MUMBAI DECLINE WHO’S TO BLAME?
History thrives on stories of cities that shone like beacons in their prime, only to be eclipsed by time and rivals. From the splendour of Babylon and Athens to the enduring legacy of Rome and London, each once soared to dazzling heights before bowing to the inevitable churn of progress. Today, as the winds of change sweep through India’s urban landscape, Mumbai—once the nation’s unchallenged crown jewel—stands at crossroads, its once-dominant brilliance now shadowed by the glow of younger, faster cities. For decades, Mumbai dazzled as the “City of Dreams.” Its skyscrapers reached skyward, a testament to its ambition, while its streets brimmed with an unmatched pulse—raw, relentless, and alive. Here was a city where success felt inevitable. But success is always with consequences. As Mumbai grew, its infrastructure buckled under the weight of its triumph. Skyrocketing real estate prices, overcrowding, and increasing inequality turned the city’s promise into a daily grind for many. And while Mumbai wrestled with these challenges, other cities—Hyderabad, Bengaluru, and Delhi—emerged, sleek and ambitious, ready to rewrite growth rules.
Story by Titto Eapen
Mumbai’s dominance is no longer unquestioned. While its GDP has grown steadily over the past two decades, the blistering pace of growth in cities like Hyderabad, Bengaluru, and Delhi has exposed a widening gap, raising a pressing question: has Mumbai fallen behind?
The disparities are striking. Hyderabad outpaced Mumbai by 5434 percent in overall growth. While Delhi and Bengaluru growth with that of Mumbai is 2750 percent and 1667
percent respectively. The numbers illustrate a redistribution of economic power, one where Mumbai is no longer the leader but a city that is falling behind.
For decades, Mumbai was India’s crown jewel—a city synonymous with ambition, opportunity, and unparalleled growth. Its status as the nation’s financial capital seemed
unassailable, and its booming economy set the benchmark for urban prosperity. Yet today, as cities like Hyderabad, Bengaluru, and Delhi surge ahead, the data tells a story Mumbai would rather not hear: the city that once led the race is now struggling to keep pace.
A Tale of Staggering GDP Growth
The numbers reveal a dramatic shift in India’s urban economic landscape. Between 2000 and 2023, Mumbai’s GDP grew from $19 billion to $310 billion—a 20X increase, or an overall growth of 1967 percent. These figures are significant in isolation, showcasing a city that has continued to expand and thrive.
But when compared to the meteoric rise of its challengers, Mumbai’s growth appears modest:
Hyderabad: From $1 billion in 2000 to $75 billion in 2023—a 75X increase and a staggering 7400 percent overall growth.
Delhi: From $6 billion to $294 billion—a 49X increase, or 4717 percent overall growth.
Bengaluru: From $7 billion to $260 billion—a 37X increase, or 3633 percent overall growth.
Mumbai’s GDP Connection with Housing
Mumbai’s slower GDP growth compared to Bengaluru and Hyderabad reflects a troubling interplay between economic performance and its housing market. Rising rents, shrinking housing sizes, and stagnant incomes are creating a city that is increasingly unaffordable for its workforce, eroding its competitiveness as an economic hub.
The numbers are stark. The average rent for a 1BHK in Mumbai stands at ₹43,138, more than double Bengaluru’s ₹19,228 and Delhi-NCR’s ₹19,058. Over the last decade, housing sizes in Mumbai have also decreased from 450-500 sq ft to just 325 sq ft, meaning residents are paying more for significantly less. This imbalance hits both ends of the economic spectrum—skilled white-collar professionals and the labor class—forcing many to migrate to cities offering better value or settle in slums.
The result is a talent drain and increasing economic inequality, which directly impacts Mumbai’s ability to attract and retain businesses. The city’s high cost of living, compounded by overburdened infrastructure, is stifling growth.
AVERAGE MONTHLY RENTALS
The Exodus of Skilled Professionals
Mumbai, once the ultimate destination for skilled professionals and ambitious dreamers, is increasingly being abandoned by the very people who have helped fuel its economic engine. The soaring cost of living, particularly housing, is driving talented individuals to cities like Bengaluru and Delhi, where a better quality of life comes at a fraction of the cost. For people like Kajol Pathak, a 29-year-old IT professional, the decision to leave Mumbai was both practical and emotional.
