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Mumbai’s nearly trillion-dollar real estate market set to see greatest wealth erosion in history

The total value of all homes in the US is $33.6 trillion. An analysis by Zillow, a real estate database company, estimated that housing value in the US is 160 percent of the country’s GDP. The value of homes in New York alone is equal to the GDP of India.

It’s been on my mind for a while to do an exercise in valuing aggregate property in Mumbai. Given the limitations in India’s data gathering as well as the nature of the real estate business, it is not easy. However, that doesn’t mean an honest attempt can’t be made. For this, I rang up Uday Tharar to help me with a measured assessment. Tharar is an economist who keeps a hawkish eye on emerging markets.


A property owner is obligated to pay property tax. Different cities calculate property tax on different parameters. In the case of Mumbai, it is based on Capital Value through a formula established by the municipal corporation. It assigns weights to various parameters of the construction. The Capital Value is often much lower from the market value of the property. The annual property tax collection by the municipal corporation is Rs 5,000 crore.

There are significant leakages with regards to property tax collection in several cities of India. The reason is a lackluster assessment rate, poor collection efficiency and flawed property valuation techniques according to a High-powered Expert Committee Report set up by the Ministry of Urban Development in 2011. In a research paper titled “Financing India’s Urban Infrastructure: Current Practices and Reform Options” by Soumyadip Chattopadhyay in 2015, the author says that ‘almost 44 percent of the properties have been found to be outside the tax net.”

Defaults and disputes in payment of property tax are not uncommon. Recent reports suggest that the outstanding amount of property tax in Mumbai has risen to Rs 15,000 crore with over 70 percent pending due to disputes. Exemptions to certain institutions and individuals also exist.

It is no surprise then that property tax revenue in India as a percentage of GDP is less than half that of even developing countries.

Given these factors and benchmarks, it will be fair to say in an ideal environment – annual property tax revenues in Mumbai should be in the range of Rs 10,000 – 12,000 crore. Why am I doing this calculation? To determine the aggregate property value in Mumbai. The property tax amount is generally between 0.1 percent to 0.4 percent of property value – residential properties at the lower end of the range while commercial properties at the higher end of the range. At an average of 0.2 percent, that means Mumbai’s property value is between a whopping Rs 50 lakh crore to Rs 60 lakh crore ($667 billion to $800 billion). Assuming 80 percent of this amount is residential, that leads to a residential realty valuation alone of between $533 and $640 billion.


Today, everyone in the city, including many developers, no longer dispute that prices have fallen and are falling. Property prices have corrected between 10 to 15 percent since 2016. In premium products, the fall has been steeper. That implies Mumbai real estate has seen a wealth erosion of over $100 billion. By the time the market overcomes the worst of the COVID-19 crisis, it is not inconceivable that wealth erosion would have reached levels closer to $200 billion. Remember, as developers cut prices for their own projects – it brings down the valuation of nearby properties as well and impacts the wealth (notional) of home-owners as well.

Tharar believes the wealth erosion in real estate was overdue. He says, “Property demand always comes with a lag to income growth. Personal disposable income growth in India is trending down averaging a mere 10 percent per annum since 2015 (the year when property prices peaked) compared to average growth of 14 percent between 2005 and 2015. This is now being reflected in lower property demand, which in turn, determines property prices. The price correction is inevitable in such a scenario.”

Is there another way to measure Mumbai’s property value? Yes. Pankaj Kapoor, CEO of real estate advisory firm Liases Foras, has a different tool for measurement. With the use of satellite images that mapped all micro-markets of Mumbai on various parameters including proximity to the central business district, schools, open space, presence of premium brands, density etc – Kapoor established values to locations and corresponded it with Census 2011 data on the 23.6 lakh households staying there. His valuation of Mumbai residential real estate is $951 billion.

Whichever value one adopts, it is clear that the stakes in Mumbai real estate are very high. At a valuation of $800 billion, it is equivalent to 43 percent of India’s total stock market value and 29 percent of GDP. I don’t deny that real estate valuation in the commercial capital is inflated and needs to correct. But for a segment that comprises a large base of wealth, it is a shame that there is yet such inadequate data and information from the authorities.

Opacity in data and information may have helped Mumbai real estate overshoot on the upside previously. If not addressed – this time that same opacity will make Mumbai real estate overshoot on the downside and drive the greatest wealth erosion in the history of Indian real estate.

(When not busy with his newstoon platform Snapnews, Vishal Bhargava is a real estate enthusiast who views and reviews new projects. Views expressed here are personal)

June 30, 2020

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