This blog is written by Kaavya Sarin, a Second-year law student of SLS NOIDA

INTRODUCTION

“Urbanization is the inevitable outcome of the process of growth and the processes of modernization”. Mr. Manmohan Singh.

(Jaiswal, 2014)With growing demand and needs of human beings along with the substantive increase in earnings, the population tends to get attracted towards more developed areas hence it calls for urbanization. The very term coined by Ildefons Cerda in the process of describing a rational way or a new science of making cities.

(Business today , 2022)The rampant increase in this topic of discussion with burgeoning expected urbanization in India by 2047, wherein 50% percent of the population in India is expected to live in Urban Areas, (Urban Developemnt Overview, 2022)which calls for hefty investment in Urban Infrastructure, nearly 70 percent of the Urban Infrastructure needed by 2047 is yet to be built.

The influx of population in the city either due to work, migration, or social demand, arises needed for affordable housing which is a major aspect of the Real Estate sector hence the demand for real estate in India spans across residential, commercial, and industrial spaces, driven by urbanization and economic growth.

(Vision 2047, 2023)Real estate is one of the highly acknowledged sectors of the Indian Economy, with the second largest contribution in employment share after agriculture. Currently, (Indian Real Estate Industry, 2021)it contributes 7 percent to the GDP of India and it will grow expansion to the range of 10 -12 percent by the year 2025. (Economic Times, 2023) The market size or investment in this sector is expected to grow by $1 trillion by 2030.

(Anand)This dynamic evolution is propelled by factors such as globalization, urbanization, and liberalization, which collectively have shaped the sector's expansion and employment opportunities, especially in metropolitan areas like Delhi, Mumbai, and Kolkata.

However, (Ghar, 2024)the sector is not without its challenges. Urban dwellers often face significant issues related to the delivery and quality of housing. Delays in possession, inadequate infrastructure, and the delivery of compromised housing have led to widespread dissatisfaction among consumers. These issues highlight a critical need for greater transparency and efficiency in the housing sector.

(Chaturbedy, 2022)The analysis presented below is focused on the nitty grittiest of Real estate conflicting it with expected market growth around the word and rampant demand upheaval in metropolitan cities of India, specific focus on the housing/residential sector or aspect of real estate. The major problem addressed in this analysis is the real estate projects in the Mumbai region which is one of the cities inviting migration due to industrial development, hence directly impacting the demand for Accommodation facilities. To be more precise under the header of long-term planning the residential property or flat in the region but the demand-supply disparity based on various issues and major attributes behind this. Further, there are ways recommended to address this problem supported by certain insights for developers, allottees, and various stakeholders in this sector.

LITERATURE REVIEW

1. Rashmi Rani Anand (2022) In her paper titled ‘ISSUES AND CHALLENGES OF REAL ESTATE SECTOR WITH SPECIAL REFERENCE TO HOUSING: A CASE STUDY OF URBAN INDIA’ which is states that real estate sector is deeply intertwined with the corporate world, encompassing housing, retail, hospitality, and commercial developments. The landscape of real estate varies significantly between developed and developing countries due to differences in land availability, regulatory environments, economic conditions, and demographic factors. In India, the sector is expanding rapidly, driven by growth in the IT sector, multinational companies, and corporate firms. Increased income levels and flexible loan schemes have further boosted investments in housing.

Despite this growth, the sector faces significant challenges, including delays in possession, inadequate infrastructure, and inefficiencies that contribute to urban dissatisfaction. This paper examines these issues, focusing on the real estate sector's development in major Indian cities, particularly in housing. It highlights how the rapid urbanization and economic expansion in metropolitan areas like Mumbai have intensified challenges such as supply-demand imbalances, high property prices, and the proliferation of slums. Addressing these issues requires effective regulatory reforms, improved infrastructure, and enhanced efficiency to meet the growing housing needs and improve overall satisfaction among urban residents. The study underscores the need for strategic solutions to balance development and affordability in the real estate sector.

