PROJECT REPORT ON

REAL ESTATE- Rise and fall

(With special reference to Mumbai residential market)

BACHELOR OF MANAGEMENT STUDIES

SEMESTER V

2009-2010

SUBMITTED:

IN PARTIAL FULFILLMENT OF RECRUITMENT FOR THE AWARD OF DEGREE OF

BACHELOR OF MANAGEMENT STUDIES.

BY:

Smruti Agrawal

ROLL NO: - 105

BIRLA COLLEGE OF ARTS, SCIENCE & COMMERCE

MURBAD ROAD, KALYAN (W).

PROJECT REPORT ON

REAL ESTATE- Rise and fall

(With special reference to Mumbai residential market)

BACHELOR OF MANAGEMENT STUDIES

SEMESTER V

2009-2010

Submitted:-

In Partial Fulfillment Of The Requirements For The Award Of The Degree Of

Bachelor Of Management Studies

By:-

Smruti Agrawal

ROLL NO: - 105

BIRLA COLLEGE OF ARTS, SCIENCE & COMMERCE,

KALYAN (W)

BIRLA COLLEGE OF ARTS, SCIENCE, & COMMERCE, KALYAN

(Conducted by Kalyan Citizens’ Education Society)

(Affiliated by University of Mumbai)

BACHELOR OF MANAGEMENT STUDIES

CERTIFICATE

This is to certify that Miss.Smruti Agrawal Roll No. 105 has satisfactorily carried out the

project work on the topic ““REAL ESTATE- Rise and Fall (With Special Reference to

Mumbai Residential Market)”, for the V Semester of T.Y.B.M.S., in the academic year

2009-2010.

Place:-Kalyan

Date:-________

__________________ ______________

Signature of Examiner BMS Co-ordinator

CERTIFICATE

I, Mr. Anand Dharmadhikari hereby certify that Miss. Smruti Agrawal, of

T.Y.B.M.S (Sem V), Roll No. 08 has completed project on “REAL

ESTATE- Rise and Fall (With Special Reference to Mumbai Residential

Market)” in the academic year 2009-2010. The information submitted is true

and original to the best of my knowledge.

Place: Kalyan

Date:

___________________

Signature of Project Guide

DECLARATION

I, Smruti Agrawal, student of T.Y.B.M.S semester V (2009-2010) hereby declare that I

have completed the project on “REAL ESTATE- Rise and Fall (With Special

Reference to Mumbai Residential Market)”

I further declare that the information imparted is true and fair to the best of my

knowledge.

SIGNATURE

SMRUTI AGRAWAL

ROLL NO. 105

Acknowledgement

Before going on with the project study, I would like to extend my sincere gratitude to a

few people without whom this project just wouldn’t have been possible. First and foremost I

would like to thank my Project Guide Mr. Anand Dharmadhikari for having spent considerable

time and providing very useful information. I also express my thanks to all who have either

directly or indirectly supported me in shaping the project very well.

I would also like to extend warm regards to Project Finance Evaluation Manager

of Kalpataru Pvt.Ltd. Mr.Sachin Agrawal & Sales Executive of Regency Towers, Thane

Mr. Sanjay Sarode for shelving out some of their precious time to provide the

information required.

I would like to thank the University of Mumbai and the College Authorities who

gave me an opportunity to present my views in form of this project. I also want to express

my heartfelt gratitude to our Course In-charge Mr. Anil Tiwari for believing in me and

my caliber.

It was an amazing experience working on this project and I would once again

wish to thank all the people related to it for making the task worthwhile and so much fun.

INDEX

SR.NO. PARTICULARS PG.NO.

Executive Summary

Preface

1 Real Estate- Introduction 1

2 Participants Involved In Real Estate Market 6

3 Mumbai City: A Conundrum Unexplained 10

4 Mumbai Residential Market 24

5 Market Segmentation 28

6 Rentals In Mumbai 39

7 Factors Affecting Real Estate Prices 43

8 Mumbai Property Boom 48

9 Impact Of Recession On Real Estate Market 55

10 A Picture Of Fall In Property Prices In Mumbai After The Crises

60

11 Visit Report 69

Conclusion 75

Bibliography & Wibliography

Annexures

Executive Summary

The term ‘Real Estate’ is defined as land, including the air above it and the

ground below it, and any buildings or structures on it. It covers residential housing,

commercial offices and trading spaces. The main players in the real estate market are

landlords, tenants, developers, builders, real estate agents, tenants, buyers etc.

In this report I am focusing on Mumbai Residential Market. Mumbai, formely

known as Bombay is a great city. No simple description of the city is adequate. The place

is simply too complex and too diverse. For the last many decades, this island city has

endured an explosion of growth and change, spurred on by an enormous expansion of

real estate, where every assumption of the city’s planners has been overtaken by its size

and form. Residential market in Mumbai is widely spread all over Mumbai and also has

witnessed luxurious amenities, infrastructure etc. with highest prices throughout the

country. Mumbai market is too complex to understand so it’s divided into six micro

markets namely South Mumbai, Navi Mumbai, Western suburbs, Central suburbs, Thane

and Extended suburbs with different property prices in every market and large players in

the market. The rentals in Mumbai have also been a big topic in Mumbai real estate. The

house rents are touching sky which compels a majority of people to live under unhealthy

atmosphere in cramped rooms or flats on a share basis. The rental trends in Mumbai are

high-end rental apartment segment, the terrace flats, villas, pent houses etc.

Mumbai has witnessed a huge amount of people migrating from all over India for

employment, business, studies, etc. Mumbai is considered to be the financial hub of India

attracting huge amount of foreign direct investment and wealth creations. Mumbai

property market has been witnessing a boom in the last decade. People migrating from all

over the country have lead to an increase in demand for housing. Favorable government

policies and such overwhelming demand have seen the property prices touch the roof.

When it was looking like the property prices are moving just one way. Subprime crises

happened. It came as a big jolt in this forward- march. Suddenly the demand for property

had vanished and the real estate industry witnessed a huge financial turmoil. Large

developers were caught in a huge debt crisis and faced heavy losses.

PREFACE

I have given brief description about the project i.e. about “REAL ESTATE” and

its practical implementation in MUMBAI with special reference to RESIDENTIAL

MARKET. And lastly about the Rise and fall in Mumbai Residential Market.

Objectives

1. To study about Real Estate in Residential Market

2. To understand the Mumbai Residential Market.

3. To understand the rise and fall in property prices.

METHODOLOGY

Primary Data:

My primary data was collected through Interviews, Face to face communication,

through email, telephonic responses, from firms and organizations associated with Real

Estate.

I visited organizations like Kalpataru ltd. And Regency Towers and interviewed

the managers in related department.

Secondary Data:

My secondary data was collected from the websites, magazines, books, trade

journals and periodicals.

REAL ESTATE- RISE AND FALL

(With special reference to Mumbai Residential Market)

Chapter 1

Real Estate- Introduction

Introduction

The term ‘real estate’ is defined as land, including the air above it and the ground

below it, and any buildings or structures on it. It is also referred to as realty. It covers

residential housing, commercial offices, trading spaces such as theatres, hotels and

restaurants, retail outlets, industrial buildings such as factories and Government

buildings. Real estate involves the purchase, sale, and development of land, residential

and non-residential buildings. The main players in the real estate market are the

landlords, developers, builders, real estate agents, tenants, buyers etc. The activities of the

real estate sector encompass the housing and construction sectors also.

The real estate sector in India has assumed growing importance with the

liberalization of the economy. The consequent increase in business opportunities and

migration of the labour force has, in turn, increased the demand for commercial and

housing space, especially rental housing. Developments in the real estate sector are being

influenced by the developments in the retail, hospitality and entertainment (e.g., hotels,

resorts, cinema theatres) industries, economic services (e.g., hospitals, schools) and

information technology (IT)-enabled services (like call centres) etc. and vice versa. The

real estate sector is a major employment driver, being the second largest employer next

only to agriculture. This is because of the chain of backward and forward linkages that

the sector has with the other sectors of the economy, especially with the housing and

construction sector. About 250 ancillary industries such as cement, steel, brick, timber,

building materials etc. are dependent on the real estate industry.

Features of Real Estate Markets:

In particular, the unique features of the real estate market must be accommodated. These

include:

• Durability

• Heterogeneous

• High transaction costs

• Long time delays

• Both an investment good and consumption good

• Immobility

Overview:-

Indian real estate sector is growing at thirty percent annually. The liberalized

urban policy frame work along with a stable home loan rates by Banks helped this growth

phase to sustain. The parameters for investment are changing and more FDI is expected

to flow into this sector in the coming period.

The Indian real estate sector has witnessed a resounding growth in recent years

due to factors like liberalization of urban policy and increased competition in the home

loan segment. Also the booming Indian economy, favorable demographics transition and

liberalized foreign direct investment (FDI) regime acted as a catalyst in this growth

phase. Growing at a rate of 30 per cent, the real estate sector has emerged as one of the

fastest growing investment areas for domestic as well as foreign investors. The sector will

remain as a booming sector and more investment is expected in the coming years.

Construction and allied sectors are considered as one of the largest employing

sector in India (including construction and facilities management). This vital sector is

linked to about 300 ancillary industries like cement, brick and steel. So this sector has a

strong backward and forward linkages and the growth will translate into an over all

positive impact on these ancillary sectors too. Resultantly, a unit increase in expenditure

in this sector has a multiplier effect and the capacity to generate income as high as 4.5

times.

According to Mckinsey report the average profit from construction in India is

18%, which is double the profitability for a construction project undertaken in the US.

Five per cent of the country’s GDP is contributed by the housing sector. In the next three

or four or five years this contribution to the GDP is expected to rise to 6%.

According to Knight Frank

Research, the new residential space

distribution of Pan India will be more then

that of before. The NCR will be having

maximum of distribution all over India that

is 35%. Total supply all over India is

530.5mn.sq.ft. Distribution in all the places

is as per the demand and availability of

space.

According to ‘Housing Skyline of

India 2007-08’, a study by research firm,

Indicus Analytics, there will be demand for

over 24.3 million new dwellings for self-

living in urban India alone by 2015. As a result of this, this real estate sector is likely to

throw huge investment opportunities. In fact, an estimated US$ 25 billion investment will

be required over the next five years in urban housing, says a report by Merrill Lynch.

With the significant investment opportunities emerging in this industry, a large

number of international real estate players have entered the country. Currently, foreign

direct investment (FDI) inflows into the sector are estimated to be between US$ 5 billion

and US$ 5.50 billion. According to Cushman & Wakefield, foreign investors have raised

nearly US$ 30 billion since March 2005 for investing in Indian real estate. 100% FDI is

allowed under automatic route in townships, housing, built-up infrastructure and

construction development projects (which would include, but not be restricted to,

housing, commercial premises, hotels, resorts, hospitals, educational institutions,

recreational facilities, city and regional level infrastructure) subject to certain guidelines.

Leading companies like Carlyle, Blackstone, Morgan Stanley, Trikona, Warbus Pincus,

HSBC Financial Services, Americorp Ventures, Barclays and Citigroup are some of the

international players who have entered into Indian reality market. Real estate accounted

for 26 per cent of total value of private equity investments, with 32 deals valued at US$

2.6 billion. And according to industry estimates, another US$ 10-20 billion would pour

into the sector in the next three years.

Current scenario:-

The unending euphoria of real estate sector in India witnessed during the last few

years is finally starting showing signs of ebbing. The talks of new malls, complexes,

residential projects being built are all now being kept under bags.

There is an overall slowdown in demand across India as has been experienced

by industry players. Property prices and rentals are correcting which have led to the

erosion in market capitalization of many listed players like DLF and Unitech.

The slowdown is aided by the fall in stock markets as wealth creation does not

happen and there is lack of capital among investors to invest in real estate projects. Also,

to adjust their share market losses, many investors are forced to sell off their real

estate properties.

Other factors that have led to the slowdown is the increase in interest rates

leading to higher costs. Also income levels have not risen in proportion to the increase in

property prices thus forcing many potential buyers out of the market.

Also with rising input costs of steel, iron and building material, it has become

unviable for builders to construct properties at agreed prices. As a result, there may be a

delay in project completion leading to financial constraints.