“It’s Just Not Sustainable”
“I was paying ₹42,000 a month for a 1BHK in Andheri, and by the end of the month, I had nothing left for savings,” Kajol recalls. “In Bengaluru, I pay half that amount for a 2BHK and save more than I ever could in Mumbai.” Kajol’s story is far from unique. Professionals across industries find it increasingly difficult to justify staying in Mumbai when other cities offer a better financial and personal balance.
A recent report by Urban Acres for CREDAI-MCHI has shed light on a growing concern for Mumbai’s workforce: the steep cost of housing. The study reveals that a mid-level professional earning ₹15.07 lakh annually in Mumbai spends nearly 50 percent of their income on rent for a modest 2BHK apartment. In stark contrast, their counterparts in Bengaluru or Delhi spend only 25–30 percent of their income on housing, allowing for greater financial flexibility and savings. This affordability gap is becoming a critical factor for skilled IT, marketing, and finance professionals, prompting many to reconsider Mumbai as a sustainable option.
Beyond the Numbers: The Emotional Strain
“It’s not just about saving money,” Kajol explains. “It’s about having the breathing space to think about your future.” This sense of relief is echoed by others who have made the move. Bengaluru, often celebrated for its vibrant tech scene and lower cost of living, offers professionals like Kajol the ability to plan ahead, whether for a home purchase, vacations, or simply building a financial cushion.
Even high-earning professionals are not immune to Mumbai’s exorbitant costs. Ramesh Iyer, a 42-year-old marketing executive with an annual salary of ₹34 lakh, shares a similar struggle. Despite earning what many would consider a dream income, Ramesh finds himself financially constrained. “I pay ₹1.2 lakh per month for a 3BHK in Powai,” he explains. “It’s a nice place, but when I see my colleagues in Bengaluru taking vacations and buying new cars and homes, I realise how little my money gets me here.” For professionals like Ramesh, deciding to stay in Mumbai often comes with trade-offs. The prestige of living in the city and proximity to work may outweigh the financial challenges, but this balance is becoming harder to maintain.
A Broader Trend of Migration
This exodus isn’t confined to the IT sector. Mumbai’s high cost of living increasingly affects professionals across industries, particularly those in mid-level roles. The inability to stretch their income has led to a noticeable talent migration to cities like Bengaluru, Hyderabad, and Pune, where salaries are comparable but expenses are significantly lower.
In these cities, professionals can afford larger homes, better lifestyles, and more disposable income to invest in their futures. Additionally, the rise of remote work has made it easier for professionals to relocate without sacrificing career growth, further accelerating the trend.
Mumbai’s status as India’s financial and cultural capital has always come with a price tag. But as other cities modernise and offer more competitive living standards, the foundation of Mumbai’s allure—its magnetic pull for ambitious professionals—is under threat. The city’s high housing costs and relentless pace of life make it harder for individuals to build sustainable futures here. The question is whether Mumbai can adapt to retain its talent or risk losing its edge to more affordable and liveable urban centres.
The Human Cost of Loving Mumbai
Mumbai has always been a city of dreams, but for those who choose to stay, the price is often steep—physically, emotionally, and financially. For Shashi Lokhre, a 29-year-old graphic designer, the dream comes at the cost of a four-hour daily commute from Badlapur to Lower Parel. Living so far from the city centre is the only way he can afford rent, paying ₹10,000 a month for a home where he lives with his wife and two children. “By the time I get home, my kids are asleep,” Shashi says, weary from the grind that leaves no room for personal growth or family time.
Even Mumbai’s middle class finds itself stretched thin. Mohan Gawde, a 38-year-old accountant in Kandivali, earns ₹7.8 lakh annually but spends ₹38,000 monthly on rent for a small flat. “We skip vacations and put off buying even small things,” he admits. For Mohan, life in Mumbai means constant compromises, with little financial freedom despite his respectable salary.
For the city’s working class, the struggle is even more stark. Salim Sheikh, an Uber driver earning ₹18,000–₹20,000 a month, lives with his family in a 150 sq ft room in Dharavi, Asia’s largest slum. “I tried renting a proper apartment, but ₹20,000 a month is impossible,” he explains. Poor sanitation, overcrowding, and scarce clean water define his daily reality, but leaving Mumbai isn’t an option. “This city is my breadwinner,” he says. “If I leave, I lose everything.”
