Economics of finding a house in Mumbai

Mumbai is a great city to work. The city, spirit and honesty at most times (taxis/autos run strictly on meter) is remarkable. Most are professional at their jobs and is usually a no hassle free place. But you need a home where you could go and sleep and that is where problems begin.

Finding a house to live in Mumbai is perhaps one of the toughest task one can be given. (The toughest of course is trying to reach workplace and home in the local train!). 

There are 2 ways you can live in a house-

1. either you buy one or
2. you take one on rent.

1. Buy:  Just forget it, atleast in these times. (I have posted the reasons here).

Moreover, builders are getting extremely adventurous these days. There is something called “super built-up area” which means the area quoted to you. This does not mean that your apartment would be of that area. The builder charges you for additional space you use like the stairs etc. The usual difference between the two nowadays is 30-40%. This means :

a) Suppose the builder says the area is 1000 sq ft. So you pay 1000* the rate per square feet.
b) But the area you get to live in could be 600-700 sq. ft. So you pay 30-40% extra !! And when you complaint, the reason given is it is a standard.

2. On rent: As house prices increase, the rent has also been increasing. Moreover you can rent an apartment only for 11 months and for this the charges are:

a) The monthly rent (depends on the area)
b) Deposit (you need to submit a refundable deposit with the apartment owner for security reasons) – usually equal to 10 months rent. The deposit can be used by the owner for whatever purpose and you don’t get any interest. So in financial terms, you are worse off as your deposit would be of lower value after 11 months (because of inflation)
c) The Broker charges- you can’t find a house without a broker in Mumbai. They know the area well and help you find the desired house. The owners also have to pay the broker as he gets them a rentee. So, a broker takes money from both the sides which is fair as he is doing market making.

But his charges have increased from one month of rent you pay to 2 month rent. This means you actually pay for 13 months. There are number of brokers in an area and you should expect competition with some brokers offering lower charges and better services than others. But this is not the case. Instead, the charges have only increased over the years.

d) Other charges- Well, you wouldn’t find a nail inside most apartments which means all the stuff would have to be yours. So, add those expenses as well.

I don’t know what are the practices in other cities, and may be they are similar. But because of scarcity of homes here, the process is a lot difficult.

To address the rising prices many changes need to be done. But I think something can be done to make living more affordable in Mumbai as far as renting business goes. 2 suggestions:

1.  It is a great area for the companies to get into- house broking. This will help both the sides- the rentor and rentee. The competition would drive the broking fee down and would help both sides. It will also make the pricing more transparent. As of now, you just don’t know what is the right rent in the area. The industry would also become more organised and have better standards.

2. Another suggestion is to make buildings whose purpose is only to give apartments for rent. To buy a house is increasingly becoming a very costly preposition for those living in Mumbai. [A 2 bedroom apartment (It is usually called 2 BHK – 2 bedrooms, one hall and a kitchen; don’t be misled by the word hall, it could be smaller than the room J) costs Rs 50  lakhs plus in even the most far flung areas.] Mumbai invites huge migration because of opportunities and such options could be of great help. The person can simply walk into the office of the builder and check if there is any apartment available for rent. This would save brokerage costs as well. Some might argue that buildings with rented apartments are least maintained. Well, the builder can add a maintenance cost to the rent as well. I am sure most want to live in clean surroundings. The maintenance charge can be a fraction of the rent. This makes the pricing also more transparent.

10 Responses to “Economics of finding a house in Mumbai”

  1. How do economists think about cities? « Mostly Economics Says:

    […] question is if Mumbai becomes an IFC what extra choices would people have? Would it mean better housing conditions? Would it mean people have more and better transportation choices other than local […]

  2. What is driving the housing prices in Mumbai? « Mostly Economics Says:

    […] I have often cribbed about the numerous housing problems in Mumbai (here, here and here). I have been noticing quite a few things lately about the housing market in […]

  3. What if the apartment owner doesn’t pay-back the deposit ? « Mostly Economics Says:

    […] if the apartment owner doesn’t pay-back the deposit ? I had earlier written about the options one has to find a house in Mumbai. It is tough but one has to do the ordeal. […]

  4. Improving housing market practices via banks « Mostly Economics Says:

    […] feel duped all the time, but can’t do anything. Whether you take a house on rent or buy it ( See the economics of house-hunting in Mumbai), there are such huge transaction costs that you always […]

  5. Built up, super built up or plain loot? « Mostly Economics Says:

    […] had earlier pointed out to the economics of house in Mumbai. I thought things might improve after the ongoing crisis where realtors were the most effected. As […]

  6. apartment rent Says:

    I have just divorced from my wife and I have to find an apartment rent on a very short notice in bangalore. Anybody can suggest a luxury apartment rental complex near downtown?

  7. Gear Knobs Says:

    ..- I am really thankful to this topic because it really gives up to date information ~,~

  8. Falco Realestate Says:

    1BHK – Rs.15.08 lacs & 2 BHK – Rs. 23.99 lacs onwards
    At Falco Wolrd Kalyan (E)
    Mob: +91 90044 44700 / 90044 44713 / 90044 44716

  9. Buy flat in Mumbai Says:

    Yes I agree with that finding a house to live in Mumbai is perhaps one of the toughest task. But we are glad to you because your post is really helpful in it.

  10. Annie Scent Says:

    finding a house or any “apartment in Mumbai” for buy or rent purpose is the most exclusive or most expensive. because Mumbai is the city where property prices is much higher than the other city. so come to for an affordable apartment for all class of people.

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