Data Labs Report: Real Estate Demand In The Maximum City Has Been Shifting

The Economist called Mumbai 'The Minimum City', directly challenging Suketu's fabled expression - 'Maximum City' - for the commercial capital. This is an unfair judgment because Mumbai with its population of 1.84 crore is indeed the most affluent city in India. Mumbai contributes to 6 per cent of Indian GDP, and shelters less than 1.5 per cent of its population. Even 's slums are far more productive than the quaint villages its inhabitants left behind.

But, real estate in Mumbai is almost as expensive as real estate anywhere in the world. In some ways, then, Mumbai is, indeed, 'The Minimum City'. Mumbai's buildings can't reach the skies (though they should, for the city's growing residential needs) , its greenery is sparse and living spaces congested. In , the city of India's hopes in Mehta's celebrated book The Maximum City, infrastructure is minimal.

As a consequence, the demand for real estate in Mumbai has been shifting from its long-designated Central Business District of Island City to the Bandra Kurla Complex (BKC) , according to the latest report by the PropTiger Data Labs, the research-led big data arm of PropTiger.com.

Change in status of Island City The BKC has now become the de facto CBD of Mumbai. Corporations have moved to the Complex where the FSI in commercial areas is much higher, and the catchment area much larger. Major companies like the Standard Chartered Bank, Morgan Stanley, Deutsche Bank and Citi Group have moved north. This is true of ICICI, UBS and Morgan too.

The Data Labs report suggests that the upcoming infrastructural projects like Monorail, Metro phase-III, and Coastal Roads are likely to further accelerate this movement (1.1) .

1.1 New launches have come down in the Island City but prices remain the highest.

At the heart of this shift, there are two major challenges the city faces:

Mumbai has far less land at its disposal than the other major cities in the world. Mumbai's Central Business District, Nariman Point, is located at the southern tip of the Mumbai peninsula. Unlike in a city built in inland or on a straight coast, 66 per cent of the area within 25 kms from Nariman Point is covered by water. Cities located on a narrow peninsula face similar constraints. But, the constraints Mumbai faces in increasing its supply of valuable urban land are perhaps greater than that of any other major city in the world.

Even with such a low area at its disposal, Mumbai's built-up area within 25 kms from Nariman Point could have been much higher. But, this is not so and the Floor Area Ratio (FAR) is at the bottom of this. The Floor Index (FSI) values in major cities in the world bear some relationship to land prices. Urban planners know that if FSI values do not reflect land prices, residential and commercial property would become too expensive. Moreover, the public transport subsidised by local urban governments would be unsustainable if FSI values are not high in the CBD and surrounding areas.

In Mumbai, FSI was higher in lower income areas like Dharavi and lower in higher income areas like the Island City. In much of the Island City, the FSI was fixed at 1.33. But, in the Bandra complex, the FSI in commercial areas is 4. This is not true for other major cities where FSI is the highest in the CBD, and decreasing when the distance from the CBD increases. To understand what this means, see what Mumbai's spatial patterns are compared to similarly constrained global cities (1.2) .

1.2 Not a single global city has a spatial pattern similar to that of Mumbai. (Source: Alain Bertaud, Vision )

Steep residential prices: Old is gold

The Data Labs report, however, suggests that residential property prices are still the highest in the Island City. Understandably, real estate price patterns in a city would not change overnight. Nariman Point is still the de jure CBD of Mumbai. From 2008 to 2015, the weighted average BSP of residential units in the Island City has risen from Rs 19,936 per sq ft to Rs 30,290 per sq ft. This is a substantial rise, given that its position has been declining in the eyes of real estate investors.

Even though the highest capital values are still in the Island City, the Data Labs report suggests that the number of launches too have been declining over years. From 2008 to 2012, the number of residential units launched had risen from 444 to 4,014. But, since then, the Island City has lost its attractiveness for real estate developers launching residential projects (1.1) .

Residential real estate developers might have anticipated the changing spatial pattern in the Mumbai city. In 2013, the number of launches declined to 3,588. In 2014, it declined further to 2,282. But, even before this, the Island city saw limited number of launches. In 2012, the number of launches was 1,651. In 2011, it was 1,413 (1.3) .

1.3 Since 2012, the Island City has lost its attractiveness for real estate developers launching residential projects.

The decline is seen in the number of residential units sold in the Island city too. The sales have been declining consistently since the second quarter of the calendar year 2013. In Q2 CY 2013, the number of units sold were 819. In Q1 CY 2015, it had declined to 266. But, even in the fourth quarter of the calendar year 2014, sales was relatively higher, at 359. Many wealthy home buyers were reported to have bought properties in the emerging CBD. Aishwarya Rai and Kapoor had recently bought homes in the BKC. The banker Uday Kotak did too.

Declining Sales, Unsold Inventory

South for years enjoyed an unchallenged status in the eyes of movie stars and the wealthy in the city. The demand for residential property is the highest in Parel and Lower Parel, with Worli and Agripada just behind. So, unsold inventory has been rising steadily. In the Q2 CY 2013, the number of unsold inventory was 20. In every quarter since then, the unsold inventory lost, reaching 70 in Q1 C1 2015.

How does BKC compare to this? In Q2 2013, the weighted average BSP of apartment units in the BKC was merely Rs 24,708. In the Q4 2013, it rose significantly to Rs 39, 611. In the second quarter of 2015, the weighted average BSP of apartment units in the BKC rose to Rs 44, 779. The residential price appreciation in the BKC was unusually high, in such a short period of time.

What explains BKC's progress? The BKC became more attractive than the Island City, also because it is closer to centrally located areas like Bandra, Kurla, Mahim and Santa Cruz, and is merely 10-13 km far from the domestic and international airports. The population in the ten-kilometer radius from the BKC was many times higher than that of the population in the same distance from Nariman Point, even when the BKC was not the de facto CBD. But, the most important reason is perhaps that ports are no longer as commercially as significant as it once was. It is pointless to have Mumbai's CBD in the Island City where FSI levels are unsuitable for such a prosperous city.