This exodus of talent and the simultaneous influx of unskilled labour is reshaping Mumbai. Urban economist Dilip Nair, a faculty of Mumbai University, warns of the dangers ahead: “Mumbai is losing its thinkers and gaining strugglers. Unskilled labourers are replacing the city’s skilled workforce in the informal economy. This imbalance weakens Mumbai’s economic core and strains its already overstretched infrastructure.”
Mumbai’s housing crisis and rising costs have left it at crossroads. While professionals leave to seek better opportunities elsewhere, the city’s unskilled labour force struggles to survive. If Mumbai cannot address its housing affordability, it risks losing not just its dreamers but the very essence of what made it the “City of Dreams.”
Mumbai’s Real Estate Paradox
Mumbai’s real estate market, its greatest strength, is also becoming its Achilles’ heel. With property prices averaging ₹33,000 per sq ft—three times higher than Bengaluru and more than double that of Delhi—the city’s unaffordable real estate is reshaping its economy, workforce, and identity. Owning a home in Mumbai has always been an aspiration, a marker of success. But for many, this dream is slipping further out of reach. For middle-class professionals, the average housing cost is prohibitively high. A two-bedroom apartment in a decent neighbourhood can cost upwards of ₹2 crore, while luxury homes in areas like Malabar Hill or Worli are priced at over ₹80,000 per sq ft—figures that dwarf even Lutyens Delhi.
It’s not just residents who are feeling the pinch. Mumbai’s commercial real estate market is equally unforgiving. The cost of renting office space averages ₹250 per sq ft per month, making it one of the most expensive in the world. These costs are untenable for startups, SMEs, and even established firms. This pressure is reshaping India’s business geography. Companies are increasingly choosing Bengaluru, where office rents average ₹95.5 per sq ft, or even Hyderabad, where real estate costs are significantly lower. The result is a migration of talent and innovation away from Mumbai, weakening its position as the country’s economic powerhouse.
As CEO of a mid-sized tech firm, Sanjay Rao recently remarked, “The numbers simply didn’t add up for us in Mumbai. Moving to Bengaluru allowed us to reduce costs and reinvest in growth. It was a strategic decision, but it felt like leaving behind a part of our identity.” The ripple effects of Mumbai’s real estate paradox extend far beyond its borders. High property prices and rents aren’t just an economic challenge—they’re a brake on the city’s growth. Businesses burdened by operational costs are less likely to expand or innovate. Residents with shrinking disposable incomes spend less on goods and services, curbing local economic activity.
Urban economists warn of a vicious cycle: high costs drive out talent and investment, reducing Mumbai’s competitiveness and leading to slower growth. As Dilip Nair puts it, “Mumbai is pricing itself out of relevance. The talent and capital it is losing to other cities could have been the engine of its next phase of growth.”
Structural Challenges
Mumbai’s real estate woes aren’t just a market issue— they’re deeply rooted in structural inefficiencies. Land acquisition costs are among the highest in the world, driven by limited availability and high demand. Add to this the regulatory complexities: delays in approvals,
exorbitant government premiums, and an opaque development framework. These factors inflate costs and discourage developers from undertaking affordable housing projects.
This system makes real estate development in Mumbai irrationally expensive,” adds Vijay
Lakhani. “We’re effectively penalised for building in the financial capital, and the costs
are ultimately passed on to the buyers.” The cascading effect of these premiums creates
a ripple that impacts the end consumers. Unable to absorb the steep costs, developers
transfer the burden to homebuyers, resulting in prohibitively high property prices. In upscale localities of Mumbai, premiums often exceed construction costs, driving up the price of housing to unaffordable levels.
The exorbitant costs imposed on developers are not only discouraging affordable housing but also making Mumbai increasingly unattractive for investment in core sectors.
Mumbai’s developers pay an astronomical average of `50,000 to `60,000 per sq mt in approval costs under various premiums, dwarfing the costs in other cities.
Vijay Lakhani, a prominent developer, explains,
“The economics of building affordable housing in Mumbai just don’t work. Developers are forced to focus on luxury projects to recover costs, but the demand is overwhelmingly in the mid-income segment. It’s a mismatch that’s hurting everyone.”
