Mumbai's unaffordable housing

Recently, we decided to go apartment shopping. We were looking for a 3 bedroom in the suburbs. It started by checking out the various websites. We now have several websites that provide housing ads and information online. The 3 we checked were www.makaan.com, www.magicbricks.com and www.99acres.com.

And this in when we got our first shock Housing prices seemed to have gone through the roof. Even in suburban areas which were in the middle of nowhere and not very convenient. In most places the rates were upwards of Rs. 10,000 per square foot. And the housing market was not happy with just that. This was per square foot of what they creatively called “Sell-able Area”. And this was in most cases 50% higher than the actual carpet area. What this meant is if you were getting 1000 square feet of carpet or usable area, the sell-able area would be depending on the builders between 1500 and 1700. And then you would be expected to pay an additional Rs. 500,000 – 800,000 per parking. A small 3 bed room apartment ended up by costing more than Rs. 20 million (US$ 450,000). And this was even before you started doing it up.

What is strange is that the prices are not only not reducing, they seem to be on an upward trend. What I find difficult to understand, is who exactly can afford these apartments. All of these are middle class neighborhood. And the current salary structure of middle class India, just does not seem to allow for affordability of any of these places. So it begs the question, Who exactly are purchasing these apartments ? And where does all this money come from. It definitely cannot be the ubiquitous Indian middle class.

However, the rental market is extremely affordable. You could get a Rs. 20 million apartment for rent at as little as Rs. 30,000 per month. These houses have an outgoing or monthly maintenance fees upwards of Rs. 5000. This means that the realizations is just Rs. 300,000 annually or 1.5%. So the only way it makes sense to purchase a house is if you expect the asset value to significantly appreciate. Else, renting wins.

However, the biggest issue with renting is emotional. Most people, especially Indians love assets. It gives us a sense of security. That’s why Indians are the largest consumers of Gold and now I guess, real estate.

Now that I had concluded that unless I win a lottery, I wasn’t going to be able to afford a house in Mumbai, I decided to look elsewhere. 

And guess what. I’ve realized that I can afford not only an apartment but even a nice house, with its own garage and basement and garden. Close to the station and buses. A couple of blocks from shopping malls, great schools. 15 – 20 minutes travel from the city. Great neighborhood. Great parks, awesome area, and everything phenomenal.

Just 1 small problem. The city, New York.