Most Mumbaikars - upper middle class and above - enjoy an envious lifestyle. A recent media article truly portrays that they earn fat pay cheques, commute in their own car(s), buy branded apparel at sprawling malls, watch movies at the best multiplexes, regularly splurge on fancy electronic gadgets, eat out at plush restaurants, head to scenic hill stations on weekends and enjoy bi-annual exotic world tours. Yet, when it comes to shelter, most of them have a tough time to build their dream home(s). How true indeed!
The exorbitant property rates of Mumbai are a well known fact. Being the country’s premier metro, this commercial hub of global repute obviously demands a hefty premium from those who aspire to make it their home. Yet, the property rate dynamics (governed by the value chain of builders, developers and sponsoring banks and financial institutions) beat logic and reason. How high could (read should) high be is the perplexing question?
The table stating property prices and the annual incomes required for housing loan eligibility is a case in point. Such steep trend in prices would be unimaginable in any other Indian metro…
As per the property price table published in a newspaper, a basic 1,000 sq.ft in South Mumbai costing Rs 3-6 crore would demand an annual income of Rs 45-90 lacs to be eligible for a home loan; Apart from the direct and immediate burden of covering 25 per cent of the apartment cost, the monthly EMI on the loan at 10 per cent interest would be in the region of Rs 2.1 lacs to Rs 4.5 lacs per month, and that for a mammoth 20 years. The rates would of course differ, even within an area, but the above is a good indication of the high stakes of the housing game in Mumbai.
A look at the Central and Western Suburbs bring out more representative facts as the majority of the city’s working class - a high population bracket - is settled in this region. A 1,000 sq.ft flat can cost Rs 70 lacs (at the lowest rate) in Vikhroli or Bhandup and Rs 2.8 crore (at the highest rate) in Bandra West; these would invite a 20-year loan EMI per month of Rs 50,000 (lowest) and Rs 2 lacs (highest) respectively. The annual incomes that would make these loans possible would range between Rs 10.5 lacs and Rs 42 lacs annually. For a middle class home seeker, these rates are undoubtedly huge, whether salaried or self employed.
As if this was not enough, some builders are reportedly planning premium development projects where Home Buying would be strictly By Invitation. If the cardinal rule of ‘Customer is King’ holds true for housing as well (which it does), this rather vain attitude of property developers cannot last forever. And talking of “By Invitation” sale, someone who can afford Rs 5-10 crore amount for a house hardly needs an invitation. Then why the mockery of these staged shows?
It’s difficult to predict any impending correction in Mumbai’s realty prices but the current prices only seem unduly high. Property prices have grown by 25-30% in the last 6-8 months itself. And just a year or two ago, many of our developers were on the brink of bankruptcy. So you can imagine the dramatic upswing of this industry…and even your fat pay cheques cannot condone this reality.
With such spiralling property prices causing mayhem, the city is perpetually, but not surprisingly, bursting at its seams. Very soon, Mumbai would have to extend beyond the current extended limits in all possible directions…further than suburbs like Dombivali, Kalyan, Ambernath, Mira road, Vasai, Virar, Vashi, Nerul, Belapur and Kharghar. And all over, the property rates are invariably mind boggling for the home aspirant of the region.
I would strongly advise anyone chasing his/her dream home to carefully tread on this ambitious path, only after a thorough analysis of the financial implications. Remember, whether an EMI of Rs 50,000 or Rs 4.5 lacs, you invite a monthly commitment for the next 20 years. If your age is 30 today, you would be 50 by the time your final EMI instalment becomes due. Do not get carried away by a sudden spurt in your salary scales or a paper gain in stocks. It could easily lure you into buying a premium house that could prove beyond your means in the long run. I am a strong proponent of real estate as an investment, don’t get me wrong, but if the financial implications are not deliberated, servicing such loans could invite a future nightmare. And even if one manages the tight rope walk, what does one save for enjoying the good things of life, pre-occupied with such a large commitment for twenty years?
As highlighted in my blog “The Real State of Real Estate” some time back, Real Estate in Mumbai desperately needs a regulator to protect the interests of home buyers. Also, builders and developers can do a lot to ensure sustainable growth, more than a transient revival, in the Indian residential real estate market. Among other things, they need to invest in technology and optimal resource management to crash construction time from the current 4 years to 2 years or less – a benchmark in South East Asian countries like Thailand and Malaysia. And they should offer construction-linked affordable payment plans to entice buyers.
I firmly believe that not price rise but stable prices and timely execution alone would ensure success for builders and developers in the long run. Till such time, we run helter-skelter for shelter in Mumbai.
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