_Mumbai - homes getting smaller

It is always understood that to buy a home in Mumbai one has to stretch beyond comfortable means. Mumbai therefore is synonymous to high real estate prices.

The average residential price in the Mumbai Metropolitan Region (MMR) is one of the highest in India. Prices here also increase exponentially as we move from north to south.

Although residents of Mumbai on an average earn more, their position in the housing Affordability Index is the worst amongst the top 8 cities of India.

As per Knight Frank’s Affordability Index, the ratio of average house prices to average annual household income for Mumbai is 7.2. Ideally the ratio should be 4.5 or less, making it one of the main reasons for slower residential sales in MMR. 

In order to bring the apartment prices closer to the affordability threshold, developers have 2 levers at their discretion – chargeable price per square feet and size of apartment.

Developers constructing apartments in the MMR region cite higher land cost, construction and compliance cost as the reason for higher real estate prices. Unanimously, developers have moved to building smaller homes not compromising on the per square foot value of the property.

Over the past few years, developers across MMR have been reducing size of apartments to bring the apartment price closer to the affordability benchmark.

The average size of apartments in new launches across MMR has shrunk by 25% over a 5-year period between 2014 and 2018. The quantum of reduction is higher in the more expensive BMC regions. The peripheral markets are still relatively affordable in terms of pricing; hence, the quantum of shrinkage is lower.

Apartments launched during 2018 in South Mumbai, Central Mumbai, Central and Western Suburbs were smaller by 52%, 41%, 36% and 25%, as compared to launches in these markets during 2014. If a 2 BHK apartment in MMR had a carpet area of 74.32 sq m (800 sq ft) in 2014, now the 2 BHK apartment in a new project in 2018 would be less than 55.7 sq m (600sq ft).

In Thane, Peripheral Central and Western suburbs, apartments are smaller by 22%, 21% and 22%. Currently, in certain markets (BMC region), a buyer can get a 2 BHK flat in the Western and Central Suburbs at the price of a 2 BHK available in the peripheral suburbs; however, the size would be smaller. 

The strategy has been working in favour of Affordability and while Mumbai remains poor in terms of actual costs of homes, has demonstrated maximum improvement going down from 11 times annual household income in 2010 to 7 times in 2018. We feel that this trend will continue with developers making smaller homes to keep overall prices affordable.

Market forces eventually take care of any asymmetries and imbalances pushing developers to be more realistic. Unless apartment prices correct meaningfully, or income levels go up multifold in a short span of time, houses will still not be affordable for the masses. Step in compact homes!