes about 6 percent to gross domestic product (GDP).
Therefore the property prices, demand, supply and many more plays a vital role in Real
Estate Sector.
Infrastructure: -Infrastructure is always a major
driver for price growth. Availability of social
infrastructure in the location will affect the demand.
Places with better infrastructure like rail and road
connectivity and basic amenities like hospitals and
schools, car parking space, maintenance services and
many other benefits will lead to demand and increase in
the prices of property.
Location- Location is one of the most important factors
affecting real estate prices. Slopes, soils, hydrology, land
availability, Distance to employment sources, Distance to
shopping, Availability of amenities (water, restaurants
and shopping, golf, parks), Neighborhood factors: age of
surrounding housing stock, schools, crime and many
more are the factors which affect the real estate prices.
Properties in such places affect real estate prices in
positive sense. Good amenities lead to higher prices and
more demand.
Sentiments: Positive sentiments in the market
and economy will lead to better demand. People
when confident about a sustainable source of
income will be more comfortable in making
property buying decisions.
Demand & Supply- Population change is the
key driver of demand. When an area becomes
popular more people want to live there. Given
there are fewer dwellings than interested
parties, prices increase and vice-versa. The
other driver is availability of land.
Affordability and availability of money-
Affordability is the relationship between housing
prices, interest rates and wages. It's the cost to the
owner or investor to retain and enjoy a property.
When prices, interest rates and wages reach a
ceiling in a particular area, residents often realize
they can have a better lifestyle elsewhere.
The resources boom-The demand for skilled and unskilled
workers is increasing day by day. And with an increase in
their salary scale, these workers seek to improve their
lifestyle by buying bigger and better homes, or maybe an
investment property or two.
Inflation- Inflation is a rise in the general level of prices of goods and services in an
economy. As the prices of goods increase the whole money management of people is
affected. This affects the demand in real estate. Less demand leads to fall in prices of
realty.
Interest rates- An interest rate is the cost of borrowing money. Among the many
industries affected by fluctuations in interest rates, real estate and banking are perhaps the
most directly impacted. When interest rates increase, borrowing becomes more
expensive, dampening consumer demand for mortgages and other loan products and
negatively affecting residential real estate prices. (Low interest rates = higher prices;
high interest rates = lower prices).
=
=
Recession- Recession is the most important factor
affecting the real estate prices. Recession is nothing but
the economic slowdown. It is a tense mood having
features like downsizing, deductions in salaries, less
investments, unemployment, insolvency etc. If people do
not have money and bankers do not have money to give
loan then it’s directly going to affect the real estate
prices. As it is common principle of real estate low
demand then fall in prices and high demand then increase
in prices of property
FALL IN PRICESLOW DEMAND
Low interest rates Higher prices
High interest rates Lower prices
INFLATION
Demographic factors- One cannot sell an Ipod
to deaf and a television to blind. Same is with
demographic factor also. A seller should divide
the market into three- higher income group,
lower income group and middle income group.
If he tries to sell a high priced property to lower
income group then it is definitely going to affect
the prices in negative sense i.e. he will have to reduce the prices of huge property.
Changing age profiles also affect the prices. Greater young population will create more
demand and will also bring increase in price level of property vice-versa.
Legal frame work- Legal frame work is also an important
factor affecting real estate prices. The registration and
documentation of real estate is complex and costly. Buyers
are not ready to pay much amount after going through legal
framework.
Fluctuations in prices
of inputs- Input includes the raw material used for
construction. Many builders tend to stop work when
the prices of inputs like cement; iron etc goes up so
as to wait for the time when they expect the prices
will come down. This result in unnecessary delay in
the work and the cost of wasting time would
actually be more than the increase in price.
Economic Factor- Economic factor is nothing but the
national income of the salaried persons. The
distribution of national income, per capita income
directly affects the purchasing ability of individual
and the employment is closely related with the
housing development.
Chapter 8
MUMBAI PROPERTY BOOM
MUMBAI PROPERTY BOOM
The Real Estate Market had an upward trend and had triggered the increase in the value
of residential properties. There was an unprecedented real estate boom in Mumbai.
Within short time, the prices of residential properties started increasing at the
phenomenal 50 - 80%. Owing to the following factors, the residents aspire to hold
residential property in Mumbai -
People in foreign trade via ships / ports wish to own a place in Mumbai.
Various educational institutions of international repute.
Sound connectivity at both domestic and international level.
Presence of various MNCs in the city.
Soaring real estate rates so perfect for investment requirements.
Conversion of mill area into residential complexes. This results in availability of
larger floor plates at much lesser rates.
