Mumbai Real Estate is at an all time High

Posted by Nick Niesen on November 8th, 2010

The metropolitan city of Mumbai is seeing a high time real estate boom. It reflects the growing real estate sector of India. There is a considerable increase in demand and supply and an appreciation in real estate values across micro markets. After Delhi and Gurgaon, Mumbai is the next favourite hub and people are moving into the city in large numbers day in and day out. Investors and HNI?s have been investing in various pre-leased properties having insurance, banking, IT/ITES, residential and retail sector occupants.

When compared to any other real estate market in India, Mumbai property sector is considered to be very transparent. In the last couple of years there has been an increase in the cash component in transactions. The large demand and the provision of state-of-art flats in Mumbai?s most posh locality or even in the outskirts of the city, has led to the land prices in Mumbai go up considerably. The investment market has been thriving with returns increasing manifold over the past few years.

The classic example being, an investor who invested in Peninsula Corporate Park, Lower Parel two years ago at Rs 5,000 per sq feet, has enjoyed a capital appreciated of 50 per cent and a rental yield of 11-12 per cent per annum, translating in to a return of over 70 per cent in just a span of two years. Currently, the real estate investors are mainly HNI?s and the good news for Mumbaiites will be the institutional money which will flow into this sector in the coming years. The coming up of malls, huge complex and more commercial establishments, there is an upsurge in construction activities in most parts of the city leading to investment opportunities in commercial and retail real estate sectors. Locations such as Bandra-Kurla Complex (BKC) and Lower Parel have seen increasing demand in Grade-A office buildings.

The occupancy levels in locations such as Andheri East and NarimaPoint havealso increased considerably in the last few months. The occupancy rate is 90 to 95 per cent which is quite high. A Mumbai Real Estate Developer, Ranjan S, said, ?There is a new trend that has set in Mumbai which is quite recent. Due to high traffic congestions, high cost of living many are slowly leaving Mumbai and giving away their homes for rent. This is the same case with mall and other commercial establishments. Someone invests in the building not to start any establishment but the sole purpose of buying it is to lend it to a tenant who will pay an high amount of rent. A single-bed room flat in Mumbai?s posh area would fetch a rent of around Rs 12,000 a month. Pre-leased properties with high profile tenants are the most favoured real estate investment options.?

Just to give an example of how Mumbai remains to be one of the preferred cities and its impact on the real estate arena, look at these statistics. In 2003, a land in Colaba would cost Rs 56, 850 per sq mt while now in 2006, the price has shot up to Rs 62,500. Worli, another high traffic location in Mumbai, was priced Rs 43, 850 per sq mt in 2003, and in 2006 the rate is gone up by Rs 48,250 per sq mt. The posh of the lot, Cuffe Parada/Madam Cama Road, originally costed Rs 72,000 per sq mt in 2003 and now it rates Rs 75, 600.

The recent National Textile Mills (NTC) transactions in Central Mumbai have greatly altered the face of the land of Mumbai transactions. Meanwhile, the 17th Cotover Bombay High court ruling scuppered the NTC mill land sales. Here, 5 mills were sold to private developers, totaling over Rs 202 million), as it held the sale of surplus mill land contrary to the Supreme Courts earlier order.

But all said and done, if the current interest rates remain constant, the yields from commercial properties are expected to decrease to around 9 per cent from the current 10.5 per cent but if the interest rates go up then the yields will be around 10 to 12 per cent.

Mumbai Land prices are all set to increase by a good 5 to 10 per cent according to the annual ready report issued by the inspector general for stamp duty and registration. He said that the prices in south and central Mumbai are expected to go up while those for office space will remain at its current level. Secondary business districts like Worli and Lower Parel are set to move Northward.

Undoubtedly, even the residential prices have gone up considerably. The demand for 3BRK apartments, which falls under the high end category, has increased owing to factors like high deplorable income, double income facilities and overall greater affordability. The demand for residential property will be high provided the interest rate on housing finance is reasonably low and the economy is stable. In Mumbai, on a average, capital values have shown a rise of 15 to 20 per cent over the last one year.

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