Many residential buyers are waiting a price correction before buying a property,

which can affect development plans of builders.

Also with IT industry continuously experiencing a slowdown, there may be

further constraints on residential as well as commercial demand since IT/ITES segment

accounts for 70% of the total commercial demand.

So real estate players may continue to face liquidity concerns in future due to

rising costs and unfavorable stock market conditions for further capital raising.

Only those players who have achieved substantial revenues from past deals could

expect to rise against the tide. But the scenario may get worsen if the upcoming

properties are not sold off as it may lead to a financial crisis in the property market.

Chapter 2

PARTICIPANTS INVOLVED IN REAL ESTATE MARKET

Participants in Real Estate

Participants are very important in Real estate as they are the Backbone of Real

Estate market. They are the one who carry out transactions in real estate market. They are

the one who are involved in Real Estate. There are various individuals who all take part

in Real estate. They are as follows:-

OWNER: These people are pure investors. They do not

consume but rent out or lease the property to someone

else. They purchase houses or commercial property as

an investment and also to live in or utilize as a business.

INVESTORS: - A real estate investor is someone

who actively or passively invests in real estate. An

active investor may buy a property, make repairs

and/or improvements to the property, and sell it

later for a profit. A passive investor might hire a

firm to find and manage an investment property

for him. Typically, investors choose real estate for

several reasons: cash flow, appreciation,

depreciation, tax benefits and leverage.

DEVELOPERS: - Developers purchase a tract of land,

determine the marketing of the property, develop the

building program and design, obtain the necessary

public approvals and financing, build the structure, and

lease, manage, and ultimately sell it.

CONTRACTORS: - Real estate contractor can be

described as a person, who carries out a contract that is

related to building of architecture or providing the

building material. In some cases, a contractor also

provides labor for the construction purposes. All real

estate contractors are professionals and licenses that

permit them to perform certain tasks as mentioned in the

license. Some real estate contractors also provide services

related to remodeling of buildings, roofing etc. Some

contractors also provide services after the completion of

the construction work i.e. maintaining the structure etc.

BANKERS: - Real estate investment banker provides

innovative approach to financing of real estate. There are

many types of services carried out by real estate

investment banker and these services are far beyond the

traditional banking services being offered. For example,

structuring of various types of real estate projects is one

main type of service provided by real estate investment

banker.

AGENTS: - Real Estate Agents are employed by the seller

to get the best price and conditions for the seller. Real

Estate agents have been helping buyer to buy and seller to

sell the property. Real Estate agents are Present in every

corner of world. They all act as middlemen between the

Buyer and the seller.

BROKER: - A Real estate broker finds buyers for

those wanting to sell real estate and finds sellers for

those wanting to buy real estate. Real estate brokers

help sellers market their property and sell it for the

highest possible price; they also help buyers purchase

property for the best possible price. Once the broker

successfully finds a buyer, the real estate broker

receives a commission for his or her service.

LESSOR: - They have the complete ownership of the

property but they lease or mortgage their property to

someone else. High amount of rent is charged by the

renters. These people are pure consumers.

MORTGAGER: The security created on the property by

the lender, which will usually include certain restrictions on

the use or disposal of the property (such as paying any

outstanding debt before selling the property).

TENANT:-When a land owner or a house owner allows some one to use his/her land

or house in some way for some time period, then the person who takes for lease from

the owner is called as a tenant and the relation between them is called as tenancy.  

The tenant will pay the rent for the leased property to the owner.

BUYERS: - Buyers are one who purchases the property.

Buyers are the one who have bargaining power. They pay

for the property. The property can be in any form.

(Residential, commercial, retail).

Chapter 3

MUMBAI CITY: A CONUNDRUM UNEXPLAINED

Real Estate in Mumbai

Mumbai City

‘Mumbai, formerly known as Bombay, it is a great city…….. but a terrible place

with a very large population!’ Mumbai is India in microcosm in the true sense as it

represents all facets of modern India. Once a humid tropical archipelago of seven islands,

today it's a teeming metropolis and commercial hub of one of the world's most promising

economy. This city is aptly called the commercial capital of India as forty percent of

India's taxes come from this city alone.

Being the

commercial capital of

India, it houses important

financial institutions,

such as the Reserve Bank

of India (RBI), the

Bombay Stock Exchange

(BSE), the National Stock

Exchange of India (NSE)

and the corporate

headquarters of many big

Indian companies as well

as Multinational

companies. Besides this India's Hindi film and television industry, Mumbai is home to

Marathi television and Marathi film industry as well. The city is base to conglomerates

like State Bank of India, LIC, Tata Group, Godrej and Reliance. The industry base has

diversified from textile mills and the seaport to IT, Telecom, engineering, diamond-

polishing, healthcare and atomic research. The city also has the Chhatrapati Shivaji

Terminus (earlier named Victoria Terminus) and Elephanta Caves as UNESCO World

Heritage Sites. Besides these, must visit places include Gateway of India, Prince of Wales

Museum, Nariman Point, Marine Drive, Girgaum Chowpatti, Juhu Beach, Malabar Hills,

Crawford Bazaar, Kalbadevi, Essel World, Hanging Gardens, Film City, Flora fountain,

Tomb of Haji Ali, Siddhivinayak, Mumbai Devi Temple and Mahalakshmi temple.

Charles Correa’s famous remark encapsulates the challenge of defining the

essential spirit of Mumbai. No simple description of the city is adequate – the place is

simply too complex and too diverse. For the last many decades, this island city has

endured an explosion of growth and change, spurred on by an enormous expansion of

real estate, where every assumption of the city’s planners has been overtaken by its size

and form.

Alongside this growth, until very recently, urbanization of Mumbai occurred

almost completely without adequate finance and with very little local government

responsiveness – other than to enforce a very tightly-controlled regulatory system. It was

a system which effectively froze large blocks of real estate stock that could respond very

slowly to changing demands. It also produced a shortage of basic infrastructure capital,

and created very expensive price points for consumers. The complete morphology of

Mumbai’s real estate is too elaborate, complex and beyond the scope of this study. But

the following part of this section would attempt to provide a broad understanding of the

various dimensions of this city: physical, regulatory, governance and transportation.

Though the city’s real estate has many more dimensions, this section adequately

highlights the assortment of some limited issues that are hampering the spatial growth of

Mumbai.

Geographical constraints:-

In India, riversides and sea-sides are the sites of many important cities. Three of

these cities – Mumbai, Kolkata and Chennai – were created by the British as trading

centres connected to international maritime trade routes. They therefore owe their very

existence to the peculiarities of geography that enabled them to become important ports.

Mumbai city, as one of the foremost port cities of South Asia, occupies 437

square kilometers of area on a long and narrow piece of land that juts out of the western

coast of India into the Arabian Sea. It is separated from the mainland on the east for most

of its length by the Thane creek. It is also one of the rare big cities with a natural forest

within its limits. The Sanjay Gandhi National Park, a protected forest, drives a large

wedge into the land mass in the northern part of the city. Add to that the Mithi River,

which connects to the Mahim creek as well as the region along Malad creek.

Mumbai’s development has basically been a negotiation with the edges of each of

the seven islands as well as of the larger island of Salsette which houses the extended

suburbs is the major part of the city’s footprint today. The edge condition is a huge part

of the city, also due to a variety of human interventions like the urban rail and road

transport corridors. The linearity of the city’s geographical base is further heightened by

the manner in which the two railway lines and two major interstate highways break it up

into thinner strips.

Mumbai’s seaside on the east and the west has a very different relationship to the

rest of the city. Broadly, the eastern edge is currently occupied by the port, oil refineries

and related activities of storage and manufacturing, which virtually cuts the city off from

the sea. Much of the land along this edge is owned by the Mumbai Port Trust, a state

body, and is the bone of contention between the trust and civic activists for

approximately 400 hectares of high value land in the island city. It is argued by some that

with the greater success of Nhava Sheva port across

the water on the mainland, much of this land could be handed over to the city for its

developmental needs without disturbing the port’s activity. On the north-eastern

extremity of this seaside edge is the large and sensitive installation of the Bhabha Atomic

Research Centre at Trombay. In many ways then, the eastern edge is a zone of restricted

access, which has been off limits to the public. The southern tip of the city where the

eastern and western edges meet is again largely inaccessible to the city, being under the

control of the Indian Navy. The space of the city as a whole truly begins to connect with

the Arabian Sea from Cuffe Parade northwards, the connection being consolidated truly

for the first time at Marine Drive. On the contrary, the western edge of the city is the

most sought after area, having witnessed maximum real estate development and

characterized by high density of population.

To look at the hinterland of Mumbai, it is instructive to observe the decay and

growth of its mill lands as well. The eighteen square miles covering central Mumbai,

sandwiched between the business districts of the southern island city and the expanding

suburbs to the north, were, for over a century been the lifeblood of Mumbai’s textile

workers. It was in the late seventies, when hoarding of urban land and the non-

implementation of the Urban Land Ceiling Act 1976 caused a rise in real estate values. At

this point in time, many businesses and industries sold their lands for a profit and moved

elsewhere. However, the mills and mill-owners could not avail of this profitable

opportunity. According to municipal development rules, the mill lands are reserved for

industrial use, as they were by and large given to the mill owners at concessional rates by

the colonial Bombay Government in the beginning of the century. Resultantly, these mills

fell into wide-spread bankruptcy in the 1970s and in early 1980s.

The new Development Control Rules of 1991 framed by the state Government, in

response to structural adjustment polices of liberalization and echoing the need of global

and domestic capital permitted the sale of 15% of land in these textile mills. These new

regulations in urban land-use rules repealed the older zoning regulations. Today, the

occupation of these mills by corporate and service sector industries is seen by many as

symbolic of the shift in Mumbai’s political economy, away from the grimy industrial

stage of growth, symbolized by the chimneys of the mills and and chawls around them, to

a post-industrial, service-centred economy. Some economists have called this

phenomenon “deindustrialization”, reflecting the closure of manufacturing and industry

as it existed in the city.

Regulatory landscape:-

Mumbai is one of the few developing country cities to undergo a process of de-

industrialization, which has left large portions of central city land – the Port Trust and

Mill Lands – idle for more than twenty years. This freezing of a significant share of

central city land, in what is among the most topographically-challenged of the world’s

largest cities, has caused a dramatic increase in real estate prices. Cities with such

constraints on supply of land typically compensate in two ways: by increasing the height

of buildings; and by building bridges to connect the various land masses. This is why

cities located on islands (New York, Hong Kong or Singapore) are well known for their

skyscrapers while cities located in flat plains without major water barriers (like Paris,

London and Berlin) are not. In contrast to other topographically-constrained cities,

Mumbai’s development has been drastically restricted by the building height restrictions

embodied in Floor Space Index (FSI) regulations. FSI is the maximum permissible

ratio of floor space (or built-up) area to plot area that was first introduced in 1964.

These development Control Regulations (DCRs) prescribed FSI as high as 4.5 for

CBD compared to 1 for suburbs, in step-wise decrease based on the concept of one-third

ground coverage. However, they were substantially reduced through the modified 1991

DCRs to the range of 1.33 in the city to 0.5 in the areas beyond suburbs (in rural areas),

while confining to the one-third ground coverage rule. The spatial distribution of FSI

restrictions in Mumbai is shown in the above map.

What we see here is that beside the low overall FSI (compared to global cities)

there is also lack of variation in FSI across the city. This pattern is in sharp contrast to

most other cities where even if the overall FSI is low, it is not low everywhere. For

example, it is common for the ratio between the highest FSI value, in the CBD, to the

lowest in the suburbs to be 30 or more. For instance the highest FSI in residential areas in

New York is 15 while it is 0.5 in the suburbs, a ratio of about 30. In Mumbai, the highest

this ratio become is about 4 (2 in Bandra Kurla, 0.5 in North West Suburb of Gorai.

However, for 90 percent of the municipal area the ratio is only 1.33 (1.33 in the Island

city and 1.00 in the suburbs), that isles than 4 percent of the ratio of 30 that characterizes

New York.