These costs, combined with the city’s 36 distinct premiums—ranging from Floor Space Index (FSI) to staircases and lobbies—are unparalleled in Mumbai. By contrast, developers in Bengaluru pay only 10 types of premiums, Delhi 5, and Hyderabad just 3. This disproportionate burden places Mumbai at a severe disadvantage, both for developers and prospective homebuyers. Premiums in Mumbai account for nearly a third of a developer’s total project costs, making real estate projects in the city excessively capital-intensive.
What exacerbates the problem is that these premiums are charged at the initial stages of the project cycle, a time when capital inflows are yet to stabilise. “This system makes real estate development in Mumbai irrationally expensive,” adds Vijay Lakhani. “We’re effectively penalised for building in the financial capital, and the costs are ultimately passed on to the buyers.” The cascading effect of these premiums creates a ripple that impacts the end consumers. Unable to absorb the steep costs, developers transfer the burden to homebuyers, resulting in prohibitively high property prices. In upscale localities of Mumbai, premiums often exceed construction costs, driving up the price of housing to unaffordable levels.
For Every 1BHK Sold in Mumbai, the Government Earns ₹50 Lakh
The city’s housing crisis isn’t just about high land costs or insatiable demand—it’s a direct consequence of an overwhelming taxation and premium regime that drives up prices. According to Niranjan Hiranandani, “Today, if you buy a home in Mumbai, up to 50 per cent of your money goes to the government through various taxes, charges, and stamp duty.” He also criticised the government’s practice of inflating ready reckoner rates, which set the minimum price for property transactions, making it nearly impossible for developers to offer homes at lower prices. “If I sell a home below the inflated rates, I get penalised by the Income Tax Department,” he added.
Let’s break down this complex system and analyse why industry leaders like Niranjan Hiranandani, Boman Irani, and others believe these policies are unsustainable.
The ₹50-70 Lakh Tax Burden
Real estate costs can seem complicated, so lets simplify them for a better understanding. Imagine a plot of land in Mumbai with the following characteristics
Assumptions 
Plot Area
The land available for the project is 25,000 sq ft. Think of this as the starting base—the raw area the developer owns.
FSI (Floor Space Index)
The FSI is a government-mandated rule determining the total amount of construction that can be done on a given plot. For this project, let’s assume it’s a redevelopment project, and the developers obtain a maximum FSI of 4, which means the developer can construct four times the area of the plot.
Niranjan Hiranandani, one of India’s leading real estate magnates, has recently raised concerns about the hurdles making affordable housing in Mumbai a distant dream. Speaking on the issue, Hiranandani pointed to excessive government taxation, inflated ready reckoner rates, and bureaucratic inefficiencies as the main factors driving up housing prices, leaving developers unable to deliver affordable homes.
“Today, if you buy a home in Mumbai, up to 50 per cent of your money goes to the government through various taxes, charges, and stamp duty,” Hiranandani stated. He also criticised the government’s practice of inflating ready reckoner rates, which set the minimum price for property transactions, making it nearly impossible for developers to offer homes at lower prices. “If I sell a home below the inflated rates, I get penalised by the Income Tax Department,” he added.
Additionally, he emphasised that the ease of doing business in the real estate sector needs to be improved due to a lack of coordination between various government ministries and departments, leading to project delays and inflated costs. “Affordable housing is simply not possible under these circumstances,” Hiranandani concluded, calling for urgent reforms in taxation, regulations, and infrastructure planning to make housing accessible for all.
Boman Irani highlighted the critical role of government support in fostering growth within the real estate sector. While recognising the necessity of government revenue, he emphasised the need for a more equitable approach to premiums and development charges.
“The government requires funds to operate, which is understandable. However, the current charges are overly burdensome,” Irani noted. He pointed to the positive impact of reduced premiums and stamp duty during the pandemic, catalysing market growth. “When stamp duties were reduced to 2 percent and 3 percent, sales saw a significant uptick. It wasn’t a substantial concession, but it gave consumers a tangible incentive, greatly influencing their decision-making.”