2. A. A. Abhyankar, (2018) In his paper CASE STUDY MUMBAI’s Real Estate Housing Prices Stubbornly High Despite Slumping Demand, " states a similar situation faced by Mumbai in 2018. The economic performance of a country directly impacts real estate dynamics, with recent economic issues causing a decline in demand, particularly in Mumbai’s residential sector. Absorption rates have stalled, leading to significant inventory overhang, yet prices remain high, defying microeconomic expectations of price adjustments with reduced demand. This stagnation highlights a disconnect between supply and demand in Mumbai, as outlined in the previous study, which identified delays and inefficiencies contributing to high housing costs. The persistence of high prices despite low demand underscores the need for improved regulatory frameworks and market adjustments to align with economic realities and enhance housing affordability.

3. Satya Ghar, (2022) in his paper AN ANALYSIS OF THE INDIAN REAL ESTATE SECTOR AND ITS IMPACT ON: THE ECONOMY OVER THE LAST FIVE YEARS. Provided an analysis of the real estate sector in India, crucial for employment and GDP growth, has been significantly impacted by urbanization, with the urban population growing by 2.4% annually. Recent research explores the sector’s performance, focusing on the interplay between e-commerce, commercial real estate, and the future of work-from-home practices post-COVID-19. Using a comparative and quantitative analysis approach, the study evaluates the effects of economic changes, including demonetization, GST, and the pandemic, on real estate dynamics. Despite these challenges, the sector is poised for substantial growth, with projections indicating it will reach a market size of USD 1 trillion by 2030

ISSUE /PROBLEM IN THE CASE

MUMBAI A CITY OF DREAMS

Real estate is still considered to be the best long-term investment in the market.

(Jamie Halsall, 2024)Mumbai, a city of dreams famously considered as financial capital of the country, with 45% of the area marked as urban and has the largest urban population in the country. It lies in the heart of Maharashtra with a population of 12.4 million as per the last census of 2011. The feet of urbanization could be traced back the past 60 years for which causes are multiple, but interestingly it involves a high involve of natural increase within Mumbai itself and in-migration from the surrounding districts of Maharashtra but the arms are not restricted to this the influx was visible from all round country, portraying vibrant economy of Mumbai where people came for job opportunities in expanding industries, financial institutions, and administration.

This calls for affordable homes for people, which, if not provided would end up living in unregulated slums.

URBANIZATION PROBLEM: HOUSING TO SLUMS

(Gandhi, 2021)In Mumbai, finding suitable and reasonably priced housing has proven to be a significant obstacle. The main cause of supply-side frictions in the official housing market is the strict laws controlling how much can be constructed, in addition to difficult procedures and hold-ups in obtaining essential permissions from the planning department. High housing costs could arise from this. costs and a sizable portion of the populace resides in slums in the cities. In Mumbai, slums are home to 42% of the population.

DEMAND INCREASING, PRICE SOARING

In 2024 Investors Summit recognized of Surge in Demand amidst price and Execution Risk in the Mumbai real Estate market.

The significant resurgence in demand is driven by a combination of economic recovery and pandemic lifestyle shifts, because major income growth in the country has been recognized by (‘Mumbai real estate market thrives amid end-user demand’, 2024)The Mumbai Metropolitan Region (MMR). The robust recovery of the MMR market, which leads India in real estate sales. Data from Anarock Group reveals a 31% year-on-year increase in sales across India's top seven cities for 2023, with MMR accounting for approximately 153,870 units sold.

However, the resurgence in demand may create a bubble in the market due to various factors associated with it.

BUBBLE IN HOUSING MARKET

(Wahab, A study on Indian Real Estate Market and Investment in Real estae, 2024)One of the primary concerns arising is the rapid increase in prices across the country. (NHB RESIDEX, 2023)According to data from the National Housing Bank, residential property prices in India increasing by an average of 10-12% on annual basis, surpassing income growth and inflation. (India Real Estate - A decade from now - 2024, 2024)Still the growth of the luxury projects attract customers so much that they invest in real estate market through different tools such as EMIs ,loans. In 2024, It was observed that there were the highest residential property sales in a decade, despite non-affordable housing.

