Mumbai has witnessed a significant surge in rental prices over the past few years, primarily driven by an increase in redevelopment projects across the city. However, with newly redeveloped housing stock now entering the market, the rental growth is showing signs of cooling off.
Rental Surge Driven by Redevelopment
In 2021, a 3 BHK apartment in a premium building in Andheri was available for a monthly rent of ₹77,000. By 2023, this rent had increased to ₹1.14 lakh as the pace of redevelopment of old buildings accelerated. Currently, rents are hovering around ₹1.18 lakh per month due to the influx of newly redeveloped homes.
The surge in rental prices over the last few years can be attributed to a rise in redevelopment projects. Property owners of buildings undergoing redevelopment needed temporary rental accommodation, which led to increased demand. This demand, coupled with limited supply, pushed rental prices up significantly. However, this trend appears to be slowing down in 2024.
Cooling of Rental Growth
According to data from Zapkey.com, rental growth in premium gated societies in Mumbai has moderated to 5-9% in 2024. This is a stark contrast to the 50-60% growth seen between 2021 and 2023. Sandeep Reddy, co-founder of Zapkey.com, explained that the surge in rental prices was driven by the demand-supply mismatch caused by redevelopment projects. As these projects led to a temporary spike in rental demand, prices soared, particularly in premium gated communities.
Impact on Western Suburbs
The cooling of rental growth has been particularly noticeable in Mumbai’s western suburbs. In Borivali, a 2 BHK apartment in a premium building saw its rent rise from ₹39,000 per month in 2021 to ₹58,000 in 2023. By 2024, rents in the same building increased to ₹65,000 per month. Similarly, in Malad East, a 3 BHK apartment near the Western Express Highway was available for ₹55,000 per month in 2021, which increased to ₹85,000 in 2023 and ₹87,000 in 2024. In Central Mumbai’s Matunga area, many buildings undergoing redevelopment in 2021 are now nearing possession. This increase in supply has started to balance the market, leading to a rationalization of rental prices.
Factors Influencing Redevelopment and Rentals
The Maharashtra government’s 2021 policy change is responsible for the surge in redevelopment activities in Mumbai’s real estate market. The government declared that it would waive 50% of the different premiums that developers had to pay, as long as they paid the remaining 50% up front. Because it became more financially feasible for developers to engage on such initiatives, this legislation greatly increased the number of redevelopment projects.
The term “premiums” refers to a variety of fees assessed by the body responsible for awarding permits, such as fees related to the fungible floor space index (FSI), open space deficiencies, and the building of lobbies, elevator wells, and staircases. Developers in Mumbai have to deal with more than 20 different kinds of premiums, which add up to between 30 and 35 percent of the project’s overall cost.
Current Market Dynamics
Rental prices are starting to level out as the newly rebuilt housing stock is delivered. The managing partner of M Realty, Harshul Savla, observed that the increase in new housing supply has caused a slowdown in rental growth. Nearing possession are buildings that were undergoing reconstruction in regions like SV Road in Kandivali west, near Milap Talkies, and Shimpoli in Borivali west. There is less of a need for short-term rentals when tenants start to return to these recently renovated buildings.
According to property consultant Dhiren Doshi, there won’t be as much demand for rental space in the western suburbs in 2024 as there has historically been. Rental rates are correcting as a result of excess supply entering the market as redevelopment projects come to an end.
Future Outlook
The future of Mumbai’s rental market will depend on the balance between demand and supply. As more redeveloped buildings are completed and handed over, the temporary demand for rental accommodation will diminish. This should lead to a further stabilization or even a reduction in rental prices in some areas.
Moreover, the real estate market may enter a period of cautious optimism. With the increase in housing supply, tenants have more options to choose from, potentially leading to a more balanced and sustainable rental market in the long term.
The surge in rental prices in Mumbai, driven by an increase in redevelopment projects, appears to be cooling off as newly redeveloped housing stock enters the market. This shift is particularly noticeable in premium gated societies and the western suburbs. With the completion of many redevelopment projects, the supply-demand mismatch is correcting, leading to a stabilization of rental prices.
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