Density regulation is an important development control regulation, which is a

part of the larger system of land use regulation in Mumbai. Development control

regulations (DCR) in Mumbai cover provisions in land use zones density zoning in terms

of dwelling units per unit area and the total development area. They form an integral part

of the development plan prepared by the municipal corporation of greater Mumbai

(MCGM). However, there exists another class of development regulations that operate

through building bylaws laid by the MCGM in the same DCRs. These building bylaws

use parameters like ground coverage, maximum height, light angle and height in relation

to width of road to control the volume of built-up area on a given plot of land.

The intervention by state for urban land market was first articulated in Land

Acquisition Act 1894, and was subsequently amended in 1984, for compulsory

acquisition of land for public purpose. The Act required that market value (and not

registered value) of land as the basic principle of determining compensation for land

acquisition. Registered price is typically lower than the market price due to the

prevalence of parallel economy in land and real estate markets. The second important

piece of legislation is in the form of Maharashtra Regional and Town planning Act

1966. Under this act, after the publication of a draft regional plan, a development or any

other town plan, acquisition of land can proceed as it is deemed to be land needed for

public purpose. Similarly, through Slum Improvement Act 1971, the execution of any

work of improvement of any slum area or redevelopment of clearance area is considered

a public purpose. Similar provisions enabling acquisition of land at less than market price

are found in other legislation such as Mumbai Metropolitan Region Development

Authority Act 1975 and the Maharashtra Housing and Area Development Act 1976.

Urban Land Ceiling Act 1976, which got repealed recently, specified the ceiling limits

applicable to different categories of urban agglomerations. The Act did not achieve the

objectives it was enacted, and the provisions resulted in increase in land prices.

Moreover, the process of obtaining exemptions helped rent seeking behavior and made

the land market more oligopolistic. Another restrictive legislation has been the Rent

Control Act 1947, which froze the rents to their 1940 level for all buildings rented at that

time. Wherever the properties were already rented (when the Act was brought in) the

landlords lost their interest in the upkeep of the buildings. Apart from this direct impact,

the Rent Act had a serious impact on city’s ability to raise resources. Property tax which

is levied on the basis of annual rent could not fulfill the objectives of land taxation.

Under the above mentioned regulatory framework, the earliest strategic response

of Mumbai was in 1930 – 1960, when nearly 3000 hectares of land was brought under

development through town planning schemes. This was not very successful, and was

followed by first regional plan of Mumbai Metropolitan Region (MMR) during 1967- 70.

This plan recommended development of a new town of 2 million populations across the

harbor of Mumbai as a counter magnet of Mumbai. In 1970 CIDCO was established as a

new town development corporation for developing Navi Mumbai. By 1993, 14,105

hectares of land was acquired and 1501 hectares leased out. However, large scale

acquisition became increasingly difficult as farmers started demanding high share of the

proceeds. It became clear from this experience that public ownership of land alone cannot

promote development of new town which could attract growth away from Mumbai. The

Revised Regional Plan of MMR proposed that the land development should be left to

the market, and only a structure plan showing arterial road network and critical land uses

were prepared. This process is guided by a system of incentives by way of bonus FSI. For

example, if certain portion of land is developed in the form of small plots and are handed

to public agencies at predetermined price, bonus FSI could be used on the remaining

plots. In such a scenario, as the real estate prices increased, market would willingly

provide for using land for public use instead of resisting it. As is evident from the above

analysis, the policy makers of Mumbai realized the limitation of strong intervention in

land market and instead started using market oriented policies to the extent feasible

development of land and real estate.

The Mumbai real estate planners have adopted some other innovative approaches

as well. According to development control regulations, the development right on the land

reserved for public infrastructure (like roads) could be transferred by the land owner to

his remaining land if he agreed to had over the land to local authority free of cost and

encumbrances. This principle has been extended further in the Development Control

Regulations 1991 in the form of Accommodation Reservation and Transfer of

Development Rights.

Accommodation Reservation:

The land owner can develop the facility for which the land is reserved, hand it over to

Municipal Corporation free of cost and then utilize the development right equivalent to

the full permissible FSI for his own purpose. In case of Mumbai, this measure succeeded

as land prices are several times higher than construction cost.

Transfer of Development Rights:

Where the land has to be exclusively put to reserved use or where no building

construction is possible (as in case of a garden), the regulations allow the land owner to

transfer development rights elsewhere, if the land is question is surrendered to municipal

corporation free of cost and free of encumbrances.

In both the schemes, the land owners are expected to agree to transfer their

development rights from high value area to generally low value area, without any

weightage to price differential. The government has also provisioned to invite private

investment in the reconstruction of such buildings, where 50 percent of the floor space

required for rehabilitation of existing tenants as the bonus FSI. Offering extra FSI or

development rights is now seen as a panacea for many of Mumbai’s problems – obtaining

land for public purpose, providing free houses to slum dwellers and the tenants of the old

rent controlled buildings and generating financial resources. There are various types of

Transfer of development rights (TDR) or incentive FSI available (Road TDR,

Reservation TDR, Slum TDR, Heritage TDR, dilapidated building incentive FSI and

schools, hospitals and hotel incentive FSI), and the planners have tried to see that TDR

flows from congested areas to relatively low density areas. In effect, though, almost all

the experts are of the opinion that the FSI availability in Mumbai is a constrain in the

growth of real estate space and needs to be relooked along with the other factors on urban

infrastructure.

The adjacent graph depicts the plan for Coastal Regulation Zoning of Mumbai. As is

evident, a large part of Mumbai falls into the Coastal Regulation Zone (CRZ) area.

This basically implies that no construction

is allowed on the seaward side of existing

roads or authorized structures. Based on

this regulation, the city is divided into three

zones as:

• CRZ I (Blue colour): Area between the

high tide and low tide line, where no

development is permitted

• CRZ II (Yellow colour): Where

substantial development has already

occurred, but further development is

controlled

• CRZ III (Green colour): Where sporadic

development has occurred, and only repairs

and reconstruction is allowed

Out of total area 437sqkm, 133sqkm is in

CRZ I, 100 square kms is in CRZ II, and 25

sq km is in CRZ III. While these regulations are justified to protect coastal zones in rural

areas it seems odd that this law exists in a city built on a narrow peninsula. It

has been argued by some experts that with such regulation in place cities like Manhattan,

Hong Kong, Singapore, San Francisco and Rio de Janeiro would have never been built.

The CRZ regulations further reduce the supply and have had an impact in accentuating

the paucity of land in the city.

Urban infrastructure:-

Mumbai means different areas for different people and many citizens are only

dimly aware that it ranks as a mega-city with more than 12 million inhabitants. This is

partly because Greater Mumbai, the city proper, occupying 466 square km is often

confused with the Mumbai Metropolitan Region, which is almost ten times bigger (4,355

square km) and includes the outlying townships of Kalyan and Thane, which are 1

million-plus cities in their own right.

About a third of Greater Mumbai’s population lives on the southern ‘finger’ of the

island, with more than two-thirds of the jobs located there. Attempts to shift jobs to more

accessible areas of the region have initially not succeeded; Navi Mumbai on the other

side of Thane creek has vast amounts of housing and office buildings that are slowly

beginning to be occupied. This is largely seen as a result of real estate speculation and

greater interest in developing South Mumbai, where the chronic shortage of office space

promised far higher returns.

The main city continues to grow at an

astounding pace. According to some

projections, Mumbai will have around

27 million people by 2020. In the last

quarter of the 20th century though, a

distinct change in the spatial

distribution of population was

observed within Greater Mumbai. Till

1971, the population in island-city

increased steadily and was always

more than that of the suburbs during that period. However, during the last three decades

population growth in island city has been negligible, whereas, that in the suburbs have

increased at fairly high rate. The western suburbs have more population than that residing

in eastern Suburbs. Gross density of greater Mumbai is increasing and was found to be

24806 persons per sq. km. in 2001. The area around marine lines continues to have the

highest density of 112,734 persons per sq. km.

According to the International Institute of Population Studies, only 480 people

come into the city every day. According to the last census in 2001, Greater Mumbai had a

population of just under 12 million; thus it has presumably a population of somewhere

close to 15 or 16 million now. Migration as a proportion of the total population is also

declining. In the 1970s, the proportion of migrants was close to 70 per cent with a natural

increase of 30 per cent. The proportions have now that formal employment in the city is

declining, with the closure of mills, chemical factories and even some multinational

industries. While the rate of growth may not be dramatic, size does matter. The outlying

areas of the metropolitan region are expanding faster than the core, especially the 100

square km of the island city. According to the Washington based Population Institute, the

metropolitan region in 2020 will be the world’s most populous at 28.5 million, with

Tokyo trailing at 27.3 million.

Government in Mumbai operates much the same way; national and state

government has the same ostensible mission as local government - to represent and

provide services to citizens-yet the scale on which authorities are created still matters

greatly. A common misperception about the city is that there is a single “Government of

Mumbai, or that the city’s structure can be represented with a list of agencies and

functions. The power to both make and implement policy in Mumbai is indeed divided

between a number of actors: some, such as the Municipal Commissioner (who is

appointed by the state of Maharashtra) and councillors on the Municipal Corporation

(that are locally elected) along with Mumbai-specific entities created by state or federal

government (such as the Mumbai Port Trust) and other broad state agencies which

operate both in Mumbai and in the rest of Maharashtra.

In addition to exercising direct authority in Mumbai through the commissioner,

Maharashtra has also created a large number of uni-functional bodies for the city, which

exercise at times unilateral control over huge policy areas, which includes Mumbai

Metropolitan Region Development Authority (MMRDA). This body has jurisdiction

over an area almost 10 times the size of the 437.71 square kilometres Municipal

Corporation. This authority was charged with implementing a state devised and approved

redevelopment plan, which delineated a 4,355 square kilometre “Metropolitan Region.”

In this capacity, the Authority directly funds and partially implements many of Mumbai’s

recent major “Projects,” including Transport and Urban Development, and is the direct

recipient of World Bank funding. This means it has the power to not just coordinate

regional planning across jurisdictions, but can also itself build roads, rails, and other

infrastructure, and even manage traffic.

In a city like Mumbai which has a number of topographical constraints, the value of

connectivity is even more pronounced. The suburban railway system in Mumbai has been

its lifeline since its inception way back in 1925, but in the last few decades, it has shown

signs of decay. There is a great emphasis on the road projects in the city. Transport

projects are already under implementation in the city through the Rs 4,526 crore, World

Bank supported Mumbai Urban Transport Project (MUTP), the Rs 2,648 crore Mumbai

Urban Infrastructure Project (MUIP) supported by the GoM, and the Bandra-Worli toll-

way sealink project. While the MUTP is for the mass transportation, the MUIP is to

supplement MUTP, with the main objective of road network improvements and efficient

traffic dispersal system in the city.

However, a lot of initiatives are underway to improve the transport infrastructure

of the city. This includes proposals for an ‘inner ring rail loop’ (linking Goregaon,

Andheri, Bandra, the Bandra-Kurla Complex and the Andheri-Ghatkopar stretch), an

‘inner ring freeway link’ (between the under-construction Bandra-Nariman Point sealink

and the proposed East Island freeway), and an ‘outer ring-rail and freeway link’ (that will

connect the island city eastwards and northwards to Nhava Sheva and the Mumbai-Pune

expressway, then back to the Vashi-Belapur expressway and Kurla in the eastern

suburbs). There is also a proposal for Mumbai metro, construction of which has now been

awarded to a private company.

A program of transforming urban infrastructure in Mumbai has dimensions of

institutional, fiscal financial reform that merits a separate analysis. Solving the problems

of Mumbai requires a shift away from an immediate focus on a few high-profile projects

(such as the second airport project or a metro project), and dwell more on building the

institutional foundations for a healthy city. Although, such projects are essential, they are

not the mainstay and can only have an incremental impact in resolving the land and other

urban problem.

It will be imperative for policy makers to improve the built-up area and/or land

prices relative to income levels. Ratio of land cost per sq meter to per capita GDP is 2 in

Kuala Lumpur, 6 in Sydney, 7 in Bangkok, 12 in Singapore, 52 in Bangalore, 100 in New

Delhi, and as high as 115 in Mumbai. This clearly is not a sustainable position and the

future growth of Mumbai’s real estate will rest a great deal on policies are maneuvered to

accommodate the above mentioned conundrum of geographical, regulatory and

infrastructure movements.