OVERVIEW:
Mumbai is place were many people come to meet there dreams. This gave rise to
increase in population in every decade. Large number of developers, investors started
coming in the Mumbai market. Most of the real estate activity in Mumbai has been in
the middle to upper middle class segments, though the premium segment which has
limited supply continues to attract buyers. There has been some appreciation in the
values of prime properties in South Mumbai, Worli and Bandra areas. Residential
values were on the rise in the premium South Mumbai properties. Demand continued
and there were some new projects coming up in South Mumbai. This includes two
towers of 60 stories each known as "S D Towers".
The North Western and Eastern suburbs continued to be the preferred corporate
locations in Mumbai. As a result, the suburban move by corporates has given a boost to
residential developments. Mindspace and Hiranandani, on a regular basis, kept coming up
with new developments. Relocation of the American School to suburbs has led to many
expatriate officials also relocating their residences to the suburbs.
Residential categories all across the city were active. The residential markets have
seen continued activity in the middle-class segment in Rs1-2.5 million (US$ 20,400-
51,000) categories. All areas are seeing a rise in values. With residential projects going in
tandem, developers went in for integrated developments. Most large projects have school,
college, hospitals etc incorporated as an integral part of the project.
Residential properties were on the rise in the region of Rs. 20-30 million range.
‘A’ Grade Buildings in the ‘Golden triangle’ as it is coined, command a price from Rs.
15000-17000 psf. Cuffe Parade Rs. 8000-12000 psf. Bandra one of the posh areas in
Mumbai calls for Rs. 8000-13000 psf. Supply of residential properties in the leave and
license market has built up, leading to a fall in rentals.
Nariman Point and Bandra-Kurla Complex command a good price for commercial
property. Nariman Point commands Rs. 8000 – 12000 psf and Bandra-Kurla Complex
Rs. 7000 to 9000 psf. Central Mumbai a fast developing industrial market is not lagging
behind and rise in commercial properties in on the cards with 30% - 40% above market
values. The realizations that land is an asset, corporations were contemplating on
developing large tracts of green land. Developers were tying in with companies and vice
versa for purchase of land for office space constructions, subjective to their requirements.
Union budget has facilitated companies if they choose to buy land for providing houses
for their employees.
K Raheja Corp, K. Raheja Constructions, Samir Bhojwani, K Raheja Developers,
Tata Housing, GESCO, Mahindra & Mahindra, Kalpataru and Godrej Housing are the
leading developers active in residential market. Central Mumbai areas such as Wadala
(what were they earlier) Sion etc started coming up as preferred residential areas. Navi
Mumbai market was witnessing a marginal increase in residential segment due to large
off take of residential apartments by Reliance Industries.
Reasons for Rise in Real EstateThe following are the reasons for rise in Real Estate Market all over Mumbai in
Residential Market:-
Migration of people:-
Mumbai is dream city. People come from different places to achieve there
dreams. This has increased density of population. Currently, the density of population in
the city is around 45, 662 persons per square kilometres. Migration of people in Mumbai
is due to several reasons like for work, business, bollywood, jobs and studies etc. which
have led many people coming to Mumbai. The following graph shows the density of
population from 1981 to 2001 census:-
According to the
graph, there is approximately similar population in island city but in suburbs and outer
city there was continues increase in population of people. It is analyzed that the Mumbai
population is going to be double in 2011 census. This resulted in increase in demand for
real estate in Mumbai. Hence, increase in demand lead to rise in prices of properties of
Mumbai.
Financial Hub:-
Mumbai is said financial capital of India. Mumbai is the commercial and
entertainment centre of India, generating 5% of India's GDP, and accounting for 25% of
industrial output, 40% of maritime trade, and 70% of capital transactions to India's
economy. Mumbai is home to important financial institutions such as the Reserve Bank
of India, the Bombay Stock Exchange, the National Stock Exchange of India and the
corporate headquarters of many Indian companies and numerous multinational
corporations. The city also houses India's Hindi film and television industry, known as
Bollywood. Mumbai's business opportunities, employment opportunities as well as its
potential to offer a higher standard of living, attract migrants from all over India. This
also gave rise to prices of properties in Mumbai.
Employment Opportunity:-
There was employment opportunity generated all over Mumbai because of many
financial centres, MNC’s, offices etc. venturing into Mumbai city. Employment
opportunities also generated income to employees. Many people started getting jobs with
high salary. People from different places started settling down in Mumbai for the purpose
of earning. This generated more demand for houses in Mumbai. More demand for
property lead to increase in prices.
