Fadnavis’s Plan To Release More Land For Mumbai Housing Faces Hurdles 

The Maharashtra government’s Mumbai Development Plan 2034 is headed in the right direction. By opening up 3,700 more hectares for development, including 2,400 for affordable housing, and by raising vertical limits for building in the island city and suburbs, it is focusing on the one thing that will drive growth and jobs: land supplies.

Under the plan, the floor space index (FSI) for residential housing in the suburbs rises to 2.5 from two, and from 1.33 to three in the island city. FSI for commercial real estate rises to five both in the island city and the suburbs.

In theory, this should bring down the land cost as a proportion of property prices, thus making all housing more affordable. However, there will be a gap between theory and practice. None of these efforts to increase land supplies will help if three more things are not done additionally: one is a simultaneous increase in public transport investment; another is a transparent and time-bound system for giving building permissions; and the third is a reduction in property-related taxes, including stamp duties. If these things don’t happen, the increase in land availability will be absorbed by speculators and building activity will not pick up in the near term.

Mumbai real estate prices are high despite a huge build-up of inventories. Unsold inventories are over 1.09 lakh units in Mumbai, and 2.6 lakh units in the Mumbai Metropolitan Region (MMR). A lot of the properties are owned by corrupt politicians and babus, who have a vested interest in not allowing prices to fall. Since they also control land releases and building permissions, property prices remain unaffordable despite lack of demand. Demand-supply theory has never been more challenged than in the Mumbai real estate market.

Resistance to falling prices may also come from lenders, who will have to recall loans or push up EMIs in case property values correct, and builders with large unsold inventory.

Politically, Chief Minister Devendra Fadnavis will have to convince his fellow politicians that falling values in some of their ill-gotten benami properties can be more than made up if the real estate sector booms, and thousands of new jobs are created as affordable housing takes off vertically. Also, for every builder or benami owner who loses from the price weakness, there will be those who gain as demand shifts to affordable housing.

But he has a tough sell.