Irani expanded on the affordability challenges, particularly the impact of high development premiums and additional levies, such as the 1 percent metro cess, disproportionately affecting homebuyers. “Why impose additional taxes solely on those purchasing new homes? Everyone contributes to taxes and will benefit from the metro. At the very least, consumers deserve some consideration through reduced premiums and stamp duty. Such measures would encourage further development and promote widespread prosperity.”
Irani concluded with a call to action: “To ensure sustained growth and prosperity for all stakeholders, we must simplify, rationalise, and reduce the charges imposed on the real estate sector. Such a move would accelerate development and generate greater revenue for the government in the long term.”
Sales Component (Sellable Area)
Since it’s a redevelopment project, certain components go back to the tenants or landlords. Let’s assume only 75 percent of the total constructed area is sellable. This includes residential units, shops, or offices that the developer can sell to buyers. The remaining 25 percent is usually given to the landlord or society as part of redevelopment agreements.
Understanding Real Estate Economics Through Pizza A Simplified Analogy
Imagine building a real estate project as baking a pizza— it’s all about the ingredients, layers, and how you divide and price the final product. Let’s break it down
The Dough: The Foundation of Every Project Just like a pizza starts with the dough, a real estate project begins with the plot of land. For instance, take a 25,000 sq ft plot—this is the base on which the entire project is built.
The Layers: Maximising Space with FSI Floor Space Index (FSI) is like the toppings you can add to the base. With an FSI of 4, developers can construct four times the area of the plot. That’s 100,000 sq ft of buildable space layered on top of the 25,000 sq ft base.
Slices You Can Sell: Allocating the Built Space However, not all the space in the project is for sale. Think of the 100,000 sq ft as the entire pizza, but only 75 percent of it—75,000 sq ft—is available to sell as slices. The remaining 25,000 sq ft is given away as common areas or reserved for the society, just like the crust or edges you don’t sell but need for structure.
Price Per Slice: Earning a Profit Each slice, or 1 sq ft of the buildable area, is sold for 30,000. This price includes the cost of making the pizza—the land acquisition, construction expenses, and premiums paid— and some profit for the baker, or in this case, the developer.
Nayan Shah expressed deep concerns about the current state of the Mumbai Metropolitan Region (MMR) real estate market, emphasizing the crippling impact of high premiums and associated costs on the region’s competitiveness. He pointed out that these factors affect developers and contribute to significant economic and social challenges.
“One of the primary reasons why the MMR market is struggling today is its inability to compete with other real estate markets across India. The exorbitant premiums and high costs associated with development have created a domino effect, driving lakh of jobs away from Maharashtra and MMR to other regions. Companies and individuals are finding it increasingly unsustainable to operate here, leading to a migration of talent, businesses, and opportunities to cities that offer more affordable and conducive environments.”
Shah highlighted that the need for more affordability in the region deters new businesses and workers and poses a long-term threat to Mumbai’s position as an economic powerhouse. “People are simply not coming to work in Maharashtra or MMR because of the high cost of living and doing business here. If this continues unchecked, it will erode the region’s competitive edge, and we risk losing even more ground to other cities aggressively positioning themselves as more attractive destinations for investment and growth.”
He urged the government to rethink its approach to premiums and development charges, proposing a more sustainable and forward-thinking model. “The government needs to consider innovative mechanisms like annuity-based models for premiums, which would distribute the financial burden over a longer period rather than demanding upfront payments. This approach would make development significantly more affordable, encourage new projects, and increase supply and demand in the market. Ultimately, this would benefit all stakeholders, from developers to end-users, while boosting the local economy.”
Stamp Duty on Development Agreement
For the Tax analysis, we consider an average-sized 500-sq ft
one-bedroom apartment priced at `1.5 crore and a 650-sq ft
two-bedroom apartment priced at `1.95 crore.
Understanding Stamp Duty on Redevelopment Agreements in Simple Terms
When a developer takes on a redevelopment project, they must pay the government a 1 percent stamp duty to register the agreement. This cost is calculated based on the sales area (the part of the project the developer plans to sell) and the ready reckoner rate per square foot. The stamp duty is an upfront cost that developers eventually pass on to
homebuyers.
Breaking It Down for a 1 BHK
Sales Area
Developers plan to sell 75,000 sq ft of space in the project.
Ready Reckoner Rate Per Sq Ft
Each square foot is priced at ₹30,000.
