The following is the report by Ramesh Nair, COO & International Director, JLL India
At a time when the residential real estate industry in Mumbai has hit a plateau in terms of capital value appreciation and sales, a startling fact has come to fore. A good 69 per cent of the overall unsold inventory (within BMC limits) is of units worth more than Rs 1 crore each. That is 30,501 units out of a total number of 44,032 fall in this ticket size.
With land prices only expected to go upwards, there is no stopping this trend. All the launches expected within the city limits in the future too, will largely consist of units priced above Rs 1 crore and above. Consider this: from the number of new launches in 2Q15, the share of housing units that are worth over Rs 1 crore each (within BMC limits), stands at 83 per cent.
Although the share reduced from 90 per cent at the end of 1Q15 due to some new launches in suburban locations, it is still overwhelmingly high for a city where only a limited percentage of residents are able to afford ticket sizes of over Rs 1 crore. This percentage share is expected to go up, albeit marginally, in launches in the near term.
Moreover, in 2Q15 launches, there is only 3.21 per cent of housing in the Rs 31-65 lakh ticket size and none under Rs 30 lakh ticket size in Mumbai (BMC limits). Compared to pan-India figures, the numbers are highly skewed towards the higher ticket sizes in Mumbai. Very few units in the affordable range were available from all these launches and mostly were in the suburban locations. Even if the overall inventory is considered, there is very little stock in the affordable range (Rs 65 lakh and below) in the city.
Let’s look at how unaffordable housing has become in the city. The normal multiplier should be six times of the annual household income; in other words, it should take six years’ salary to own a house. From the Economic Survey of Maharashtra 2014-15, the annual income of a four-member household is calculated below.
Similarly, taking the weighted average of ticket sizes in Mumbai city, we get a number slightly above Rs 2 crore. Resultantly, at an annual income per household of Rs 7.5 lakh, it will take 27 years for a person to afford an apartment worth slightly over Rs 2 crore in Mumbai. For a house worth Rs 1 crore, it will take 13 years.
To suit the budget of a majority of home buyers in Mumbai, developers have been steadily reducing average unit sizes over the last few years and will continue to launch smaller-sized apartments for the same reason. The reduction in average unit sizes has been the highest in Mumbai at 26.4 per cent from 2010-1Q15. The average unit sizes in Mumbai have been the lowest among Indian cities.