Foreign Direct Investment:-
The government of India provided fresh impetus to the construction and
development sector by allowing 100% foreign direct investment (FDI) under the
‘automatic route’ in order to spur investment in the vital Real Estate Sector. Large
inflows of foreign funds created easy credit conditions for a number of years prior to the
crisis, fueling a housing market boom and encouraging debt-financed consumption. The
USA home ownership rate increased from 64% in 1994 (about where it had been since
1980) to an all-time high of 69.2% in 2004. Subprime lending was a major contributor to
this increase in home ownership rates and in the overall demand for housing, which drove
prices higher.
Indian Real Estate was on the high growth path
In 2003-04, India received total FDI inflow of US$ 2.70 billion, of which only
4.5% was committed to real estate sector. In 2004-05 this increased to US$ 3.75 billion of
which, the real estate shares was 10.6%. However,
in 2005-06, while total FDIs in India were estimated
at US$ 5.46 billion, the real estate share in them
was around 16%. The Study, nevertheless projects
that in 2006-07, total FDIs will touch about US$ 8 billion in which the real estate share is
estimated to be about 26.5%.
Shortage of supply: -
As many people migrated in Mumbai and 100% FDI by government of India.
Many developers came into the market with different projects and buyers migrated in this
city. The congestion of main Mumbai City turned people to the suburbs to meet their
residential requirements. There was shortage of supply of land which gave rise to
extended suburbs like Bhayander, Kalyan, Dombivli Vasai- Virar and many more.
With focus on township, large residential townships were constructed in suburban areas.
This created demand and thus property prices went up. Suburbs started improving. The
unused land prices went up in these areas also.
Easy Availability of Loan: -
With day-by-day property prices increasing all banks Private banks and Public
Banks)like HDFC, IDBI, SBI, ICICI, Punjab National Bank, Janta bank and many more
started giving home loans to its customer with various schemes. As there was easy
availability of home loan many customers started taking home loans. The rate of interest
was also low during the boom period and also the customers were given the advantage of
paying the installments on monthly basis. This increased the business of banks as well as
benefited the customers. Thus, leading to rise in Real Estate market all over in Mumbai.
According to Kotak Institutional
Equities estimates the interest rates offered
by banks on home loans were decreasing
as there was rise in property prices in
Mumbai. As shown in the graph, the
interest rate provided by bank was 12.8% 2001 then in 2003 it was even below that is
10.4 percent and in 2005 it was 8.0 percent
Higher Standard Of Living: - This lead to `individual’s willingness to pay high for the
properties. The only thing they wanted was good house, high quality lifestyle, good
infrastructural facilities, amenities etc. thus property prices went up.
Other reasons: - Closure of textile mills and industrial sheds, Robust and sustained
macro economic growth, redemption in taxes by investing in real estate, rapid
urbanization, fiscal incentives to developers, redevelopment of slum areas, infrastructure
support & development by government, special offers and attractive schemes by builders
to attract end users and Favorable demographic parameters etc. these all also created rise
in property prices in Mumbai.
TRENDS IN MUMBAI DURING RISE:-
The demand for plots of land went up with the boom in industries. But with the
cost of a 30X40 ft plot plus home going for the equivalent of 5 million rupees in a good
residential area, apartments soon came into favour.
The buyers yearned a lifestyle equivalent to the lifestyles abroad, and they had the
capacity to pay. This reduced the "matchbox" apartments on offering and has spawned a
host of self sufficient complexes. Soft interest rates on home loans, a tax incentive on
home loans and the general growth mode of the economy are other factors driving the
real estate boom.
New apartments’ complexes have recreation facilities, basement parking, security, power
back up, good lawns and even swimming pools, all of which are very difficult to get
when one goes in for an individual plot.
When every builder began to offer these, the bigger ones began to offer multiplexes,
shopping complexes and schools. Not content with differentiation, it was the snob value
(at a premium) - Complexes modelled on resorts, European looks, vast open areas, pools
lined with Italian marble were the latest fad these days. While this is a good thing, in the
recent past, real estate in Mumbai had reached crazy levels of prices.
A significant percentage of the buyers are genuine (not speculators) buyers who intend to
stay in the apartment they book. But when there is a genuine demand, speculators can’t
keep off.
Some buyers also started taking advantage of the sprialling prices (driven by the builders
to a great extent) to book say, 3 apartments when they want just 1. As the price increases,
they sell off the first one, and then the second effectively getting their third (and the one
which they intend to own) apartment nearly free of cost.
