Why are Mumbai rents so high?
Business
Urban India is a complex entity, full of contradictions. In Mumbai, the financial capital, rents (for a 1-bedroom studio apartment) can be as high as INR 40,000 and in Hyderabad, that can dip to INR 11,000.
Why this discrepancy?
And why should you care?
Let’s start by answering the second question first. As someone who is more than likely living away from home in India (40% of Mumbai’s residents are from outside Mumbai), a large proportion of your income is spent on rent each month. In Mumbai, that proportion is 50%. Yet, millions of people move to Mumbai every year for work and are plausibly okay with this trade-off between rent and savings.
Of course, part of it may be due to the sheer unavailability of any other option. Part of it might be due to that bias we’ve all heard of, the anchoring bias. When we make estimates in our minds, we always have an anchor point. In Mumbai, that simply happens to be a much higher one. A rent of INR 30,000 per month might seem absurd in Bangalore but completely normal in Mumbai. A Mumbai resident has embraced relativism – living in that bustling metropolis comes with a price. And maybe the price does not seem so hefty, when the highest possible rents in the city are used as a benchmark.
But why are Mumbai rents skyrocketing in the first place? The reasons are few, but interconnected.
1. No dearth of supply, just developers
Most of Mumbai’s land is under the purview of only 11-12 developers. This means that they can (and do) easily band together as a cartel to keep property rates high. High property rates lead to high rental rates, creating a vicious cycle that is hard to break. Any one developer is wary of lowering property rates, because the others might follow suit, setting in motion a price war where everyone loses. As is the case with classic game theory, nobody makes a move and in the end, the renter loses.
2. Shortage of all kinds of space
Mumbai is not land-locked but is surrounded by sea on three sides. This makes circular development extremely hard, and vertical development only slightly easier. Within a particular piece of land too, there are certain prerequisites with square footage (that have been around since the 1950s), that limit expansion beyond a point. Thus ensues a simple supply-demand equation, where a shortage of space leads to a hike in rents.
3. Age old policies still in place
The real estate market in India is still guided by rates that were put in place over sixty years ago. These have not changed to reflect current times. In fact, ready reckoner rates are consistently increased by the government year-on-year, simply because they mean more revenue. This results in a spillover effect, and once again, it is the renter who bears the brunt of it. Rents in Mumbai are high due to simple supply-demand economics, but also due to policies that have not been altered to remain in-tune with the times we live in. But residents of Mumbai seemed to have reached a status quo, where these rents have been accepted as a harsh reality that cannot be changed.
COVID was just a temporary blip
The recent two-year long pandemic also has not altered the situation drastically – a dip in rents has proved to be ephemeral at best, and rents have rebounded to original rates in 2021. It remains to be seen whether this changes as work models become hybrid and staying in Mumbai is no longer a necessity, but a luxury.
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