Chapter 4

MUMBAI RESIDENTIAL MARKET

Mumbai

Residential Market

Introduction:-

Mumbai is a squatters’ paradise. In the world’s seventh most expensive city,

buying a home remains a dream for most expensive city, buying a home has always

remained a dream for most even if they earn seven- figure salaries. Some real estate

markets in Mumbai have been prone to pronounced bursts of development activity while

others have been characterized by smooth pattern of development over time. Mumbai

though is unique, where along with the bursts of activity it has always had supply-

demand dynamics evolving in the last fifteen years. The natural and regulatory restriction

on the land supply has resulted in a situation where a substantial increase in demand has

more than proportionately increased the prices of residential space.

Mumbai Real Estate Market records the maximum realty rates in India in certain

areas like Cuffe Parade, Marine Lines, Nariman Point, Malabar Hills, and Nepean Sea

and in South Mumbai and Khar and Santacruz in western sub-urbs. More economical

residential realty options are available in Mahim in South Mumbai, Kalyan and

Ambernath in Central Mumbai, Panvel and Kalamboli in Navi Mumbai and Mira Road,

Bhayander, Vasai, Nallaspora and Virar in western sub-urbs.

As the financial capital of India, the city is not just a gateway to almost all the

multinational firms but also appear prominently as a location preference for corporate

office of Indian industry. With the opening of Indian economy in the early 90s, the city

has seen manifold increase in the demand for space. Year 1995 saw a peak in real estate

prices across Mumbai and from 1995 to about 2001 the market saw a downtrend and

stagnation. Since then the market has managed a spectacular recovery and the market was

back to the 1995 levels in 2005 even surpassing it at some locations, but now again

market saw a fall due to economic recession in country.

Overview:-

Mumbai is unique city with linear shape and is surrounded by sea on three sides.

South Mumbai and CBD (commercial business district) have limited supply of land

parcels for residential development, leading to high cost of real estate. It is the fifth most

expensive city in the world. Peak rates in CBD have lead to growth in suburban areas.

The residential real estate construction is largely concentrated in the suburbs, with the

city growing towards north and the development of Navi Mumbai.

Within the existing stock of houses, typical residential configurations are1BHK

and 2BHK. High- rise buildings form around 80percent of supply, while limited township

concepts have been developed in centrally located areas. The average area of the

apartments is smaller in Mumbai when compared with other Indian metros. Typically,

1BHK measures around 600sq ft and a 2BHK, about 800sq ft. a loading of 33-35 percent

(carpet area to super-built up area) is seen on an average.

Due to its unique shape and long distance to be traveled, accessibility of road and

rail is of paramount importance and commands a premium. The other factors that attract

households to a given residential area are proximity to workplace, availability of schools,

infrastructural development, well- developed areas with amenities and proximity to the

leisure world.

The high-end residential market is concentrated in South Mumbai locations, viz.,

Malabar Hill, Napeansea Road, Cuffe Parade, Atlamount Road and Central Mumbai

locations of Prabhadevi and Worli. Suburban locations of Bandra, Khar, Santacruz, Juhu

and Versova are also sought after residential locations due to excellent social

infrastructure and their proximity to the airports and the Suburban Business Districts

(SBD) of Bandra-Kurla Complex, Andheri and Powai-Vikroli. Other western suburban

locations of Goregaon, Malad, Kandivali, and central suburban locations of Powai,

Ghatkopar, Bhandup and Mulund have witnessed large-scale developments in the

residential sector. The most recent trend among many builders is the creation of entire

townships in areas with availability of vast stretches of lionsanduct. Locations like Thane,

Vasai and Virar have seen development of many such townships.

There are large number of players in this market like Hiranandani constructions,

Kalpataru developers, Lodha group, Akruti Nirmaan, Kanakia Spaces Pvt Ltd., Oberoi

Constructions Nirmal Lifestyle group, K Raheja universal group, Shapoorji Pallonji &

Co. Ltd.,Godrej Properties, Runwal group, HDIL, Ahuja constructions, Aditya Builders,

and many more.

Hiranandani Gardens, Powai Akruti Orchid Park, Andheri

Residential Supply and

Demand:-

The residential market in Mumbai is presently witnessing acute shortage of ready

apartments in the mid-end segment. Under-construction projects are being booked at a

swift rate with buyers reserving apartments long ahead. Majority of the newly

constructed or under-construction properties listed in our database have occupancy of

close to 80% depicting strong demand situation.

The residential demand has shifted from South Mumbai to North Mumbai owing

to new supply and comparatively lower price points. In addition, with Suburban Business

District emerging as a favored office. Destination, employees in these organizations

prefer affordable and new accommodations in the suburban locations in close vicinity.

The year 2007 saw as addition of approximately 33 mn.sq.ft. of residential space

to the residential stock. Bulk of this space, amounting to about 75% of the total supply in

2007, is concentrated in the suburban locations from Bandra to Dahisar and Kurla to

Mulund. The residential developments on the mill lands of Central Mumbai have also

added substantially to the current stock.

The year 2008 will see an infusion of about 36 mn.sq.ft. of residential space. This

takes into account the spill over of delayed projects, which were scheduled to be

completed in 2007. Majority of this supply is again concentrated in the suburban

locations.

Chapter 5

MARKET SEGMENTATION

Market segmentation

The division of Residential market in Mumbai has been done into following Six Micro-

Markets:-

1. South Mumbai: includes area from cuffe parade to Mahim

2. Western suburbs:- includes the North Mumbai i.e. Bandra, Khar, Andheri,

Borivali, Malad and many more

3. Central suburbs:- includes area from Sion to Mulund

4. Thane:- includes Glady's Alwares Road, Ghodbunder Road, Pokhran Road No.1

and 2

5. Navi Mumbai:- includes Vashi, Airoli, Belapur, Nerul, Panvel, Kopar Khairane,

Sanpada

6. Extended Suburbs:- includes Bhayander, Kalyan, Ambernath, Vasai-Virar

South Mumbai:-

Located on the southern most corner of Salsette Island, South Mumbai is home to

the elites of Mumbai city. With business centers such as Nariman Point and the Ballard

Estate and Financial organizations such as the Reserve Bank of India and Bombay Stock

Exchange, it is one of the busiest parts of the country. If South Mumbai attracts

businessman from all over the world, with number of museums and tourist haunts it is

equally interesting to the backpackers. South Mumbai hotels such as Taj Mahal, hotel

Oberoi, hotel Searock Sheraton, Chalukya hotel on Elephanta island find favour all over

the world. Lot of employment opportunities have given a rise to residential development

in South Mumbai..

South Mumbai locations of Malabar Hill, Carmichael Road, Napeansea Road,

Cuffe Parade and Atlamount Road witnessed heightened demand for high-end residential

properties due to restricted supply. This can also be attributed to NRIs scouting for

properties here. Most buildings in South Mumbai command a premium as they offer a

spectacular sea-view. Few of the new residential projects that are being launched in this

market command rates as high as Rs.30,000-50,000/sq.ft. Locations of Mumbai Central,

Tardeo Road and Grant Road closely follow the prime locations in terms of price and the

rates here range from Rs.12,000-21,000/sq.ft.

Source- Times Property

The mill lands in Central Mumbai locations of Lower Parel, Prabhadevi and

Mahalaxmi are currently the largest source of land parcels for the residential

developments in the micro-market. Towering residential complexes have sprung up on

the erstwhile mill lands. Prominent among them are Beaumonde Towers on Standard

Mills by Sheth Builders, Casa Grande on Matulya Mills by Ashford Housing, Planet

Godrej on Simplex Mills by Godrej Properties and Ashok Gardens on Swan Mills by

Piramals group. Capital values of these projects range from Rs.13,000-23,000/sq.ft. As

SOUTH MUMBAI Rs./sq.ft

Cuffe Parade 20,000-62,000

Churchgate 18,000-30,000

Marine lines 14,000-22,000

Malabar Hill 20,000-65,000

Napeansea Road 20,000-65,000

Worli 18,000-45,000

Prabhadevi 13,000-24,000

Mahim 8,500-14,000

compared to the South Mumbai and Central Mumbai, capital values of projects in

Wadala, Parel, Sion and Mazgaon range between Rs.7,000-12,000/sq.ft. Knight Frank

research estimates that 8.27 mn.sq.ft. of residential space will enter the Island City by end

of 2009-10, majority of which will be in Central Mumbai locations.

Western Suburbs:-

Over the years, the residential demand has shifted from South Mumbai to North

Mumbai on account of fresh supply and comparatively lesser capital values. Also, with

several corporate houses moving away from Central Business District of Nariman Point

and Fort in South Mumbai to the SBD of Bandra-Kurla Complex and Andheri-Kurla

Road, employees in these organisations prefer affordable accommodation in the suburbs.

In addition to this, many infrastructure development projects, which are currently

underway, are expected to provide better connectivity from North Mumbai to South

Mumbai. This will further increase in the attractiveness of the micro-market of Western

Suburbs.

Prime residential layouts in western suburbs are locations like Bandra, Khar and

Santacruz. Currently, the redevelopment projects underway are the major sources of

residential supply in these locations. Capital values for projects in these locations range

from Rs.14,000-28,000/sq.ft. Andheri, Vile Parle and Juhu have also gained prominence

as residential hubs over the past few years. With capital values ranging between Rs.6,

500-17,000/sq.ft., these locations are favoured by the upper middle income group. Huge

residential complexes are mushrooming in the suburbs of Goregaon, Malad and

Kandivali. There has been a perceptible shift of interest of the middle income segment to

these belts. Some of the large-scale complexes in the western suburbs include projects by

Lokhandwala Constructions, Oberoi Constructions, Keystone Group, K Raheja, Mayfair

Housing, Evershine Group, Kalpataru developers and Ekta Supreme. Capital values here

are in the range of Rs.4,500-7,000/sq.ft. and the demand here is higher for 2 BHK and 3

BHK apartments with varied amenities.

Western Suburbs Rs/sq.ft

Bandra(E) 7,000-11,000

Bandra(W) 16,000-28,000

Khar(E) 7000-11,000

Khar(W) 13,000-18,000

Santacruz(E) 9,000-12,000

Santacruz(W) 12,500-18,000

Vile Parle(E) 7,500-11,500

Vile Parle(W) 10,000-17,000

Andheri(E) 6,500-9,500

Andheri(W) 6,500-14,000

Jogeshwari 5,000-8,000

Goregaon(E) 4,500-7,000

Goregaon(W) 4,800-7000

Malad(E) 4,500-7,500

Malad(W) 4,000-6,500

Kandivili(E) 4,000-7,500

Kandivli(W) 4,500-6,500

Borivili(E) 4,500-6,500

Borivili(W) 4,000-6,500

Source- Times Property

This micro-market has the highest quantum of residential projects in the pipeline,

accounting for almost 37% of the total supply. By the year 2009-10, approximately 29.56

mn.sq.ft. of residential space is expected to be infused in the Western Suburbs.

Central suburbs:-

Increased residential prices in the Island city have led to the Central suburbs,

stretching from Chembur to Mulund, to gain popularity among the middle income group.

Widening of the LBS Road, Eastern Express Highway and the construction of flyovers on

this major artery has transformed these once unpromising neighbourhoods into

favourable options of today. Powai and Chandivali continue to witness heightened

activity and demand, not withstanding the fact that property prices have gone up by

almost 50% in 2006. At present during reccession the residential capital values range

between Rs.3,750-9,500/sq.ft. Most of the residential projects in these locations are high-

rise buildings offering acres of landscaped gardens and state-of-the-art amenities.

Cental Suburbs Rs./sq.ft.

Byculla 8,500-11,000

Wadala 5,000-8,000

Sion 6,500-9,500

Kurla 4,000-6,500

Powai 4,500-9,000

Chembur 5,500-7,000

Ghatkopar 4,500-7,500

Bhandup 3,750-6,000

Mulund 3,750-7,000

Source- Times Property

LBS Road, stretching from Sion to Thane, also has numerous premium housing

projects being developed on erstwhile industrial and factory lands. Notable among them

are Kalpataru Group's 'Kalpataru Aura' at BOC India Ltd., Runwal Capitaland's 'Orchard

Residences' at John Wyeth Industry, Neptune Group's 'Living Point' at GKW Estate and

Runwal Group's 'Runwal Infinity' behind Ralliwolf.