(Mumbai and Delhi housing prices soar by 48% in five years as unsold inventory declines, 2024)Another contributor to concerns about a real estate bubble is the significant volume of unsold inventory in various markets. ( Prime Global Cities Index, 2023)As of December 2020, approximately 718,000 unsold housing units were reported in the top seven cities of India, this situation has prompted some analysts to question whether the current demand is sustainable and if developers will be able to sell their existing inventory.

LUXURY HOMES: PUSHING INCOME LIMIT

It was recognized, that while the demand for upscale homes is high, there are significant risks associated with price correction and project delivery. Builders have struggled with timely project completion and adherence to promised specifications in the past, and while prices have been stagnant for several years, corrections are not anticipated in the near future.

(Economic Times Report,2024). This calls for auctioning against speculative pricing. Warned of potential pitfalls related to builder-led subvention schemes, which could attract buyers who may struggle with long-term affordability. They are pushing their limits to buy the property by investing more in EMIs and bank loans

STALLED PROJECTS: MILLIONS OF INVESTMENTS

(RERA ANNUAL REPORT 2023, 2023)This is supported by various examples of stalled projects in the market, bringing the hefty investment of people at risk. 5,800 buildings have remained stalled for the past 18 years. Additionally, over a year ago, 125,922 families—totaling around 700,000 people—were forced to live on the streets in Mumbai city. This ultimately brings to risk the investment of middle-income people.

APPLICATION OF MICROECONOMIC CONCEPTS TO MUMBAI'S REAL ESTATE MARKET ISSUES

1. Supply and demand theory –

Demand Surge and Supply constraints

The upheaval in demand is driven by economic recovery and changes in lifestyle post covid which is substantiated by substantiated by data presented above. This high demand is driven by factors such as increased income and a desire for premium homes, showcasing the basic economic principle of demand and supply.

Supply-side constraint

However, the real estate market faces substantial supply-side constraints. Strict construction laws, complex procedures and delays in obtaining necessary permits restrict the amount of housing that can be developed. These constraints, lead to higher housing costs and contribute to the prevalence of slums, where 42% of Mumbai’s population resides. The high demand against limited supply resulted in inflated property prices and housing shortages.

2. Price Elasticity of Demand:

Price Elasticity of Demand:

The rapid increase in demand in residential property by 10 to 12 % on yearly basis, shows the low-price elasticity of demand in luxury segments.

Despite of high costs, the demand for homes remains strong, indicating that buyers are relatively insensitive to price increases when it comes to premium properties. This insensitivity suggests that luxury real estate operates in different market dynamics compared to more affordable housing segments.

Affordability Issues:

The growing gap between income growth and housing prices exacerbates affordability issues. As property prices surpass income growth and inflation, a significant portion of the population finds it increasingly difficult to afford housing. This is evident from the substantial number of people living in slums and the reliance on loans and EMIs to finance property purchases.

3. Market efficiency and speculation

Market Efficiency:

The unsold inventory suggests that despite strong demand there is inventory unsold thus a disparity between what is needed and what is available. This inefficiency could be due to overpricing, poor project execution, or a mismatch between the type of properties available and the needs of market.

Speculative Pricing

There is rise in prices, fueled by investor optimism and speculative purchases, risk creating a housing bubble. This is evident by builder-led subvention schemes which tend to attract buyers who are not prepared but still they spend on hefty projects.

FINDINGS:

Pestal Model Analysis

Political- The real estate sector in Mumbai is highly influenced by stringent construction laws and regulatory hurdles. The permitting process and offering clear guidelines cloud expedite approvals and reduce costs.

Economic- The market benefits from strong economic growth and rising incomes, driving housing demands. However, high property prices and inflation surpassing income growth create affordability challenges. Policies promoting affordable housing and favoring developers could address this issue.