This is the total amount the developer pays the government just to register the redevelopment agreement.
Cost Passed to Buyers
The developer spreads this cost across the 75,000 sq ft of
sellable area, adding `300 per sq ft
Premiums and Affordability in Real Estate
Dhaval Ajmera shared his insights on the impact of high premiums, particularly in Mumbai, and how it affects project viability and affordability. “Premiums in Mumbai are significantly higher compared to other cities like Bengaluru or Chennai. For example, if I have a 10,000 sq. ft. plot in Mumbai, I can build 30,000 sq. ft. of space, but I have to pay a premium for 20,000 sq. ft., which is linked to the ready reckoner rates.”
Ajmera explained that these premiums inflate project costs and, in turn, selling prices. “In Bengaluru, developers can build the same 30,000 sq. ft. without paying additional premiums, making projects more affordable. In Mumbai, the high premiums create a significant financial burden, especially with the city’s high land costs.”
Reflecting on the pandemic era, Ajmera highlighted the benefits of reduced premiums. “When the government of Maharashtra slashed premiums by 50 percent during COVID, we saw a wave of projects that became viable and moved forward. This helped developers complete projects and boosted overall market activity.”
Ajmera urged the government to consider a more permanent rationalization of premiums. “The demand for real estate, especially in Mumbai with its incredible infrastructure, will only improve with the right pricing and premium adjustments. Rationalizing premiums would enhance affordability and drive demand and growth in the sector.”
Understanding Labour Cess and Its Impact on Home Prices
Labour cess is a 1 percent tax charged on the entire constructed area of a project. The funds collected are meant to support worker welfare programs. While this is a good initiative, the cost is ultimately passed on to buyers, making homes more expensive.
How Labour Cess Works in a Redevelopment Project
Constructed Area
Developers can construct 1,00,000 sq ft on the plot using the full Floor Space Index (FSI).
Rate Per Square Foot
The average rate of construction is `30,000 per sq ft, which includes land costs, construction, and other charges.
Labour Cess Calculation
Labour cess is 1 percent of the constructed area’s total value:
Cost Passed to Buyers
Since developers recover this cost through the 75,000 sq ft sales component, the additional cost per sq ft is 400 per sq ft
Simplified Explanation for Buyers
Imagine the government asking the developer to pay `3 crore as a labour welfare charge for the entire project. To recover this, the developer distributes the cost among all buyers. If you’re buying a 1 BHK (500 sq ft), then you are indirectly paying a labour cess of `2 lakh. For a 2 BHK (650 sq ft), this increases to `2.6 lakh. While the labour cess is intended to support workers, its structure pushes additional costs onto buyers, further inflating home prices. This is yet another layer of expense that makes housing in Mumbai increasingly unaffordable.
Government’s Role in Real Estate Development
Sachin Mirani highlighted the significant role the government now plays in real estate development, noting that it has evolved from being a partner to a major stakeholder in the sector. “Frankly, the government is no longer just our partner; they are now major stakeholders. For every premium, GST, and stamp duty we pay, the government’s profit from our projects is at least seven times more than what we, as developers, earn. While this is the reality, I believe the real challenge is not these charges themselves, but how effectively the funds collected are utilised.”
Mirani urged the government to prioritise critical infrastructure development, which directly impacts the quality and feasibility of real estate projects. “We request the government to focus more on major facilities such as drainage, water supply, transport, and road development. The funds collected through development charges, metro fees, labour charges, and premiums should be transparently and effectively channelled into building world-class infrastructure that benefits towns and cities alike.”
He also stressed the interconnected nature of government-led infrastructure improvements and private development. “The better the infrastructure the government develops—metros, water supply systems, or drainage—the better projects we can deliver. This would allow us to create more value for our buyers and generate higher revenue for the government through enhanced project outcomes.”
Addressing taxation, Mirani called for a rationalisation of stamp duty and GST policies to ease the financial burden on buyers. “The current GST rate is fixed at 5 percent, but it offers no input credit, which is a significant concern. Additionally, the stamp duty has increased to 7 percent, up from its earlier rate of 5 percent. The buyer eventually bears these costs, pushing up the price of homes or offices significantly. We request the government reconsider and reduce stamp duty to a more affordable level, benefiting developers and buyers alike.”