Besides, new buildings are also being added on to some existing complexes like

Great Eastern Gardens and Nirmal Galaxy. Residential developments totaling to

approximately 18.96 mn.sq.ft. are slated to enter this market by 2009-10. Capital values

on the LBS Road range from Rs.5,000-8,000/sq.ft.

Thane:-

Thane has witnessed large-scale residential developments over the last few years.

The key reasons for these are the availability of vast stretches of land due to shutting

down/relocation of industries, proximity to Mumbai and fast developing infrastructure.

There has been a steady growth of high-rises and self-sustaining townships in Thane

leading it to emerge as a new residential location for the middle income group and

upper middle income group. The demand for residential spaces, is high especially in 2, 2-

1/2 and 3 BHK apartments segment. Current capital values for Grade-A apartments range

from Rs.4,000-6,000/sq.ft.

According to Knight Frank Research, Thane will see an infusion of close to 7.07

mn.sq.ft. of Grade-A residential space by 2009-10, with major residential developments

coming along the Glady's Alwares Road, Ghodbunder Road, Pokhran Road No.1 and 2,

and the Eastern Express Highway. Property rates in thane range from

Rs.4,000-6,000/sq.ft.

Some of the prominent large-scale residential projects of Thane are Hiranandani

Estate and Hiranandani Meadows by Hiranandani Constructions, Vasant Lawns by Sheth

Developers, Lodha Paradise by Lodha Group, Siddachal, Kalpataru Hills and Tarangan

by Kalpataru Group, Neelkanth Heights, and Neelkanth Palms by Neelkanth Group,

Raheja Gardens by R.Raheja, Runwal Garden City, Runwal Estate and Runwal Pearl by

Runwal Group. Thane also has Neelkanth Woods by Neelkanth Group, one of the first

gated community of villas within the Mumbai city limits.

Navi Mumbai:-

Navi Mumbai is arguably the world's largest planned city. It was initially planned

with a specific purpose: to decongest Mumbai and become an alternative haven for the

multitudes that throng Mumbai from different parts of India. Today, Navi Mumbai is a

close competitor to Mumbai in every respect. Basic infrastructure worth Rs.40,000

million (US$1.14 billion) is already in place with numerous flyovers, broad roads, and

parking lots.

Navi Mumbai, the largest planned new city in the world, has fast emerged as an

attractive option for residential buyers. Factors like the announcement of the new

international airport at Kopra-Panvel area, SEZ coming up at Nhava Sheva and

development of some of the major IT Parks like Dhirubhai Ambani, Knowledge City

(DAKC) at Kopar Khairane, Millennium Business Park at Mahape, International Infotech

Park at Vashi, Airoli Knowledge Park at Airoli and Thane Belapur Industrial Belt have

invigorated the demand for residential apartments in this micro-market. In addition,

infrastructure development projects like the proposed Trans-harbour link and Mass Rapid

Transit system will also help in easing the long commutes to the mainland of Mumbai.

New residential developments are concentrated along the Palm Beach Marg,

which stretches from Vashi to Belapur and runs parallel to the Thane creek. The

residential capital values range from Rs. 2,000-5,500/sq.ft. Several high-rise buildings

offering an unrestricted view of the Thane creek are under construction on the eastern

side of the road. Nodes such as Koparkhairne, Airoli and Sanpada are also seeing

substantial development.

Navi Mumbai Rs/sq.ft

Vashi 3,250-5,500

Airoli 2,500-4,000

Koar Khairane 3,500-5,000

Sanpada 3,000-5,000

Nerul 3,000-5,000

CBDBelapur 3,000-5,000

Kharghar 2,000-4,000

Kalamboli 1,400-2,200

Panvel 1,800-2,700

Source- Times Property

Major developments in this micro-market are by Kesar Group, Haware Builders,

Prajapati Group, Arihant Universal, Goodwill Developers, Regency Group etc. The

capital values which range between Rs.2,200-4,500/sq.ft., have registered a rise of 30-

40% in 2006. Close to 9.06 mn.sq.ft. of residential development will enter this micro-

market by 2009-10.

Extended suburbs:-

With the prices in the suburbs on an upward trend, the far-flung suburban belts of

Kalyan and Dombivili on the north-eastern side and Mira Bhayander and Vasai-Virar on

the north-western side and Panvel on the harbor route are increasingly gaining

prominence. These belts are emerging as popular residential destinations for the lower

middle class and the middle class people. Around 5 lakh acres of developable land is

largely available for which the flat prices hover between 1,000 sq ft. to 2,200 sq ft.

Relatively lesser-polluted environment, availability of 1, 2 and 3 BHK apartments

at affordable prices, provision of ample open green spaces within the residential projects

have acted as powerful 'pull' factors for the residential developments in this belt. The

residential property rates currently range from Rs.1,000-2,200/sq.ft. with locations like

Mira Bhayander and Kalyan, Dombivili commanding higher prices than Vasai-Virar and

Ambarnath.

Extended Suburbs Rs/sq.ft.

Mira Road 1,800-2,500

Naigaon 1,200-1,800

Vasai(E) 1,100-1,800

Vasai(W) 1,000-1,800

Virar 1,100-2,000

Kalyan 1,400-2,200

Dombivali 1,400-2,500

Ambernath 1100-1,600

Source- Times Property

These micro-markets also offer the advantage of comparatively lower land rates,

rendering an option of owning independent duplexes/row houses for the working class.

Lack of infrastructure in extended suburbs is the major reason for low prices of land here.

For that reason, there can be no other good alternative for builders than looking forward

to these areas. These extended suburbs are set to witness a supply of approximately 9.38

mn.sq.ft. of residential space by 2009-10.

Some of the prominent industry players in the extended suburbs are RNA Group,

Godrej Properties, Kanakia Constructions, Lifestyle group, Mayfair Housing, Agarwal

Builders, Evershine Group, Akruti Developers and Mahadev Construction.

Mumbai Residential Market scenario:-

The Mumbai Real Estate is

considered the yardstick for the burgeoning

Real Estate sector in India. Mumbai is a

mature, demand led market where there are

many more and users are compared to other

speculative markets in the country. There

has been an appreciation in real estate value

due to increase in demand. The investment is thriving with returns increasing manifolds

over past few years.

Currently, the real estate investors are mainly HNFs`, with the relaxation in FBI

regulation, institutional money is expected to be following into this sector.

Mumbai residential segment is performing very well in the current scenario. The

demand for the quality residential leased apartments in south and south central Mumbai

has increased significantly in past one year. The increase in demand in the suburbs is due

to availability of easy loans, with limited supply in south Mumbai the shift has been

towards North Mumbai. The demand is very high in Bandra for sale and lease apartments

but due to quick absorption of these apartments and limited construction activities the

shift has been to the joining areas like Santacruz, Khar where newer constructions are

coming up also there in these areas few pockets have witnessed noticeable capital

appreciation, in last 9-12 months. The lease rentals in Juhu and Lokhandwala are also

under continuous upward pressure due to very limited supply and close proximity to

excellent social infrastructure, airports, Powai.

A largely supply is coming from western suburbs like Goregaon, Malad, Kandivli

while Mulund, Thane, Vikhroli and Chembur belt from the central suburbs.

Availability of vast industrial land provides tremendous scope for planned

development that includes quality housing with ample open space, club house, security,

etc. middle and upper middle class have shifted to the these areas for the new

developments offer better lifestyles to individuals.

Upper and luxury residential apartments are experiencing a strong demand by

MNCs for their executives. Supplies in suburbs have been absorbed due to a very high

demand, the capital values have shown an increase of about 15-20010.

Many developers are expected to announce new projects soon. The end user

demand in the suburbs is expected to continue to be strong. Rental and capital values in

South Mumbai will move upwards due to the short supply. Widening of roads and

western express highway will make commuting far comfortable for the residents living in

these areas like Goregaon, Malad and Kandivli, they will be able to access Powai, Thane

and other central suburbs more conveniently. Thus property prices in these areas will see

further 10-15% increase. To sum of the residential market is on upward swing and prices

trends will continue to be gently upward.

Yields on residential property in Mumbai have been around 5-7%.

Distribution of new residential supply by 2009-10

The new residential supply at the end of

2009 and in 2010 is as per the demand,

availability, prices etc. As shown in the diagram

the island city is divided in six segments. In every

segment demand will be as per the availability

and demand. Maximum demand is seen in

western suburbs which is 36 percent. As many

corporate houses have shifted to western suburbs.

Other segments also have distribution of new

residential supply.

Chapter 6

RENTALS IN MUMBAI

Rentals in Mumbai Residential Market

Residential Real Estate represents a significant

fraction of the investment universe. The ultimate value of

Residential real estate emanates from its rental flow, which

reflects the price that market is willing to pay for the use of

space. Rental of Residential space is a resultant of a

complex interplay between various factors like demand &

supply of residential real estate, existing infrastructure

facilities, proposed infrastructure development, availability of land, economic growth and

many other factors.

Houses on rent in Mumbai have always been a matter of acute shortages owing to

the huge gap between demand and supply. According to a report, the city needs 84,000

houses every year additionally, but the combined effort of private housing companies and

government housing authorities yield only 55,000 houses annually. The deficiency in

supply of houses keeps on propelling the real estate prices to a new zenith every year. As

a result, house rent in Mumbai is hitting the sky, which compels a majority of people to

live under unhealthy atmosphere in cramped rooms or flats on a share basis.

This is not all. In order to rent a house, such as a flat or apartments in Mumbai, it

is often required to deposit a lump sum as a security amount, of course, without accrual

of any interest.

Since the scope for further development of residential facilities within the

peripheral of the city is on the verge of its saturation point, builders and developers are

coming up with their housing projects at the outskirts of the city paving way for the

growth of Mumbai suburbs and satellite cities like Navi Mumbai . Even, the growing

trend of house rent in these areas ceases to bring any relief to home seekers.

Posh localities, such as Bandra, Juhu, Worli, Santacruz and Khar are the most

expensive areas in Mumbai to rent a flat or apartments, which command an average

rental value to the tune of Rs. 4-10 psft per month. While it requires between Rs 8 to 16

psft per month to rent a flat in Worli or Santacruz, the cost to rent home in Juhu or

Andheri comes at a comparatively cheaper rate between Rs. 4-10 psft.

RESIDENTIAL REALTY RATES IN MUMBAI:-

.

LOCATION RENTAL VALUES/

Rs./sq.ft

SOUTH MUMBAI

Cuff parade 70-150

Marine lines 55-90

Church gate 50-95

Malabarhill/walkeshwar 90-190

Worli 65-135

Prabhadevi/parel 55-95

CENTAL SUBURBS

Wadala 18-29

Sion 20-43

Powai 20-75

Chembur 20-35

Ghatkopar 18-30

Mulund 18-30

Thane 15-25

WESTERN SUBURBS

Bandra-E 40-65

Bandra-W 45-150

Khar /Santacruz-E 35-55

Khar /Santacruz-W 40-90

Vile-Parle-E 35-45

Juhu 55-75

Andheri-E 25-45

Andheri-W 35-70

Goregaon-E 25-35

Goregaon-W 25-40

Malad-E 15-35

Malad-W 25-40

Kandivili-E 15-33

Kandivili-W 15-31

Borivali-E 15-29

Borivali-W 18-31

Mira Road-E 9-12

Vasai-W 7-9

NAVI MUMBAI

Vashi 13-21

Koper Khairane 12-19

Nerul 12-19

Belapur 10-18

Kharghar 9-16

Panvel 8-10

Source: DNA NEWSPAPER, 12th June’09

Rental Trends:-

Residential rentals for flat/apartment, independent house and PG accommodation

are more popular Mumbai. Mumbai have far greater avenues for those who are on

transferable job or looking for job opportunities. This has created a good market for those

seeking to invest in Investment property i.e. investing in a property for rental purposes; as

they ensure good rentals on a regular basis

In the high-end rental apartment segment, the terrace flats, luxury apartments and

home, bungalows, villas, penthouses and condominiums are gaining ground as a popular

choice.  The segment is also considered a safe investment option as the leased property is

kept under the inspection of the respective housing society. Increased demand of

independent houses or paying guests in Mumbai where the corporate sectors rent

independent houses for their senior executives.

