With property prices soaring to dizzying heights in the country\’s financial capital, aspiring home-buyers have to be much more than a crorepati to buy a flat in Mumbai, where the average cost of a roof over one’s head is now at an all-time high of Rs 1.91 crore.
According to figures put together by the real estate research agency Liases Foras, the weighted average cost of a flat in Mumbai at 1.91 crore has leapt by 49 percent over the last one year. The weighted average cost is the total capital value of all flats divided by the total inventory in each city. In comparison, five other cities like Bangalore, Hyderabad, Chennai, Pune and the National Capital Region (NCR) have witnessed either a drop in rates or a negligible increase. An average flat in these places is relatively affordable at Rs 35 to Rs 50 lakh.
Pankaj Kapoor, CEO of Liases Foras said that most cities have maintained an equilibrium in pricing, “Of all the cities, Mumbai is the only one where the prices have escalated so much that no segment can afford it. Most developers here are not bothered about end user sale. If the sale of flats in Mumbai for April to June last year is compared to the same period this year, there is a 50 percent decline this time around,” said Kapoor.
Mumbai\’s nearest contender is Gurgaon also a highly speculative market with an weighted average flat price of Rs 97 lakh but unlike Mumbai this price has remained unchanged over the last year. Also, unlike Mumbai which has well-defined boundaries with no scope for expanding further, most other cities still have enough new land supply along the periphery helping keep the prices under control. For instance Noida, which has seen the highest price correction, has a lot of new land that has opened up for development recently. Chennai is the most healthy market which has not allowed speculation to come into play at all and has been a purely end-user market.
Kapoor states that though developers in Mumbai have started feeling the pinch of cash crunch which will ultimately lead to bursting of the bubble, the bull-run is expected till the time the rush of real estate IPOs continue. Of the dozen such IPO that are expected to be launched in near future, a majority are from Mumbai. “The correction will happen only if one or two IPO fail to do well,” said Kapoor.
The backbreaking hike in home prices is all the more stark when seen in relation to the per capita income in Mumbai which is Rs 1.28 lakh as per the Economic Survey of Maharashtra (2009-10). This means that the average cost of a flat in the city is about 100 times more than the average income each Mumbaikar makes annually. According to a 2009 Task Force report prepared by a central government appointed committee, affordable housing has been defined as when the cost of a house doesn’t exceed five times the household gross annual income.