Chapter 9
IMPACT OF RECESSION ON REAL ESTATE MARKET
IMPACT OF RECESSION ON REAL ESTATE MARKET
After seeing a continuous rise in demand and prices for the last few years in the
residential market the market is facing a sudden downturn. All the markets have
bearished. This all is just because of “US subprime crises.”
US Subprime crises
The subprime mortgage crisis is an ongoing financial crisis triggered by a
dramatic rise in mortgage delinquencies and foreclosures in the United States, with major
adverse consequences for banks and financial markets around the globe. The crisis, which
has its roots in the closing years of the 20th century, became apparent in 2007 and has
exposed pervasive weaknesses in financial industry regulation and the global financial
system.
Many USA mortgages issued in recent years were made to subprime borrowers,
defined as those with lesser ability to repay the loan based on various criteria. When USA
house prices began to decline in 2006-07, mortgage delinquencies soared, and securities
backed with subprime mortgages, widely held by financial firms, lost most of their value.
The result has been a large decline in the capital of many banks and USA government
sponsored enterprises, tightening credit around the world.
The crisis began with the bursting of the United States housing bubble and
high default rates on "subprime" and adjustable rate mortgages (ARM), beginning in
approximately 2005–2006. Government policies and competitive pressures for several
years prior to the crisis encouraged higher risk lending practices. Further, an increase in
loan incentives such as easy initial terms and a long-term trend of rising housing prices
had encouraged borrowers to assume difficult mortgages in the belief they would be able
to quickly refinance at more favorable terms. However, once interest rates began to rise
and housing prices started to drop moderately in 2006–2007 in many parts of the U.S.,
refinancing became more difficult. Defaults and foreclosure activity increased
dramatically as easy initial terms expired, home prices failed to go up as anticipated, and
ARM interest rates reset higher. Foreclosures accelerated in the United States in late 2006
and triggered a global financial crisis through 2007 and 2008. During 2007, nearly 1.3
million U.S. housing properties were subject to foreclosure activity, up 79% from 2006.
Subprime Mortgage crises
Impact of Recession on Indian market: -
A recession is when GDP growth slows, businesses stop expanding, employment
falls, unemployment rises, and housing prices decline. Due to subprime crises there was a
recession all over world. A recession had far-reaching impact on whole world. The US
subprime crises also affected India as there were many foreign investors like Lehman
brothers, Bear Sterns, Merrill Lynch, AIG etc. These investors or lenders almost become
bankrupt. Thus leading to fall in property prices in India.
REAL ESTATE industry is taking on correction period all over India. Brokers,
especially, seem to be convinced that the market is set to fall. In many areas, the property
rates have already started falling. Accordingly in Mumbai, Goregaon, Malad, Mira Road,
Vasai and Virar on western suburbs and Mulund, Bhandup, Kurla, Chembur and Govandi
on central side have started stagnating the level of property prices.
Pune, Nashik, Noida, Jaipur, Bangalore, Chennai and Hyderabad are also feeling
the cold wave in the property market. Reason for the same is related with hike in housing
finance interest rates and unaffordable property rates.
Investors are, now, not buying any property and have stopped going in for more
investments. Practically, when no one buys, rates are stagnated at some particular point.
That is what is happening today. The sale price has stopped further climbing up, since
there are no takers. Malls are worst hit. The recession started with them, while the
exhibiting rates were much less then the actual investments made.
It may be a recess. For the time being, investors want the market to show its true
colour. And after they sell off certain non moving stock, buying spree may start again
afresh. It is also linked with the liquidity crunch in the economy and falling stock
exchanges in the country. A lobby of investors does not want share market money to go
easily from the real estate market. People, who have invested in real estate from earning
of share market, want an exit to pay off the liabilities created by them in the share market.
Players in real estate market want the rates to stop climbing up for some time, so that they
can capitalize on such panic sale. Big game plan is on the hands of few groups of
individuals and few finance companies that have entered recently in the trade.
A slowdown in the construction sector potentially has large knock-on effects on
the economy as the sector directly accounts for 7.3% of GDP, its backward linkages in
terms of the sector’s usage of iron, steel, cement etc., and forward linkages to other
sectors, impacts an estimated 14% of GDP.
Realty companies that had raised funds through the capital markets and private
equity funds suddenly started finding themselves in a soup. Funding options began to dry
up. Asset values fell. Stock markets took on a bear run. Stock valuations of realty
companies plunged and inflation reached alarming proportions. The RBI raised key rates
to curtail money inflow in the system.