A paying guest or PG accommodation in Mumbai is a convenient accommodation

arrangement where the owner provides meal as a part of the rent agreement, apart from

several desirable amenities like laundry. Even PG hostels and working women’s hostel,

are considered safe and can be availed of on an individual or sharing basis mean big

business.

Chapter 7

FACTORS AFFECTING REAL ESTATE PRICES

FACTORS AFFECTING REAL ESTATE PRICES

Real estate is the second important source which generates economy in our

country. Real estate almost contributes about 6 percent to gross domestic product (GDP).

Therefore the property prices, demand, supply and many more plays a vital role in Real

Estate Sector.

Infrastructure: -Infrastructure is always a major

driver for price growth. Availability of social

infrastructure in the location will affect the demand.

Places with better infrastructure like rail and road

connectivity and basic amenities like hospitals and

schools, car parking space, maintenance services and

many other benefits will lead to demand and increase in

the prices of property.

Location- Location is one of the most important factors

affecting real estate prices. Slopes, soils, hydrology, land

availability, Distance to employment sources, Distance to

shopping, Availability of amenities (water, restaurants

and shopping, golf, parks), Neighborhood factors: age of

surrounding housing stock, schools, crime and many

more are the factors which affect the real estate prices.

Properties in such places affect real estate prices in

positive sense. Good amenities lead to higher prices and

more demand.

Sentiments: Positive sentiments in the market

and economy will lead to better demand. People

when confident about a sustainable source of

income will be more comfortable in making

property buying decisions.

Demand & Supply- Population change is the

key driver of demand. When an area becomes

popular more people want to live there. Given

there are fewer dwellings than interested

parties, prices increase and vice-versa. The

other driver is availability of land.

Affordability and availability of money-

Affordability is the relationship between housing

prices, interest rates and wages. It's the cost to the

owner or investor to retain and enjoy a property.

When prices, interest rates and wages reach a

ceiling in a particular area, residents often realize

they can have a better lifestyle elsewhere.

The resources boom-The demand for skilled and unskilled

workers is increasing day by day. And with an increase in

their salary scale, these workers seek to improve their

lifestyle by buying bigger and better homes, or maybe an

investment property or two.

Inflation- Inflation is a rise in the general level of prices of goods and services in an

economy. As the prices of goods increase the whole money management of people is

affected. This affects the demand in real estate. Less demand leads to fall in prices of

realty.

Interest rates- An interest rate is the cost of borrowing money. Among the many

industries affected by fluctuations in interest rates, real estate and banking are perhaps the

most directly impacted. When interest rates increase, borrowing becomes more

expensive, dampening consumer demand for mortgages and other loan products and

negatively affecting residential real estate prices. (Low interest rates = higher prices;

high interest rates = lower prices).

=

=

Recession- Recession is the most important factor

affecting the real estate prices. Recession is nothing but

the economic slowdown. It is a tense mood having

features like downsizing, deductions in salaries, less

investments, unemployment, insolvency etc. If people do

not have money and bankers do not have money to give

loan then it’s directly going to affect the real estate

prices. As it is common principle of real estate low

demand then fall in prices and high demand then increase

in prices of property

FALL IN PRICESLOW DEMAND

Low interest rates Higher prices

High interest rates Lower prices

INFLATION

Demographic factors- One cannot sell an Ipod

to deaf and a television to blind. Same is with

demographic factor also. A seller should divide

the market into three- higher income group,

lower income group and middle income group.

If he tries to sell a high priced property to lower

income group then it is definitely going to affect

the prices in negative sense i.e. he will have to reduce the prices of huge property.

Changing age profiles also affect the prices. Greater young population will create more

demand and will also bring increase in price level of property vice-versa.

Legal frame work- Legal frame work is also an important

factor affecting real estate prices. The registration and

documentation of real estate is complex and costly. Buyers

are not ready to pay much amount after going through legal

framework.

Fluctuations in prices

of inputs- Input includes the raw material used for

construction. Many builders tend to stop work when

the prices of inputs like cement; iron etc goes up so

as to wait for the time when they expect the prices

will come down. This result in unnecessary delay in

the work and the cost of wasting time would

actually be more than the increase in price.

Economic Factor- Economic factor is nothing but the

national income of the salaried persons. The

distribution of national income, per capita income

directly affects the purchasing ability of individual

and the employment is closely related with the

housing development.

Chapter 8

MUMBAI PROPERTY BOOM

MUMBAI PROPERTY BOOM

The Real Estate Market had an upward trend and had triggered the increase in the value

of residential properties. There was an unprecedented real estate boom in Mumbai.

Within short time, the prices of residential properties started increasing at the

phenomenal 50 - 80%. Owing to the following factors, the residents aspire to hold

residential property in Mumbai -

People in foreign trade via ships / ports wish to own a place in Mumbai.

Various educational institutions of international repute.

Sound connectivity at both domestic and international level.

Presence of various MNCs in the city.

Soaring real estate rates so perfect for investment requirements.

Conversion of mill area into residential complexes. This results in availability of

larger floor plates at much lesser rates.

OVERVIEW:

Mumbai is place were many people come to meet there dreams. This gave rise to

increase in population in every decade. Large number of developers, investors started

coming in the Mumbai market. Most of the real estate activity in Mumbai has been in

the middle to upper middle class segments, though the premium segment which has

limited supply continues to attract buyers. There has been some appreciation in the

values of prime properties in South Mumbai, Worli and Bandra areas. Residential

values were on the rise in the premium South Mumbai properties. Demand continued

and there were some new projects coming up in South Mumbai. This includes two

towers of 60 stories each known as "S D Towers".

The North Western and Eastern suburbs continued to be the preferred corporate

locations in Mumbai. As a result, the suburban move by corporates has given a boost to

residential developments. Mindspace and Hiranandani, on a regular basis, kept coming up

with new developments. Relocation of the American School to suburbs has led to many

expatriate officials also relocating their residences to the suburbs.

Residential categories all across the city were active. The residential markets have

seen continued activity in the middle-class segment in Rs1-2.5 million (US$ 20,400-

51,000) categories. All areas are seeing a rise in values. With residential projects going in

tandem, developers went in for integrated developments. Most large projects have school,

college, hospitals etc incorporated as an integral part of the project.

Residential properties were on the rise in the region of Rs. 20-30 million range.

‘A’ Grade Buildings in the ‘Golden triangle’ as it is coined, command a price from Rs.

15000-17000 psf. Cuffe Parade Rs. 8000-12000 psf. Bandra one of the posh areas in

Mumbai calls for Rs. 8000-13000 psf. Supply of residential properties in the leave and

license market has built up, leading to a fall in rentals.

Nariman Point and Bandra-Kurla Complex command a good price for commercial

property. Nariman Point commands Rs. 8000 – 12000 psf and Bandra-Kurla Complex

Rs. 7000 to 9000 psf. Central Mumbai a fast developing industrial market is not lagging

behind and rise in commercial properties in on the cards with 30% - 40% above market

values. The realizations that land is an asset, corporations were contemplating on

developing large tracts of green land. Developers were tying in with companies and vice

versa for purchase of land for office space constructions, subjective to their requirements.

Union budget has facilitated companies if they choose to buy land for providing houses

for their employees.

K Raheja Corp, K. Raheja Constructions, Samir Bhojwani, K Raheja Developers,

Tata Housing, GESCO, Mahindra & Mahindra, Kalpataru and Godrej Housing are the

leading developers active in residential market. Central Mumbai areas such as Wadala

(what were they earlier) Sion etc started coming up as preferred residential areas. Navi

Mumbai market was witnessing a marginal increase in residential segment due to large

off take of residential apartments by Reliance Industries.

Reasons for Rise in Real EstateThe following are the reasons for rise in Real Estate Market all over Mumbai in

Residential Market:-

Migration of people:-

Mumbai is dream city. People come from different places to achieve there

dreams. This has increased density of population. Currently, the density of population in

the city is around 45, 662 persons per square kilometres. Migration of people in Mumbai

is due to several reasons like for work, business, bollywood, jobs and studies etc. which

have led many people coming to Mumbai. The following graph shows the density of

population from 1981 to 2001 census:-

According to the

graph, there is approximately similar population in island city but in suburbs and outer

city there was continues increase in population of people. It is analyzed that the Mumbai

population is going to be double in 2011 census. This resulted in increase in demand for

real estate in Mumbai. Hence, increase in demand lead to rise in prices of properties of

Mumbai.

Financial Hub:-

Mumbai is said financial capital of India. Mumbai is the commercial and

entertainment centre of India, generating 5% of India's GDP, and accounting for 25% of

industrial output, 40% of maritime trade, and 70% of capital transactions to India's

economy. Mumbai is home to important financial institutions such as the Reserve Bank

of India, the Bombay Stock Exchange, the National Stock Exchange of India and the

corporate headquarters of many Indian companies and numerous multinational

corporations. The city also houses India's Hindi film and television industry, known as

Bollywood. Mumbai's business opportunities, employment opportunities as well as its

potential to offer a higher standard of living, attract migrants from all over India. This

also gave rise to prices of properties in Mumbai.

Employment Opportunity:-

There was employment opportunity generated all over Mumbai because of many

financial centres, MNC’s, offices etc. venturing into Mumbai city. Employment

opportunities also generated income to employees. Many people started getting jobs with

high salary. People from different places started settling down in Mumbai for the purpose

of earning. This generated more demand for houses in Mumbai. More demand for

property lead to increase in prices.

Foreign Direct Investment:-

The government of India provided fresh impetus to the construction and

development sector by allowing 100% foreign direct investment (FDI) under the

‘automatic route’ in order to spur investment in the vital Real Estate Sector. Large

inflows of foreign funds created easy credit conditions for a number of years prior to the

crisis, fueling a housing market boom and encouraging debt-financed consumption. The

USA home ownership rate increased from 64% in 1994 (about where it had been since

1980) to an all-time high of 69.2% in 2004. Subprime lending was a major contributor to

this increase in home ownership rates and in the overall demand for housing, which drove

prices higher.

Indian Real Estate was on the high growth path

In 2003-04, India received total FDI inflow of US$ 2.70 billion, of which only

4.5% was committed to real estate sector. In 2004-05 this increased to US$ 3.75 billion of

which, the real estate shares was 10.6%. However,

in 2005-06, while total FDIs in India were estimated

at US$ 5.46 billion, the real estate share in them

was around 16%. The Study, nevertheless projects

that in 2006-07, total FDIs will touch about US$ 8 billion in which the real estate share is

estimated to be about 26.5%.

Shortage of supply: -

As many people migrated in Mumbai and 100% FDI by government of India.

Many developers came into the market with different projects and buyers migrated in this

city. The congestion of main Mumbai City turned people to the suburbs to meet their

residential requirements. There was shortage of supply of land which gave rise to

extended suburbs like Bhayander, Kalyan, Dombivli Vasai- Virar and many more.

With focus on township, large residential townships were constructed in suburban areas.

This created demand and thus property prices went up. Suburbs started improving. The

unused land prices went up in these areas also.

Easy Availability of Loan: -

With day-by-day property prices increasing all banks Private banks and Public

Banks)like HDFC, IDBI, SBI, ICICI, Punjab National Bank, Janta bank and many more

started giving home loans to its customer with various schemes. As there was easy

availability of home loan many customers started taking home loans. The rate of interest

was also low during the boom period and also the customers were given the advantage of

paying the installments on monthly basis. This increased the business of banks as well as

benefited the customers. Thus, leading to rise in Real Estate market all over in Mumbai.

According to Kotak Institutional

Equities estimates the interest rates offered

by banks on home loans were decreasing

as there was rise in property prices in

Mumbai. As shown in the graph, the

interest rate provided by bank was 12.8% 2001 then in 2003 it was even below that is

10.4 percent and in 2005 it was 8.0 percent

Higher Standard Of Living: - This lead to `individual’s willingness to pay high for the

properties. The only thing they wanted was good house, high quality lifestyle, good

infrastructural facilities, amenities etc. thus property prices went up.

