Mumbai real estate: As redeveloped apartments hit the market, will rental growth in the city start to cool off?

A 3 BHK in a premium building in Andheri area of Mumbai was available for a monthly rent of ₹77,000 in 2021, which went up to ₹1.14 lakh in 2023 as redevelopment of old buildings in Mumbai picked up pace. Rents are currently hovering around ₹1.18 lakh per month due to increase in supply of redeveloped homes in the city.

In the last few years, the surge in rental growth in Mumbai was driven by an increase in the number of redevelopment projects. Rental demand went up with several old buildings going in for redevelopment. Property owners of such buildings required temporary rental accommodation which was difficult to get in the same area as supply was limited. However, this growth seems to have tapered off in 2024, according to real estate consultants and brokers.

"Rental growth across premium gated societies in Mumbai has cooled down to 5-9% in 2024 after a growth of almost 50-60% in the last two years between 2021-23," according to data shared by Zapkey.com research.

"The massive surge in rental growth in the period 2021-23 in Mumbai was driven by an increase in redevelopment of societies. Property owners in these societies were compelled to take up temporary accommodation on rent. This increase in demand for rental units led to a demand-supply mismatch in the market forcing rents to shoot up. Demand was higher for premium gated societies," said Sandeep Reddy, co-founder of Zapkey.com

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The rental growth in 2024 is benign and in line with inflation given that the growth in new redevelopment projects has slowed down and also the number of new projects getting completed has increased leading to higher supply of premium gated societies, Reddy added.

Rents in western suburbs impacted

The gradual slowing down of rental growth has impacted areas such as Borivali, Malad, Kandivali and Goregaon. A 2 BHK apartment in a premium building of Borivali was available for a monthly rent of ₹39,000 in 2021 and went up to ₹58,000 in 2023. However, in 2024, that same building has 2 BHK apartments being offered for a monthly rent of ₹65,000, according to research data shared by Zapkey.com.

A 3 BHK apartment in Malad East along the Western Express Highway near the Metro station was available on rent for ₹55,000 per month in 2021. This went up to ₹85,000 per month in 2023, and in 2024 the rentals were at ₹87,000 per month.

Similarly, in Central Mumbai's Matunga area, many buildings were taken up for redevelopment in 2021. These are now nearing possession or have offered possession due to which supply has increased in the market.

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"It all started in 2021 when premiums were cut by 50%. This triggered an increase in redevelopment projects. This led to rentals hitting the roof as there was demand and supply mismatch. There was more demand for rented apartments in 2021, and less or limited supply. But now in 2024, the buildings that were under redevelopment in 2021, are gradually being handed over. The increase in new housing supply has led to monthly rents getting rationalised," said Harshul Savla, managing partner, M Realty, that is active in Matunga area of Central Mumbai.

In 2024, it is clear that rental accommodation demand in western suburbs is not the same as that of 2023, 2022 or 2021. Old buildings that went under redevelopment three years ago have now neared possession in areas like Shimpoli in Borivali west, near Milap Talkies, SV Road in Kandivali west, said Dhiren Doshi, a property consultant based in Mumbai's Borivali.

"Due to this, residents in these surrounding areas have started giving notices to flat owners for vacating the rented apartments. This is leading to excess supply coming in the market where demand is not the same as earlier and prices are gradually getting rationalised and even going down in a few places as the demand ratio is getting corrected," Doshi added.

Why did redevelopment activity increase in the Mumbai real estate market?

There are more than 10,000 old and dilapidated buildings in Mumbai. Redevelopment of these old buildings received a boost in 2021 after the Maharashtra government announced a waiver of 50% towards various premiums paid by developers to the authorities. However, this scheme was applicable for developers who were willing to pay the balance 50% premium upfront.

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What is a premium?

Premium refers to multiple charges levied by the authority for granting approvals. These include the fungible premium, premium paid for FSI (floor space index), open space deficiency premium, premium paid for more ground covered for construction, lobbies, lift wells, staircase premium among others.

In the Mumbai market there are more than 20 types of premium paid by developers to the authorities. According to sectoral estimates, roughly around 30% to 35% of the project cost for developers is attributable to premiums.

Also Read: Does redevelopment of old buildings impact housing prices and rentals in Mumbai?