Social- 42% of Mumbai’s population is living in slums. Increased investment in affordable housing and creation of REITS more allocation of government investment in REITS could help this social problem

Technological – The issue of stalled projects could be solved by advanced construction technologies and project management tools could enhance efficiency and reduce delays. Further, on promoters' front they should make the correct analysis driven by technology to introspect their income and investment capacity.

Environment - Urbanization and construction increase pollution and resource strain. Prioritizing sustainable building practices and green urban planning can help mitigate environmental impacts.

Legal: The sector faces challenges with project delays and compliance. Strengthening regulatory frameworks and enforcing real estate laws could improve project delivery and developer accountability.

CONCLUSION AND SUGGESTION:

“Investing in real estate isn't just acquiring property; it's granting yourself a new way of life”.

The analysis showcases that this problem of Mumbai Real Estate does not follow microeconomic theory of the demand-supply curve. To comply with that curve, the demand arises the prices should reduce hence the supply should be sufficient to suffice the demand.

Here, the price increased still the demand kept on rising and people pushing purchasing limits to invest in real estate. This deviation from the demand-supply curve is questionable for affordable housing. The swift growth of slums in Indian cities stems from a disparity between the booming urban job markets and a sluggish, costly, and inflexible housing market. A major factor contributing to high costs and delays is litigation.

Further, (Real Estate Regulatory Authority,2017, 25 March 2016)there should be a proper following of guidelines of forming an Escrow account which maintains 70% of amounts deposited by the allottee and it should be solely used for the construction of the projects. This ensures that funds are not misappropriated by developers and they do not exponentially result in ultimate indebtedness, effecting the end users. Government should contribute more on formation Real Estate investment trust for pooling of money what can be used for resolving issues regarding this sector.

Moreover, lucrative schemes and advertisements published by developers should verified by agencies before publishing so that middle-class society is not suffer under web of misapplications.

REFERENCES

(2023). Prime Global Cities Index. Knight Frank.

‘Mumbai real estate market thrives amid end-user demand’. (2024). Retrieved from Live Mint : https://www.livemint.com/industry/mumbai-real-estate-market-thrives-amid-end-user-demand-11711779486630.html

(2022). Business Standard.

(2022). Retrieved from Business today : https://www.business-standard.com/article/economy-policy/urbanisation-set-to-be-key-with-50-population-in-cities-by-2047-niti-ceo-122120800515_1.html

(2023). Retrieved from Economic Times: https://m.economictimes.com/news/economy/finance/real-estate-sector-to-touch-1-trillion-by-2030-kant/articleshow/87209359.cms

Anand, R. R. (n.d.). ISSUES AND CHALLENGES OF REAL ESTATE SECTOR WITH SPECIAL REFERENCE. Journal Of global Resources.

Chaturbedy, A. (2022). CHALLENGES ASSOCIATED WITH REAL ESTATE. Indian Journal of Law and Legal Research, 1-13.

Gandhi, S. (2021). Too slow for the urban march: Litigations and the real estate market in Mumbai, India. Journal of Urban economics.

Ghar, S. (2024). An analysis of real estate sector and its implication on economy for last five year.

(2024). India Real Estate - A decade from now - 2024. Knight Frank .

(2021). Indian Real Estate Industry. IBEF.

Jaiswal, N. (2014). Urbanization in India: An Impact Assessment. Google Schloar.

Jamie Halsall, K. S. (2024). Mumbai Urbanization. Reseach Gate.

Mumbai and Delhi housing prices soar by 48% in five years as unsold inventory declines. (2024). The Hindu .

(2023). NHB RESIDEX. National Housing Bank.

Real Estate Regulatory Authority,2017. (25 March 2016). India: Ministry of housing and urban Affairs.

(2023). RERA ANNUAL REPORT 2023. MAHA RERA.

(2022). Urban Developemnt Overview. world Bank.

(2023). Vision 2047. Knight Frank.

Wahab, A. (2024). A study on Indian Real Estate Market and Investment in Real estae. International Research Journal on advanced engenierring and management.

Wahab, A. (n.d.). A study on Indian real estate market and Investmnet in real estate . International Journal on advance Engeneering and management .