Other reasons: - Closure of textile mills and industrial sheds, Robust and sustained

macro economic growth, redemption in taxes by investing in real estate, rapid

urbanization, fiscal incentives to developers, redevelopment of slum areas, infrastructure

support & development by government, special offers and attractive schemes by builders

to attract end users and Favorable demographic parameters etc. these all also created rise

in property prices in Mumbai.

TRENDS IN MUMBAI DURING RISE:-

The demand for plots of land went up with the boom in industries. But with the

cost of a 30X40 ft plot plus home going for the equivalent of 5 million rupees in a good

residential area, apartments soon came into favour.

The buyers yearned a lifestyle equivalent to the lifestyles abroad, and they had the

capacity to pay. This reduced the "matchbox" apartments on offering and has spawned a

host of self sufficient complexes. Soft interest rates on home loans, a tax incentive on

home loans and the general growth mode of the economy are other factors driving the

real estate boom.

New apartments’ complexes have recreation facilities, basement parking, security, power

back up, good lawns and even swimming pools, all of which are very difficult to get

when one goes in for an individual plot.

When every builder began to offer these, the bigger ones began to offer multiplexes,

shopping complexes and schools. Not content with differentiation, it was the snob value

(at a premium) - Complexes modelled on resorts, European looks, vast open areas, pools

lined with Italian marble were the latest fad these days. While this is a good thing, in the

recent past, real estate in Mumbai had reached crazy levels of prices.

A significant percentage of the buyers are genuine (not speculators) buyers who intend to

stay in the apartment they book. But when there is a genuine demand, speculators can’t

keep off.

Some buyers also started taking advantage of the sprialling prices (driven by the builders

to a great extent) to book say, 3 apartments when they want just 1. As the price increases,

they sell off the first one, and then the second effectively getting their third (and the one

which they intend to own) apartment nearly free of cost.

Chapter 9

IMPACT OF RECESSION ON REAL ESTATE MARKET

IMPACT OF RECESSION ON REAL ESTATE MARKET

After seeing a continuous rise in demand and prices for the last few years in the

residential market the market is facing a sudden downturn. All the markets have

bearished. This all is just because of “US subprime crises.”

US Subprime crises

The subprime mortgage crisis is an ongoing financial crisis triggered by a

dramatic rise in mortgage delinquencies and foreclosures in the United States, with major

adverse consequences for banks and financial markets around the globe. The crisis, which

has its roots in the closing years of the 20th century, became apparent in 2007 and has

exposed pervasive weaknesses in financial industry regulation and the global financial

system.

Many USA mortgages issued in recent years were made to subprime borrowers,

defined as those with lesser ability to repay the loan based on various criteria. When USA

house prices began to decline in 2006-07, mortgage delinquencies soared, and securities

backed with subprime mortgages, widely held by financial firms, lost most of their value.

The result has been a large decline in the capital of many banks and USA government

sponsored enterprises, tightening credit around the world.

The crisis began with the bursting of the United States housing bubble and

high default rates on "subprime" and adjustable rate mortgages (ARM), beginning in

approximately 2005–2006. Government policies and competitive pressures for several

years prior to the crisis encouraged higher risk lending practices. Further, an increase in

loan incentives such as easy initial terms and a long-term trend of rising housing prices

had encouraged borrowers to assume difficult mortgages in the belief they would be able

to quickly refinance at more favorable terms. However, once interest rates began to rise

and housing prices started to drop moderately in 2006–2007 in many parts of the U.S.,

refinancing became more difficult. Defaults and foreclosure activity increased

dramatically as easy initial terms expired, home prices failed to go up as anticipated, and

ARM interest rates reset higher. Foreclosures accelerated in the United States in late 2006

and triggered a global financial crisis through 2007 and 2008. During 2007, nearly 1.3

million U.S. housing properties were subject to foreclosure activity, up 79% from 2006.

Subprime Mortgage crises

Impact of Recession on Indian market: -

A recession is when GDP growth slows, businesses stop expanding, employment

falls, unemployment rises, and housing prices decline. Due to subprime crises there was a

recession all over world. A recession had far-reaching impact on whole world. The US

subprime crises also affected India as there were many foreign investors like Lehman

brothers, Bear Sterns, Merrill Lynch, AIG etc. These investors or lenders almost become

bankrupt. Thus leading to fall in property prices in India.

REAL ESTATE industry is taking on correction period all over India. Brokers,

especially, seem to be convinced that the market is set to fall. In many areas, the property

rates have already started falling. Accordingly in Mumbai, Goregaon, Malad, Mira Road,

Vasai and Virar on western suburbs and Mulund, Bhandup, Kurla, Chembur and Govandi

on central side have started stagnating the level of property prices.

Pune, Nashik, Noida, Jaipur, Bangalore, Chennai and Hyderabad are also feeling

the cold wave in the property market. Reason for the same is related with hike in housing

finance interest rates and unaffordable property rates.

Investors are, now, not buying any property and have stopped going in for more

investments. Practically, when no one buys, rates are stagnated at some particular point.

That is what is happening today. The sale price has stopped further climbing up, since

there are no takers. Malls are worst hit. The recession started with them, while the

exhibiting rates were much less then the actual investments made.

It may be a recess. For the time being, investors want the market to show its true

colour. And after they sell off certain non moving stock, buying spree may start again

afresh. It is also linked with the liquidity crunch in the economy and falling stock

exchanges in the country. A lobby of investors does not want share market money to go

easily from the real estate market. People, who have invested in real estate from earning

of share market, want an exit to pay off the liabilities created by them in the share market.

Players in real estate market want the rates to stop climbing up for some time, so that they

can capitalize on such panic sale. Big game plan is on the hands of few groups of

individuals and few finance companies that have entered recently in the trade.

A slowdown in the construction sector potentially has large knock-on effects on

the economy as the sector directly accounts for 7.3% of GDP, its backward linkages in

terms of the sector’s usage of iron, steel, cement etc., and forward linkages to other

sectors, impacts an estimated 14% of GDP.

Realty companies that had raised funds through the capital markets and private

equity funds suddenly started finding themselves in a soup. Funding options began to dry

up. Asset values fell. Stock markets took on a bear run. Stock valuations of realty

companies plunged and inflation reached alarming proportions. The RBI raised key rates

to curtail money inflow in the system.

Builders, today, have started to reduce the price everywhere in the country. Ready

stock is still not available, as the builders have already sold 30 to 50 per cent of their

stock, during under construction phase, to investors. As the investors want handsome

returns on the finished stock, while they do not sale in the open market, but through the

builder only. That stock again is sold by the builders to the actual buyers by mounting

another profit margin. Hence, when the actual user buys the property, he has to pay

investor’s hidden margins, which change hands five times during the time of

construction.

The fall in collateral will also hurt firms’ balance sheets, increase their funding

costs, hurt confidence, and reduce investment demand. However, the impact on demand

will be lower than in developed countries.

Banks hiked consumer loan rates as also home loan rates. Corporate waking up to

pressure on expenditure began to announce lay offs, salary cuts and many such cost

cutting measures. Cautious consumers battling multiple whammies began to put off home

buying decisions. Demand has since stagnated and fallen drastically.

Chapter 10

A PICTURE OF FALL IN PROPERTY PRICES IN MUMBAI AFTER THE CRISES

Mumbai Property Bubble

Mumbai’s realty market, which in recent years

witnessed an astronomical price increase bringing it in

the league of the worlds most expensive cites, is finally

taking a beating. Property sales that have been growing

at a clip of about 20% every year have plummeted by

17% in 2007-08, the first time in six years.

Though the property market in the country’s

financial capital has been rife with talk of a slump for

some time now, this is the first time figures prove the

extent of the slowdown. Information about residential

property sales from the stamp duty registration office

show almost 12,000 fewer transactions during the last financial year compared to the year

before. From April 2007 to March 2008, 62,595 flats were purchased in Mumbai as

against 74,555 in 2006-07.

The Real Estate Market of Mumbai has fell down almost 25-35 percent in 2008 as

compared to years of rise in Mumbai.

Analysts said this could be just the tip of the iceberg as stamp duty registration figures

indicate the trend only among genuine homebuyers. There could be more of a downswing

in real estate investments as people are backing off from the sector in large numbers. To

resolve or to overcome such problems various things were noticed in real Estate market

Of Mumbai such as discounts, offers, unaffordability, increasing interest rates, developers

reducing property prices and many more.

Drop In Residential Prices Across Key Mumbai Micro Markets (%)

Reducing the size of flats: Developers are reducing the average flat sizes to make them

more affordable. For instance (1) Orbit Corp has reduced its flat sizes from 4,500sf to

5,000sf per unit to 2,500sf to 2,700sf/unit at Orbit Haven located at Napeansea road,

Mumbai (2) Runwal group is now constructing 1.5BHK and 2BHK apartments v/s

2.5BHK and 3BHK earlier at Runwal Estates located at Ghodbunder Road, Thane.

Various measures being adopted by developers to boost sales Offering various sops

and discounts: Most developers are offering sops and discounts in various guises often

on a case-by-case basis to push transactions. These sops and discounts include waiving of

registration, providing free parking area and waiving of floor rise charges, offering

amenities, etc. Until recently, such discounts were not publicly reported and were

available only to large investors. In the last two months, several large reputed developers

have issued public advertisements about discounts, hoping to stimulate demand and lower

inventory.

Tug Of war between developers and homebuyers:-

It is said that there is tug of war between developers and home buyers.

Incumbents in the residential vertical are at a disadvantage. Developers are already

committed to several projects, with varying sales levels. They fear that price reductions in

a particular project could (1) have a ripple effect on their other projects within the city,

and (2) antagonize existing investors/buyers in the project (leading to cancellations or

uncertainty regarding cash flows from pre-sales). Tight liquidity, weak end-demand and

aggressive product launches by large pan India players is forcing the incumbent real

estate developers to give in. and on the buyers side, Buyers who have been priced out of

the market are playing the waiting game, hoping that developers would lower list prices.

Job insecurity and low business confidence have become key concerns prompting buyers

to postpone big ticket purchases.

This has occurred because of recession. To increase the demand for property and

to make sales, developers are giving different offers and discounts to home buyers.

Innovative deals: Even large organized developers are offering innovative financing

deals to stimulate sales. For instance, Unitech, Ansal Properties and Prasvnath amongst

many others have resorted to unique funding schemes for their customers. The customers

are required to pay only the booking amount while payment towards EMI would

commence only from the date of possession of their property (developers bear the EMI

cost on behalf of the customers until possession is handed over to them). Further, several

developers have resorted to offering freebies including fully furnished houses, free

parking, free international holidays and free car with every purchase. Mumbai-based

Cosmos Group started a new trend by launching its ‘Ghar pe ek ghar free’ offer (one

house free on every house) at Thane.

INNOVATE DEALS MADE BY COMPANIES TO INCREAS SALES:-

Developers giving discounts:-

Developers have been forced to cut prices for new and under-construction

projects by 30-45%.

Several major developers including Orbit Corporation, Rashmi Housing, Mantri

Realty, Ekta Shelters, and Royal Palms have already lowered their list prices, officially.

Several other developers have not lowered list prices, as they believe that this may not

necessarily result in any incremental demand. List prices quoted by developers for under

construction projects or newly launched projects, however, have little meaning.

Invariably, deals are happening at 30-50% discount to list prices.

DEVELOPER PROJECT LOCATION BASE

RATE(RS/SF)

CURRENT

RATE(RS/SF)

PRICE

CHANGE

(%)

Akruti City Akruti

Greenwoods

Thane 4,100 3,800 -7.3

Neelkanth Group Neelkanth

Greens

Thane (W) 5,300 4,300 -18.9

Rashmi Housing Rashmi Garden Virar, Thane 2,900 2,175 -25.0

Runwal Group Runwal Estate Thane 4,500 3,200 -28.9

Kanakia Niharika Thane (W) 5,000 4,800 -4.0

Haware Tulsi New Panvel 3,500 2,800 -20.0

Royal Palms Plam Island II Goregaon 5,000 4,800 -4.0

Garden View Goregaon 7,250 5,750 -20.7

Green Park Kahndeshwar,

Navi Mumbai

3,250 2,600 -20.0

Source: - Motilal Oswal

Housing ‘un’ affordability in Mumbai (increasing interest rates)

The last 3 years have seen tightening of interest rates by reserve bank of India

(RBI) through its monetary policy, which has resulted interest rates rising by over 300

basic points.

