Mumbai’s housing inventory to get major boost, prices may correct

Builders have paid a record premium to the tune of 13,543 crore for the construction of 150 million square feet area.
The premiums collected by the civic body are levied for approvals like starting, progressing and completing the project or adding an additional area in the construction activity. (Vijayanand Gupta/HT PHOTO)
The premiums collected by the civic body are levied for approvals like starting, progressing and completing the project or adding an additional area in the construction activity. (Vijayanand Gupta/HT PHOTO)
Published on Mar 20, 2022 07:26 PM IST
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Mumbai: The real estate market in Mumbai is likely to see a boom in housing stock as builders are set to launch at least 1,50,000 houses over the next three years. Consequently, the real estate prices could drop, say experts. The Brihanmumbai Municipal Corporation (BMC) had last year halved the construction premium for one year causing a beeline of builders seeking to benefit from the discount.

Builders have paid a record premium to the tune of 13,543 crore for the construction of 150 million square feet area.

According to real estate research firm Liases Foras, with an average size of 1,000 square feet per house, 1,50,000 housing units can be built on 150 million sq ft space. If these are to be launched in three years, an average of 50,000 units will be released per year. About 1.5 lakh houses will be added to Mumbai’s unsold inventory, which currently stands at 1,10,000 units.

“We will be flooded with record new launches and it will totally be a buyer’s market. Builders will be forced to cut prices to sell their products,” said Pankaj Kapoor, managing director, Liases Foras. He said an average of 20,000 new houses were launched annually for years which will now be increased to at least 50,000. “This means the city will get more than twice the current supply of houses which will change the dynamics of this sector,” he added.

He further said that it is imperative for builders to launch their projects as they have already paid the full premium amount. “There is an interest cost attached to this premium amount which the builder had paid and hence they cannot afford to postpone their launches. They will be starting their projects within the next three years,” said Kapoor.

The premiums collected by the civic body are levied for approvals like starting, progressing and completing the project or adding an additional area in the construction activity. The BMC charges 22 types of premiums for construction activity, including FSI (Floor Space Index) premium, fungible premium and charges for lobbies, staircases and lifts.

Notably, the construction premium in Mumbai is the highest in India and amounts to one-third of the cost of the project.

According to housing expert Ajay Chaturvedi, there is a possibility of a reduction in the prices of housing. “One thing is sure, the prices will not be increased. Builders will likely give discounts to boost sales. However, the exponential price hike in raw materials may spoil the show,” said Chaturvedi.

“The scheme is excellent but this concession should have ideally been extended further. Currently, many redevelopment projects become unviable if builders have to shell out such exorbitant premiums. These projects will only be possible if the premiums are cut,” said Bhavesh Sanghrajka, managing director, Shraddha Lifescapes.

Between April 2019-March 2020, the civic body garnered 3,800 from premiums. However, the collection dropped to 2,500 crore between April 2020-March 2021 amid the Covid-19 pandemic and resultant lockdown. This changed when BMC in 2021 reduced the premium by 50% resulting in massive windfall as it earned a staggering 13,543 crore.

The cuts in premiums were based on the recommendations of the Deepak Parekh committee. The committee had in September 2020 recommended a 50% cut in premiums to revive the real estate sector battered by the pandemic.

The Maharashtra Chambers for Housing Industry (MCHI-CREDAI), an association of builders called it a win-win situation for the sector. “Many of the unviable projects have become viable thanks to these reforms. In addition, those residents who are currently residing in old chawls and buildings can now heave a sigh of relief as their projects will be taken up now,” said Boman Irani, President, MCHI-CREDAI. “The whole sector has now become revitalised due to this reduction,” he added.

The real estate sector in Mumbai has witnessed a massive slowdown in the last few years. The Covid-19 pandemic only aggravated the matters resulting in virtual paralysis of the sector.

The government had in August 2020 announced its decision to reduce stamp duty levied on sales of apartments to 2% from September 1 till December 31, 2020, and then hike it to 3% from January 1 till March 31, 2021. This move had played a huge role in boosting sales of both primary and secondary markets.

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  • ABOUT THE AUTHOR

    Naresh is a Special Correspondent with Hindustan Times, Mumbai, since 2005. He covers the real estate sector, in addition to doing political reportage.

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