Builders, today, have started to reduce the price everywhere in the country. Ready
stock is still not available, as the builders have already sold 30 to 50 per cent of their
stock, during under construction phase, to investors. As the investors want handsome
returns on the finished stock, while they do not sale in the open market, but through the
builder only. That stock again is sold by the builders to the actual buyers by mounting
another profit margin. Hence, when the actual user buys the property, he has to pay
investor’s hidden margins, which change hands five times during the time of
construction.
The fall in collateral will also hurt firms’ balance sheets, increase their funding
costs, hurt confidence, and reduce investment demand. However, the impact on demand
will be lower than in developed countries.
Banks hiked consumer loan rates as also home loan rates. Corporate waking up to
pressure on expenditure began to announce lay offs, salary cuts and many such cost
cutting measures. Cautious consumers battling multiple whammies began to put off home
buying decisions. Demand has since stagnated and fallen drastically.
Chapter 10
A PICTURE OF FALL IN PROPERTY PRICES IN MUMBAI AFTER THE CRISES
Mumbai Property Bubble
Mumbai’s realty market, which in recent years
witnessed an astronomical price increase bringing it in
the league of the worlds most expensive cites, is finally
taking a beating. Property sales that have been growing
at a clip of about 20% every year have plummeted by
17% in 2007-08, the first time in six years.
Though the property market in the country’s
financial capital has been rife with talk of a slump for
some time now, this is the first time figures prove the
extent of the slowdown. Information about residential
property sales from the stamp duty registration office
show almost 12,000 fewer transactions during the last financial year compared to the year
before. From April 2007 to March 2008, 62,595 flats were purchased in Mumbai as
against 74,555 in 2006-07.
The Real Estate Market of Mumbai has fell down almost 25-35 percent in 2008 as
compared to years of rise in Mumbai.
Analysts said this could be just the tip of the iceberg as stamp duty registration figures
indicate the trend only among genuine homebuyers. There could be more of a downswing
in real estate investments as people are backing off from the sector in large numbers. To
resolve or to overcome such problems various things were noticed in real Estate market
Of Mumbai such as discounts, offers, unaffordability, increasing interest rates, developers
reducing property prices and many more.
Drop In Residential Prices Across Key Mumbai Micro Markets (%)
Reducing the size of flats: Developers are reducing the average flat sizes to make them
more affordable. For instance (1) Orbit Corp has reduced its flat sizes from 4,500sf to
5,000sf per unit to 2,500sf to 2,700sf/unit at Orbit Haven located at Napeansea road,
Mumbai (2) Runwal group is now constructing 1.5BHK and 2BHK apartments v/s
2.5BHK and 3BHK earlier at Runwal Estates located at Ghodbunder Road, Thane.
Various measures being adopted by developers to boost sales Offering various sops
and discounts: Most developers are offering sops and discounts in various guises often
on a case-by-case basis to push transactions. These sops and discounts include waiving of
registration, providing free parking area and waiving of floor rise charges, offering
amenities, etc. Until recently, such discounts were not publicly reported and were
available only to large investors. In the last two months, several large reputed developers
have issued public advertisements about discounts, hoping to stimulate demand and lower
inventory.
Tug Of war between developers and homebuyers:-
It is said that there is tug of war between developers and home buyers.
Incumbents in the residential vertical are at a disadvantage. Developers are already
committed to several projects, with varying sales levels. They fear that price reductions in
a particular project could (1) have a ripple effect on their other projects within the city,
and (2) antagonize existing investors/buyers in the project (leading to cancellations or
uncertainty regarding cash flows from pre-sales). Tight liquidity, weak end-demand and
aggressive product launches by large pan India players is forcing the incumbent real
estate developers to give in. and on the buyers side, Buyers who have been priced out of
the market are playing the waiting game, hoping that developers would lower list prices.
Job insecurity and low business confidence have become key concerns prompting buyers
to postpone big ticket purchases.
This has occurred because of recession. To increase the demand for property and
to make sales, developers are giving different offers and discounts to home buyers.
Innovative deals: Even large organized developers are offering innovative financing
deals to stimulate sales. For instance, Unitech, Ansal Properties and Prasvnath amongst
many others have resorted to unique funding schemes for their customers. The customers
are required to pay only the booking amount while payment towards EMI would
commence only from the date of possession of their property (developers bear the EMI
cost on behalf of the customers until possession is handed over to them). Further, several
developers have resorted to offering freebies including fully furnished houses, free
parking, free international holidays and free car with every purchase. Mumbai-based
Cosmos Group started a new trend by launching its ‘Ghar pe ek ghar free’ offer (one
house free on every house) at Thane.
INNOVATE DEALS MADE BY COMPANIES TO INCREAS SALES:-
Developers giving discounts:-
Developers have been forced to cut prices for new and under-construction
projects by 30-45%.
