Mumbai’s housing conundrum: Unsold houses, sky-high prices

6.48 lakh houses remained unsold across India's top seven cities in 2019, and Mumbai alone accounted for nearly a third of these. Yet scarcity of affordable housing pushes people further and further away from the city. What could explain this?

Huge unsold housing inventory across 35 cities in the country is one of the key reasons for the Great Indian Economic slowdown, according to former chief economic adviser Arvind Subramaniam. In a working paper titled “India’s great slowdown- What happened? What’s the way out?”, Arvind Subramaniam estimates that this vacant real estate inventory has locked up funds worth Rs 13 lakh crores, resulting in huge unpaid loans to banks.

“While developers could in principle tempt buyers by reducing prices, they couldn’t do that in practice because lower prices would have destroyed the (notional) value of the collateral that they pledged in order to secure their lending,” writes Subramaniam in his paper, which estimates that eight lakh crore rupees is locked in unsold housing inventory across just the top eight cities.

Mumbai alone accounts for nearly one third of this unsold inventory. Property consultants Anarock estimates that over 2,16,603 houses, mainly targeted at the higher income group, in the Mumbai Metropolitan Region remained unsold in 2019 out of the total 6.48 lakhs of unsold houses across India’s top seven cities. While this huge pile of unsold flats should ideally mean more supply to meet demand for housing in Mumbai city, the truth is it is not a simple supply-demand scenario. Builders prefer to keep them vacant and unsold rather than cut prices.

“Many builders have invested black money on their buildings and hence prefer to let the flats remain idle and unsold rather than reduce prices and benefit the public,” said Vidya Chavan, president of the Ghar Hakk Jagruti Charitable Manch and member of legislative council. “Because for them the black money was lying idle anyway and now it is lying invested and idle. Why would they want to reduce the flat rates?” The only losers here are the banks who lent them the money and now cannot get it back.

Low cost housing: A mirage

“There is a huge demand for low cost housing but no one is building them because builders don’t find it profitable enough,” said housing activist Vishwas Utagi of the Nivara Abhiyan. “They prefer to build for the luxury segment where returns are high. Builders have cornered huge tracts of land and jacked up the prices. Politicians end up working in tandem with the builders, (they do) not want to work for the common man.”

The Maharashtra Housing and Area Development Authority (MHADA), which was set up to provide affordable housing for all is no more able to build housing for lower income groups. In its most recent auction of flats, MHADA brought only 59 houses into the open market in their latest auction announced in December 2019. And with public housing drying up, the market is heavily dependent on the private sector which refuses to address the needs of the economically weaker sections living in the city.

“There are no affordable houses being built in Mumbai,” pointed out architect and housing activist Chandrashekhar Prabhu, former president of MHADA and adviser on housing to the Maharashtra government. “As per the international definition accepted by the United Nations and World Bank, affordable housing is one whose cost is equivalent to the cumulative earnings of a person for five years. How can the majority of Mumbai’s people, who earn about Rs 10,000-25,000 per month, afford a house costing Rs 25 lakh? Will even those who earn about Rs 40,000 per month be able to pay the EMIs for such housing loans?”

“About 65 lakh people stay in slums and many of them are educated,” added Chavan. “They continue to stay in slums with no proper drainage or sewage facilities because they are unable to afford new houses in the city which cost a minimum of about Rs 50 lakh and housing loans are complicated and not easy to get. Housing prices are so high that people aren’t able to buy houses with their own savings. Even rented houses are not easy to get these days. There is no land patch left in Mumbai for affordable housing and most slums are on illegal land. Those slums that do get developed into slum rehabilitation units built by the Slum Development Authority end up as inferior quality buildings that become unliveable in a few years’ time”.

The irony is that while on the one hand, home prices keep skyrocketing (Mumbai has the highest real estate rates in the country) forcing people to locate to distant and far flung suburbs, plenty of flats within the city limits continue to remain vacant. As it is, the per capita living space in Greater Mumbai is the lowest at 4 to 6 sq m and housing prices are inversely proportionate to the distance from the island city. This also tends to push people towards informal and illegal housing like slums.

About 79 % of people comprising 11,01,655 households in Mumbai city (27% in Mumbai Metropolitan region) stay in slums while 1.4 % of households continue to occupy 12 % of dilapidated housing in the form of cessed buildings and chawls as per the draft report of the Mumbai Metropolitan Regional Plan for 2016-2036, based on the 2011 Census.

Sold, but empty

Anuj Puri, chairman of Anarock property consultants attributes the lack of sales to low returns on investments “owing to lower job creation, lack of faith in under construction properties, unfavourable loan to value ratio, high taxes on under construction homes and a stagnant job market”.

Incidentally, it’s not only that flats are not getting sold, a sizeable proportion of flats that have been sold too are lying vacant. In fact, The Mumbai Metropolitan Regional Development Authority (MMRDA) found that only 64 % of housing stock in the entire Mumbai Metropolitan region (stretching from Mumbai city to Pen, Alibaug and beyond) is being used for residential purposes, with 14% of houses lying vacant and 21% used for non-residential purposes.

In its draft of the Mumbai Metropolitan Regional Plan for 2016-2036, MMRDA, the planning body of the regional around Mumbai, hinted at speculation as being the cause for housing units lying vacant. The report noted that 14% of houses in the region not available to the market indicated that speculative buyers had invested in these houses thereby causing a spiralling effect on real estate prices. “There is an active speculative market that is investing in real estate and creating substantial housing stock,” the report noted. It felt hitches in renting out these premises prevented them from becoming available for use.

The draft recommended government intervention to prevent speculation and make these vacant homes available for rent or sale. Like heavy taxation on vacant properties. The report also recommended that to encourage renting, regulations be simplified and incentives be given on taxation and utilities rates. The MMRDA report, which has been submitted for action to the state government, also sought government intervention to encourage the market to deliver medium-sized houses to help middle income households’ move from slums to formal housing. It also recommended setting up of a Rental Housing Agency to create housing stock for the economically weaker sections through various regulatory instruments and projects.

All this requires strong political will. In the absence of which, market forces have and will continue to literally blow away people’s aspirations for a decent home in Mumbai.

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