The real estate market in India is becoming increasingly severe. In 2018, housing prices in Mumbai fell for two consecutive years. During the same period, five out of the eight major cities in India experienced a decline in housing prices.
As early as 2010, housing prices in Mumbai entered the top ten in the world, with prices around 59,800 RMB per square meter, far exceeding those in Beijing, Shanghai, and Guangzhou. In 1975, a 300 square meter apartment was priced at over 600,000 rupees (100,000 RMB), while today, that same property is valued at 360 million rupees (60 million RMB). Over 40 years, it has increased by 600 times. For an average wage earner, it would take nearly 300 years of work to afford a luxury home in Mumbai.
From 2014 to 2016, the housing price-to-income ratio in Mumbai soared, ranking second in Asia. Many are surprised by what has driven the explosive growth of housing prices in Mumbai. The primary reason is the extremely high population density. As India’s largest coastal port city, Mumbai is the financial and entertainment center of India, similar to Shanghai in China. It provides 10% of all jobs in India, 40% of foreign trade volume, 40% of income tax revenue, and 60% of customs duties.
Stimulated by the economy, a large population has flocked to Mumbai. In Forbes' 2018 list of the top 20 most densely populated cities in the world, Mumbai ranked first, with a population density of 29,650 people per square kilometer, far exceeding Shenzhen's 17,150 people per square kilometer, which ranked fifth. With the surge in urban population, housing prices in Mumbai naturally rose. Additionally, the presence of numerous "slums" is also a factor contributing to high housing prices in Mumbai. The Dharavi slum alone covers an area of 1.75 square kilometers and is known as the second largest slum in the world and the largest in Asia.
Due to land ownership laws, India cannot arbitrarily demolish these slums. Mumbai is limited in size, and the slums reduce the amount of land available for development. With less land, there are fewer residential properties on the market, which naturally drives up housing prices. In the context of rapid economic and urban development, the combination of a large population and limited land is a major factor pushing up housing prices in India.
India's three major measures to curb housing prices show results
India has implemented three major measures to curb housing prices. First, it imposes high service taxes on real estate transactions to combat speculation. Second, it prohibits developers from pre-selling properties; homes must be completed before they can be sold, and developers are required to deposit 70% of project funds into a designated bank account, forcing them to lower prices to alleviate cash flow pressures. Third, the demonetization policy eliminated high denomination currency notes that accounted for 85% of the cash in circulation. Since many wealthy buyers in India prefer cash transactions, the demonetization implemented at the end of 2016 led to a sharp decline in real estate transaction volumes. In 2017, housing prices in Mumbai experienced their first significant drop in a decade, continuing to decline last year.