Equated monthly Installments (EMI) have increased with increasing interest rates.

Thus, affordable house prices at the same income level have fallen. This is seen after

taking into account the rise in tenure and LTV by most housing finance companies

Affordable house prices with increasing

Interest rates

Affordable house prices with increasing

Interest rates (Above Rs. 900,000 income)

Chapter 11

VISIT REPORT

Visit to the MCHI Property Exhibition

On 13th April, 2009 I visited the property

exhibition at Mumbai organized by Maharastra

Chamber of Housing Industry (MCHI). The

exhibition had over 1200 properties on display

from more than 80 developers showcasing their

products, largely in the residential space. Unlike

the property exhibition in October ’08 when the

developers were offering schemes like “no stamp

duty”, “free car with purchase of 2BHK” and “5%

discount”, this time around I witnessed developers

offering apartments at 25-35% lower prices than the peak price. More interestingly, few

developers were also selling residential apartments at ~30% lower than the peak prices

which were nearing completion. With property prices down by 25-35% volumes have

certainly picked up in the last two months. Amongst the new launches, majority were

concentrated in the suburban Mumbai especially Andheri and beyond (in western

suburbs) and Mulund and beyond in the (eastern suburbs). In the commercial office space

as well, few developers were offering at price points which were 25% lower than the

peak prices.

I also interacted with few brokers and developers on the recent launches in the

residential segment and the response from the buyers. There was a consensus that in the

last 2 months volumes have improved due to new project launches at competitive prices.

However, I believe this could be called a trend reversal (in terms of volumes and not

pricing) if such encouraging volumes continue for the next few quarters as well.

Amongst the listed space, DLF, Unitech and HDIL have launched residential

projects at competitive prices in the last two months. With loan restructuring for most of

the companies now over, we believe investors will focus on the interest servicing

capabilities of the companies. For real estate companies, launching projects at attractive

price points can be the only savior during these times.

Better response than the one in October 2008

Developers witness the response to the exhibition better than the one in October

2008 because in October they were reluctant to reduce the prices and were only offering

schemes like “no stamp duty”, “free car with flat”, “and discount of 5%”. This time

around discount offered were actually in terms of reduction in the property rates. Few

properties are also available between 25-35% of the peak property prices.

Apartments nearing completion also available at lower prices

Interestingly, developers were also offering apartments at significantly lower prices even

for properties which were completed or nearing completion. Depending on the location

and the developer, ready to move in apartments were available at 25-35% lower then the

peak prices. This phenomenon highlights the unsold inventory that the developers

might be carrying due to poor sales in the last one year. With lower prices and better

visibility in the ready to move category we expect good demand to emerge in this

segment.

Established

1969 by Mr. Mofatraj Munot, Founder Chairman,

Kalpataru Group have today diversified into different

industry verticals. With interests in wide range of areas

that include Real Estate and Property Development,

Property Management, Power Transmission Towers,

Infrastructure, Oil and Gas Pipeline, Biomass Power

Plant, Rural Electrification, Telecom Infrastructure,

Logistics and Warehousing, International Trading, and

Office Supplies, the Kalpataru Group sets the

benchmark by which others strive for success.

The Group's driving force however remains its

flagship company - Kalpataru Ltd. A leader in the real

estate and property development industry, with wide

range of projects including residential, commercial,

retail, townships, hospitality, tourist convention centre

and SEZ.

One of the largest Civil Contracting firms in the Middle East, Kalpataru Ltd. was based in UAE

during the period of 1974 and 1982, employing well over 6,000 people. The company proudly completed

various successful projects including residential properties, commercials, religious establishments and many

educational projects like Hotel Holiday Inn, 1000 Villas, Sharjah Stadium, Palace of The Ruler of Sharjah,

Hospital in Dubai and the Defence establishments. It is one of the first companies to be ISO 9001 certified

since 1997, Kalpataru brings truly world class standards into its developments.

Upcoming Projects

Kalpataru Pinnacle- Malad (W)

Colour Chem- Thane (W)

Current Projects

Kalpataru Aura- Ghatkopar (W)

Kalpataru Estate- Andheri (W)

Kalpataru Gardens II- Kandivali (W)

Kalpataru Towers- Kandivali (W)

Kalpataru Riverside- Panvel

Kalpataru Hills- Thane (W)

Siddhachal VI- Thane (W)

Siddhachal VIII- Thane (W)

Kamdhenu- Mulund (E)

Srishti- Mira Road

During my visit to Kalpataru Synergy., Santacruz I had a talk with Mr. Sachin

Agrawal, Project Finance Evaluation Manager. He helped me to know about there

Residential properties in Mumbai, prices of properties and actual Rise and Fall in

there properties. Here is a short summary of the conversation which I had with him

during the visit:-

Kalpataru has its projects all over the country like Mumbai, Jaipur, Hydrebad,

Nagpur and many more. It is involved in all kinds of real estate projects. The company is

present in luxury segment of residence. The company has its projects in all the micro

markets of Mumbai. It has completed lot of projects in South Mumbai and Mumbai

Suburbs. The demand, prices, supply, amenities etc. of kalpaturu varies from one place to

another, according to availability and requirement.

Kalpataru is company which has made its image in the minds of people through

many decades. The property prices of Kalpataru have witnessed a boom in the last

decade. But the crisis which has taken places has had far reaching affect on this company

also. The rates started falling from 15 to 20 percent in Mumbai properties of Kalpataru.

Sales started declining. Therefore property prices have to be reduces. More and more

marketing of properties had to be carried out. New offers, discounts etc. were given. New

strategies were also implemented to increase the sales.

They feel that property prices will now slowly stabilize and demand will also

recover and developers will start focusing on affordability housing to extend further into

suburbs. The government will also lay down favorable polices. Thus India will have very

bright future in this sector in this coming years.

Regency Group is synonymous for proving right blend of beautiful environment,

luxury and amenities. Recognized for all-inclusive excellence and incomparable levels of

architectural designs. Regency Group has received innumerable fame and respect in the

discipline of realty development. Regency groups’ commitment to excellence, attention

to detail and personalized support has shown an unmatched vertical growth alongside a

strong and loyal customer base. It has its properties in Mumbai:-

ONGOING UPCOMING COMPLETED

Regency Estate- Dombivili Regency Flora- Navi

Mumbai

Regency Garden- Kharghar

Regency Towers- Thane Regency Roseland-

Talegaon

Achievements

o An ISO 9001-2000 certification NQAQSR

o Best Designed and Informative stall in NMBA Property Exhibition, Vashi-2005

& 2006

o Best Designed stall in MCHI Property Exhibition, Thane- 2007

o Best Informative stall in MCHI Property Exhibition, Thane- 2008

o Best Designed stall in BANM Property Exhibition, Vashi- 2008

Regency Towers

Regency Towers is one of the popular Residential

Developments in Thane West neighbourhood of Mumbai. It

is among the well known Projects of Regency Group. The

landscape is beautiful with spacious Houses.

Regency Specification:-

3 Towers of Podium/ stilt + 22 storey

2 & 3 BHK Luxurious and spacious flats

Landscape garden with jogging tracks

State-of-the-art Clubhouse

Podium parking

Luxurious Amenities

A shopping Plaza

Rain Water Harvesting

Solar Systems

STP Plant

Regency Credits

1. Architect: Archetype Consultants (I) Pvt. Ltd.

2. Landscape consultants: Arun Kumar Landscape Architects Pvt. Ltd.

3. Electric Consultants: Bahulekar and Associates

4. Legal Advisor: Adv. Vishaw M. Kulkarni

5. RCC Consultants: B.S.Sukthanker & Associates

6. Plumbing Consultants: Sheetal Environs (India) Pvt. Ltd.

7. Vaastu Consultant: Dr. B. Arunkumar

8. Concrete Designer: Structural Designers & Consultants Pvt. Ltd.

9. STP & Rainwear consultant: Mungekar & Associates

10. Interior Designer: Deepak Narwani

During my visit to Regency Towers, Thane I had a talk to Mr. Vijay Sarode- Sales

Executive of Regency Towers. He helped me to know about the actual Rise and Fall

in there properties. Here is a short summary of the conversation which I had with

him during the visit:-

Regency group has its projects in Vashi, Kharghar, Dombivili and Thane. It deals

in all types of Real Estate Projects but mostly it is involved in Residential Market. It has

luxurious segment of Residential. Regency group has witnessed maximum sale during

Rise. More and more bookings.

Regency group did not have a far- reaching impact of Recession. The south

Mumbai Property of Regency Group has seen a maximum drop in property prices

amongst all the other properties. There is neither so much of fall nor rise in Property

Prices. The rates are standstill. The sale is average.

Regency Group is not using any type of marketing strategy during fall they have

only revised the property prices. They do not start the booking unless and until 90 percent

of construction is completed. Floor rise Rs. 30/- per sq.ft. from first floor. Car parking-

Rs.300,000 and club charges- Rs. 100,000 for 2 BHK and Rs. 1,25,000 for 3BHK.

According to Mr. Vijay to increase the demand and capture the market the

developers should stop the new projects and concentrate on already available projects

then there will be demand. This step should be undertaken to revive the real estate

demand.

During rise 4500

Current Price 3800

Conclusion

Mumbai due to its diversity and opportunity will always remain the hub of

India economic march ahead. Mumbai property market has witnessed a huge roller

coaster ride in the last decade. Rise in prices due to more and more migration of people

for employment, business, studies, etc. and also attraction of huge amount of foreign

direct investment and wealth creations. Favorable government policies and such

overwhelming demand have seen the property prices touch the roof. Then sudden

downturn in property prices because of US subprime crises leading to fall in property

prices allover Mumbai.

But now as the economy tries to get on its fest and the global financial

market recovers, Mumbai will be the first to benefit. Its inherent strength leads us to

believe that recovery is not very far.

India will have very bright future ahead in Real Estate as the growth of

population is tremendous and there will be need for more and more housing. There will

be no end to Real Estate Growth in this country

BIBLIOGRAPHY

1) Newspapers:

o Property Times

o DNA Newspaper

2) Magazines:

o Business World

o India Today

3) Others:

o Brouchers – Regency Towers., Nirmal Lifestyles and Kalpataru ltd

o MCHI Property Expo- 13th April, 2009

WIBLIOGRAPHY

o www.realestatemumbai.com

o www.recession.org

o www.knightfrankresearch.com

o www.mchi.com

o www.centrumresearch.com

o www.google.com

Abbreviations

Abstract Full Forms

FSI Floor Space Index

DCR Development Control Regulations

MCGM Municipal Corporation of Greater Mumbai

MMRDA Mumbai Metropolitan Region Development

Authority

CRZ Coastal Regulation Zone

MUTP Mumbai Urban Transport Project

MUIP Mumbai Urban Infrastructure Project

GOM Government of Maharashtra

CBD Commercial business district

MNC Multi National Corporation

PG Paying Guest

BSE Bombay Stock Exchange

NSE National Stock Exchange

GDP Gross Domestic Product

FDI Foreign Direct Investment

ARM Adjustable Rate Mortgages

US United States

RBI Reserve Bank Of India

BHK Bedroom, Hall, Kitchen

EMI Equal Monthly Installments

MCHI Maharastra Chamber of Housing Industry

Questionnaire

1) Name

2) Years of Experience in this industry

3) Currently working with which organization?

4) In which cities does your company have projects?

5) Is your company involved in constructing all kinds of real estate projects?

Residential Retail All of these

Commercial Hospitality

6) What segment of Residential is your company present?

Affordable Mid Market Luxury

7) How has the recession affected your company?

8) What kind of fall in property prices have you witnessed in your projects, if any?

9) What kind of marketing strategies your company is adopting during recession period?

10) What is your future outlook on the real estate market? Short term and long term

11) What are the projects that your company is undertaking?

12) According to you what steps need to be undertaken to revive the real estate demand?

THANKING YOU!