Several major developers including Orbit Corporation, Rashmi Housing, Mantri
Realty, Ekta Shelters, and Royal Palms have already lowered their list prices, officially.
Several other developers have not lowered list prices, as they believe that this may not
necessarily result in any incremental demand. List prices quoted by developers for under
construction projects or newly launched projects, however, have little meaning.
Invariably, deals are happening at 30-50% discount to list prices.
DEVELOPER PROJECT LOCATION BASE
RATE(RS/SF)
CURRENT
RATE(RS/SF)
PRICE
CHANGE
(%)
Akruti City Akruti
Greenwoods
Thane 4,100 3,800 -7.3
Neelkanth Group Neelkanth
Greens
Thane (W) 5,300 4,300 -18.9
Rashmi Housing Rashmi Garden Virar, Thane 2,900 2,175 -25.0
Runwal Group Runwal Estate Thane 4,500 3,200 -28.9
Kanakia Niharika Thane (W) 5,000 4,800 -4.0
Haware Tulsi New Panvel 3,500 2,800 -20.0
Royal Palms Plam Island II Goregaon 5,000 4,800 -4.0
Garden View Goregaon 7,250 5,750 -20.7
Green Park Kahndeshwar,
Navi Mumbai
3,250 2,600 -20.0
Source: - Motilal Oswal
Housing ‘un’ affordability in Mumbai (increasing interest rates)
The last 3 years have seen tightening of interest rates by reserve bank of India
(RBI) through its monetary policy, which has resulted interest rates rising by over 300
basic points.
Equated monthly Installments (EMI) have increased with increasing interest rates.
Thus, affordable house prices at the same income level have fallen. This is seen after
taking into account the rise in tenure and LTV by most housing finance companies
Affordable house prices with increasing
Interest rates
Affordable house prices with increasing
Interest rates (Above Rs. 900,000 income)
Chapter 11
VISIT REPORT
Visit to the MCHI Property Exhibition
On 13th April, 2009 I visited the property
exhibition at Mumbai organized by Maharastra
Chamber of Housing Industry (MCHI). The
exhibition had over 1200 properties on display
from more than 80 developers showcasing their
products, largely in the residential space. Unlike
the property exhibition in October ’08 when the
developers were offering schemes like “no stamp
duty”, “free car with purchase of 2BHK” and “5%
discount”, this time around I witnessed developers
offering apartments at 25-35% lower prices than the peak price. More interestingly, few
developers were also selling residential apartments at ~30% lower than the peak prices
which were nearing completion. With property prices down by 25-35% volumes have
certainly picked up in the last two months. Amongst the new launches, majority were
concentrated in the suburban Mumbai especially Andheri and beyond (in western
suburbs) and Mulund and beyond in the (eastern suburbs). In the commercial office space
as well, few developers were offering at price points which were 25% lower than the
peak prices.
I also interacted with few brokers and developers on the recent launches in the
residential segment and the response from the buyers. There was a consensus that in the
last 2 months volumes have improved due to new project launches at competitive prices.
However, I believe this could be called a trend reversal (in terms of volumes and not
pricing) if such encouraging volumes continue for the next few quarters as well.
Amongst the listed space, DLF, Unitech and HDIL have launched residential
projects at competitive prices in the last two months. With loan restructuring for most of
the companies now over, we believe investors will focus on the interest servicing
capabilities of the companies. For real estate companies, launching projects at attractive
price points can be the only savior during these times.
Better response than the one in October 2008
Developers witness the response to the exhibition better than the one in October
2008 because in October they were reluctant to reduce the prices and were only offering
schemes like “no stamp duty”, “free car with flat”, “and discount of 5%”. This time
around discount offered were actually in terms of reduction in the property rates. Few
properties are also available between 25-35% of the peak property prices.
Apartments nearing completion also available at lower prices
Interestingly, developers were also offering apartments at significantly lower prices even
for properties which were completed or nearing completion. Depending on the location
and the developer, ready to move in apartments were available at 25-35% lower then the
peak prices. This phenomenon highlights the unsold inventory that the developers
might be carrying due to poor sales in the last one year. With lower prices and better
visibility in the ready to move category we expect good demand to emerge in this
segment.
Established
1969 by Mr. Mofatraj Munot, Founder Chairman,
Kalpataru Group have today diversified into different
industry verticals. With interests in wide range of areas
that include Real Estate and Property Development,
Property Management, Power Transmission Towers,
Infrastructure, Oil and Gas Pipeline, Biomass Power
Plant, Rural Electrification, Telecom Infrastructure,
Logistics and Warehousing, International Trading, and
Office Supplies, the Kalpataru Group sets the
benchmark by which others strive for success.
