In 2021, the rent for a three-bedroom apartment in a posh Andheri building in Mumbai was Rs 77,000 per month; however, the monthly rent increased to Rs 1.14 lakh in 2023 as the city’s historic building rehabilitation project gained momentum. With additional redeveloped homes accessible, the monthly rents are approximately Rs 1.18 lakh.
The increase in the number of redevelopment projects in Mumbai has contributed to the city’s rental growth in recent years. The need for short-term rentals grew amid redevelopment projects, and tenants struggled to find properties in the same area due to limited availability. Real estate brokers and consultants suggest that this expansion seems to have slowed in 2024.
According to data from Zapkey.com research, "After growing by nearly 50-60% in the last two years between 2021-2023 – rental growth across premium gated societies in Mumbai has cooled down to 5-9% in 2024."
Sandeep Reddy, co-founder of Zapkey.com, stated, "An increase in society redevelopment was the primary driver of Mumbai’s massive rental growth in 2021-2023. In these societies, property owners were forced to rent short-term housing. The market’s mismatch between supply and demand caused rents to soar due to a rise in demand for rental properties. Demand was higher for premium gated societies."
Mr. Reddy noted that the rental income growth in 2024 should align with inflation, as the number of new redevelopment projects slows and more new projects are completed, increasing the supply of upscale gated communities.
The Impact on Western Suburbs’ Rents
The slowdown in rental growth has impacted areas such as Borivali, Malad, Goregaon, and Kandivali. The monthly rent for a 2BHK apartment in a prime location in Borivali was Rs 39,000 in 2021 and Rs 58,000 in 2023. According to data from Zapkey.com, a 2 BHK apartment in the same structure is available for Rs 65,000 per month in 2024.
A 3 BHK apartment in Malad East, conveniently situated near the metro station and the Western Express Highway, was available for rent at Rs 55,000 in 2021. The monthly rental rate climbed to Rs 85,000 in 2023 and Rs 87,000 in 2024.
In a similar vein, a large number of buildings in Central Mumbai's Matunga neighborhood were set to be renovated starting in 2021. Because many of them are either approaching possession or have already offered it, the market's supply has grown.
Harshul Salva, the managing partner of M Realty, which is active in the Matunga area of Central Mumbai, commented, "It all began in 2021 with a 50% reduction in premiums. There were more redevelopment projects as a result of this. A mismatch between supply and demand caused rentals to skyrocket as a result. There was a greater demand and a more constrained supply for rental apartments in 2021."
However, according to him, the buildings that started being renovated in 2021 are now being turned over incrementally in 2024. Monthly rates have decreased as a result of the increased availability of new housing.
Dhiren Doshi, a real estate consultant in Borivali, Mumbai, claims that demand for rental properties in the western suburbs differs from that of 2021, 2022, or 2023. Older buildings in neighborhoods like Shimpoli in Borivali West, close to Milap Talkies, and SV Road in Kandivali West, have now approached possession after being renovated three years ago.
Individuals in these areas are now giving landlords notice to vacate their rented flats. As a result of the change in the demand ratio, a supply surplus emerges in the market as demand shifts. Consequently, prices are stabilizing and, in some instances, declining, Doshi noted.
Why has the Mumbai Real Estate Market Seen an Increase in Redevelopment Activity?
Mumbai is home to more than ten thousand old, deteriorating buildings. The Maharashtra government's 2021 declaration that some premiums paid to authorities by developers would be completely waived gave the redevelopment of these ancient buildings a boost.
However, only developers who were prepared to pay the remaining 50% of the premium in advance were eligible to participate in this program.
How Do You Define Premium?
The term "premium" refers to the various levies imposed by the approving authority. These include the fungible premium, the premium paid for floor space index (FSI), the open space deficiency premium paid for more land covered for construction, and the premium for lobbies, lift wells, and staircases.
Developers in the Mumbai market are required to pay authorities more than 20 different types of premiums. Industry estimates place the amount that builders spend on premiums at between 30 and 35 percent of the project's budget.