The dynamics of apartment sizes point towards falling affordability levels.
Over the last five years,Greater Mumbai has seen a significant fall in the average sizes of residential apartments in the investible-grade category. Thane and Navi Mumbai,which along with Mumbai form the Mumbai Metropolitan Region (MMR),too witnessed a fall in apartment sizes,although to a limited extent.
With Delhi-NCR too exhibiting the same trend,this appears to be a phenomenon of the larger metro cities. Other cities such as Bangalore,Chennai,Pune,Hyderabad and Kolkata have,in fact seen a varying rise in median apartment sizes. The dynamics of apartment sizes has a tale to tell a tale about affordability and development of the residential sector across cities.
In 2008,apartment sizes in Greater Mumbai were,on average,20 per cent larger than those observed on a pan-India level. The median size of apartments across the country at that time was close to 1,600 square feet. While this number continues to remain more or less the same in most other cities,unit sizes in Mumbai have drastically reduced and are currently 15 per cent lower than the national median size.
This is a fall of approximately 31 per cent from 2008. NCR in the same time frame saw a drop of 14 per cent in apartment sizes while Pune saw an increase in apartment sizes by 23 per cent. Thane and Navi Mumbai witnessed apartment size reduction of 17 per cent and 18 per cent respectively.
The fall in apartment sizes in Thane and Navi Mumbai has been less severe as compared to the trend seen in the Mumbai residential real estate market. It would be reasonable to assume that the rising levels of affluence in the city would yield a preference for larger apartment sizes. Why has that not been the case? While a major part of the fall seems gradual,a closer look at some sharp variations during the last 4-5 years could possibly help understand this trend better.
The average unit size of investible-grade apartments in Mumbai,Navi Mumbai and Thane witnessed a sharp fall in 2009. Many would argue that this was the after-effect of recession that hit the world – and India – in mid-2008. However,it is pertinent to note that typically,construction of investible-grade apartments takes a minimum of three years before completion.
This means that developers would have been required to anticipate the unfolding of a recessionary period at least by 2006 to have started constructing smaller-sized apartment projects that would see completion in 2009. This seems highly unlikely. Could it have had nothing to do with recession at all?
Certainly,the prediction of a recession with enough accuracy to warrant radically altered investment and construction plans is not a plausible explanation. Rather,the decision to launch projects with smaller-sized units could be a result of the meteoric rise in apartment prices during previous years.
As per JLL Real Estate Intelligence Services data,the period of 2005-07 saw an astronomic rise of 110 per cent in residential property prices across the MMR. In Greater Mumbai alone,the figure was close to 120 per cent on a simple average growth basis.
With Mumbai already being the costliest city in India,such steep escalations in capital values definitely challenged affordability. At the same time,the more reasonable prices in Thane and Navi Mumbai did not present such hurdle to saleability. It appears that developers perceived the need to reduce apartment sizes in order to maintain a comfortable level of affordability.
Contrary to popular opinions on the issue,it emerges that developers have indeed had concerns about the sustained affordability of residential real estate in and around Mumbai. One must not forget that developers receive real-time feedback from property buyers,and are therefore quite informed about matters such as affordability and preferences.
While property prices are not purely a product of developers discretion,the decision to alter apartment sizes as per the needs and spending power of buyers is definitely within their ambit. It will be interesting to see what the lowest possible limit to this fall in apartment sizes is before it entirely breaches preferences of home buyers in Mumbai.
The author is COO – Business,Jones Lang LaSalle India