The Group's driving force however remains its
flagship company - Kalpataru Ltd. A leader in the real
estate and property development industry, with wide
range of projects including residential, commercial,
retail, townships, hospitality, tourist convention centre
and SEZ.
One of the largest Civil Contracting firms in the Middle East, Kalpataru Ltd. was based in UAE
during the period of 1974 and 1982, employing well over 6,000 people. The company proudly completed
various successful projects including residential properties, commercials, religious establishments and many
educational projects like Hotel Holiday Inn, 1000 Villas, Sharjah Stadium, Palace of The Ruler of Sharjah,
Hospital in Dubai and the Defence establishments. It is one of the first companies to be ISO 9001 certified
since 1997, Kalpataru brings truly world class standards into its developments.
Upcoming Projects
Kalpataru Pinnacle- Malad (W)
Colour Chem- Thane (W)
Current Projects
Kalpataru Aura- Ghatkopar (W)
Kalpataru Estate- Andheri (W)
Kalpataru Gardens II- Kandivali (W)
Kalpataru Towers- Kandivali (W)
Kalpataru Riverside- Panvel
Kalpataru Hills- Thane (W)
Siddhachal VI- Thane (W)
Siddhachal VIII- Thane (W)
Kamdhenu- Mulund (E)
Srishti- Mira Road
During my visit to Kalpataru Synergy., Santacruz I had a talk with Mr. Sachin
Agrawal, Project Finance Evaluation Manager. He helped me to know about there
Residential properties in Mumbai, prices of properties and actual Rise and Fall in
there properties. Here is a short summary of the conversation which I had with him
during the visit:-
Kalpataru has its projects all over the country like Mumbai, Jaipur, Hydrebad,
Nagpur and many more. It is involved in all kinds of real estate projects. The company is
present in luxury segment of residence. The company has its projects in all the micro
markets of Mumbai. It has completed lot of projects in South Mumbai and Mumbai
Suburbs. The demand, prices, supply, amenities etc. of kalpaturu varies from one place to
another, according to availability and requirement.
Kalpataru is company which has made its image in the minds of people through
many decades. The property prices of Kalpataru have witnessed a boom in the last
decade. But the crisis which has taken places has had far reaching affect on this company
also. The rates started falling from 15 to 20 percent in Mumbai properties of Kalpataru.
Sales started declining. Therefore property prices have to be reduces. More and more
marketing of properties had to be carried out. New offers, discounts etc. were given. New
strategies were also implemented to increase the sales.
They feel that property prices will now slowly stabilize and demand will also
recover and developers will start focusing on affordability housing to extend further into
suburbs. The government will also lay down favorable polices. Thus India will have very
bright future in this sector in this coming years.
Regency Group is synonymous for proving right blend of beautiful environment,
luxury and amenities. Recognized for all-inclusive excellence and incomparable levels of
architectural designs. Regency Group has received innumerable fame and respect in the
discipline of realty development. Regency groups’ commitment to excellence, attention
to detail and personalized support has shown an unmatched vertical growth alongside a
strong and loyal customer base. It has its properties in Mumbai:-
ONGOING UPCOMING COMPLETED
Regency Estate- Dombivili Regency Flora- Navi
Mumbai
Regency Garden- Kharghar
Regency Towers- Thane Regency Roseland-
Talegaon
Achievements
o An ISO 9001-2000 certification NQAQSR
o Best Designed and Informative stall in NMBA Property Exhibition, Vashi-2005
& 2006
o Best Designed stall in MCHI Property Exhibition, Thane- 2007
o Best Informative stall in MCHI Property Exhibition, Thane- 2008
o Best Designed stall in BANM Property Exhibition, Vashi- 2008
Regency Towers
Regency Towers is one of the popular Residential
Developments in Thane West neighbourhood of Mumbai. It
is among the well known Projects of Regency Group. The
landscape is beautiful with spacious Houses.
Regency Specification:-
3 Towers of Podium/ stilt + 22 storey
2 & 3 BHK Luxurious and spacious flats
Landscape garden with jogging tracks
State-of-the-art Clubhouse
Podium parking
Luxurious Amenities
A shopping Plaza
Rain Water Harvesting
Solar Systems
STP Plant
Regency Credits
1. Architect: Archetype Consultants (I) Pvt. Ltd.
2. Landscape consultants: Arun Kumar Landscape Architects Pvt. Ltd.
3. Electric Consultants: Bahulekar and Associates
4. Legal Advisor: Adv. Vishaw M. Kulkarni
5. RCC Consultants: B.S.Sukthanker & Associates
6. Plumbing Consultants: Sheetal Environs (India) Pvt. Ltd.
7. Vaastu Consultant: Dr. B. Arunkumar
8. Concrete Designer: Structural Designers & Consultants Pvt. Ltd.
9. STP & Rainwear consultant: Mungekar & Associates
10. Interior Designer: Deepak Narwani
During my visit to Regency Towers, Thane I had a talk to Mr. Vijay Sarode- Sales
Executive of Regency Towers. He helped me to know about the actual Rise and Fall
in there properties. Here is a short summary of the conversation which I had with
him during the visit:-
Regency group has its projects in Vashi, Kharghar, Dombivili and Thane. It deals
in all types of Real Estate Projects but mostly it is involved in Residential Market. It has
luxurious segment of Residential. Regency group has witnessed maximum sale during
Rise. More and more bookings.
Regency group did not have a far- reaching impact of Recession. The south
Mumbai Property of Regency Group has seen a maximum drop in property prices
amongst all the other properties. There is neither so much of fall nor rise in Property
Prices. The rates are standstill. The sale is average.
Regency Group is not using any type of marketing strategy during fall they have
only revised the property prices. They do not start the booking unless and until 90 percent
of construction is completed. Floor rise Rs. 30/- per sq.ft. from first floor. Car parking-
Rs.300,000 and club charges- Rs. 100,000 for 2 BHK and Rs. 1,25,000 for 3BHK.
According to Mr. Vijay to increase the demand and capture the market the
developers should stop the new projects and concentrate on already available projects
then there will be demand. This step should be undertaken to revive the real estate
demand.
During rise 4500
Current Price 3800
Conclusion
Mumbai due to its diversity and opportunity will always remain the hub of
India economic march ahead. Mumbai property market has witnessed a huge roller
coaster ride in the last decade. Rise in prices due to more and more migration of people
for employment, business, studies, etc. and also attraction of huge amount of foreign
direct investment and wealth creations. Favorable government policies and such
overwhelming demand have seen the property prices touch the roof. Then sudden
downturn in property prices because of US subprime crises leading to fall in property
prices allover Mumbai.
But now as the economy tries to get on its fest and the global financial
market recovers, Mumbai will be the first to benefit. Its inherent strength leads us to
believe that recovery is not very far.
India will have very bright future ahead in Real Estate as the growth of
population is tremendous and there will be need for more and more housing. There will
be no end to Real Estate Growth in this country
BIBLIOGRAPHY
1) Newspapers:
o Property Times
o DNA Newspaper
2) Magazines:
o Business World
o India Today
3) Others:
o Brouchers – Regency Towers., Nirmal Lifestyles and Kalpataru ltd
o MCHI Property Expo- 13th April, 2009
WIBLIOGRAPHY
o www.realestatemumbai.com
o www.recession.org
o www.knightfrankresearch.com
o www.mchi.com
o www.centrumresearch.com
o www.google.com
Abbreviations
Abstract Full Forms
FSI Floor Space Index
DCR Development Control Regulations
MCGM Municipal Corporation of Greater Mumbai
MMRDA Mumbai Metropolitan Region Development
Authority
CRZ Coastal Regulation Zone
MUTP Mumbai Urban Transport Project
MUIP Mumbai Urban Infrastructure Project
GOM Government of Maharashtra
CBD Commercial business district
MNC Multi National Corporation
PG Paying Guest
BSE Bombay Stock Exchange
NSE National Stock Exchange
GDP Gross Domestic Product
FDI Foreign Direct Investment
ARM Adjustable Rate Mortgages
US United States
RBI Reserve Bank Of India
BHK Bedroom, Hall, Kitchen
EMI Equal Monthly Installments
MCHI Maharastra Chamber of Housing Industry
Questionnaire
1) Name
2) Years of Experience in this industry
3) Currently working with which organization?
4) In which cities does your company have projects?
5) Is your company involved in constructing all kinds of real estate projects?
Residential Retail All of these
Commercial Hospitality
6) What segment of Residential is your company present?
Affordable Mid Market Luxury
7) How has the recession affected your company?
8) What kind of fall in property prices have you witnessed in your projects, if any?
9) What kind of marketing strategies your company is adopting during recession period?
10) What is your future outlook on the real estate market? Short term and long term
11) What are the projects that your company is undertaking?
12) According to you what steps need to be undertaken to revive the real estate demand?
THANKING YOU!
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