Premiums & Various Approval
In Mumbai, roughly 20 percent of the total development cost for a real estate project goes into government premiums. These premiums are mandatory payments developers must
make to get construction approvals and to use the maximum potential of the land through additional Floor Space Index (FSI) and other permissions. Here’s how it works:
Breaking Down the 20 percent Premium
Constructed Area and Project Value:
Let’s consider a project with the following assumptions:
Constructed Area: 1,00,000 sq ft (allowed by applying FSI to
a 25,000 sq ft plot with an FSI of 4).
Rate per Sq Ft: `30,000 (Ready Reckoner rate, which
represents the minimum market value set by the
government).
Government Premium (20 percent)
The government charges roughly 20 percent of the project value
for various permissions, primarily for additional FSI utilization,
open space deficiencies, and common area permissions.
Impact on Home Buyers
The 20 percent premium paid to the government inflates the cost of construction for developers and, ultimately, the price buyers pay for a home. Here’s a simplified breakdown for a 1 BHK (500 sq ft) and 2 BHK (650 sq ft).This means `30–`40 lakh of the cost for each home is directly attributable to government through various premiums.
Balancing Costs for Sustainable Real Estate Development
Zaheer Memon highlighted the shifting cost structures in Mumbai’s real estate projects, with premiums now taking precedence over construction costs. “A few years ago, the highest expense for developers was construction costs. Today, building premiums have taken a significant share, directly impacting project feasibility.”
Memon noted that while additional FSI benefits both developers and buyers, the associated premiums are prohibitively high. “These premiums, linked to the ready reckoner rates, are substantial and must be paid upfront to secure project approvals. This adds financial stress and drives up the end product’s price.”
He stressed that year-on-year hikes in ready reckoner rates exacerbate this issue, making housing less affordable. “The increased costs inevitably get passed on to the end-user, making homes more expensive. A balanced approach to premiums and reckoner rates is essential to maintain affordability and support sustainable growth in Mumbai’s real estate market.”
GST on Construction
Developers pay 18 percent GST on construction materials and labour, a cost passed on to buyers. The need for input tax credits for developers further exacerbates the problem Breaking Down the 20 percent Premium
GST on Under-Construction Properties
Buyers of under-construction homes pay an additional 5 percent GST, calculated on the total purchase price.
Stamp Duty, Registration Fees, and Metro Cess
The final set of charges includes stamp duty (5 percent), registration fees (1 percent), and metro cess (1 percent), adding a combined 7 percent to the cost.
Keval Valambhia, COO, of CREDAI-MCHI
The Urban Planner proposed a pragmatic solution to tackle this challenge: temporarily
reducing premiums. “Imagine if this `54,000 was reduced by 50 percent for two years.
What would happen? Real estate is an open market, and prices would drop immediately. If I continue to charge the original amount to my customers, but the developer next door passes on the benefit of the reduced premium, they will gain momentum in sales. This natural market correction will make properties more affordable
Advocating for this measure, Valambhia pointed to the success of a similar initiative
during the COVID pandemic. “During COVID, following CREDAI-MCHI’s representations,
the government implemented a 50 percent reduction in premiums. The result was
unprecedented. On average, BMC earns around `4,500 crore annually in premiums
and approval charges from the real estate sector. That year, this figure quadrupled
to `12,000 crore. And this doesn’t even include contributions from MMRDA, SRA,
MHADA, or other urban local bodies in the MMR region.
Why Reform is Critical
Premiums Must Be Rationalised
Premiums are the single largest contributor to inflated costs. A 50 percent reduction could cut costs by `15 lakh for a 1 BHK and `19.5 lakh for a 2 BHK.
GST Needs Structural Reform
The lack of input tax credits results in cascading costs. Allowing developers to claim credits could save buyers `720 per sq ft.
Stamp Duty: A Missed Opportunity
The COVID-era reduction in stamp duty proved that lower rates drive demand. Permanently reducing stamp duty to 2-3 percent could benefit both buyers and the government.
A Broken System in Need of Repair
The government’s share of housing costs—50 lakh for a 1 BHK and 70 lakh for a 2 BHK—is a glaring indictment of Mumbai’s taxation model. Industry leaders unanimously call for reforms, and the numbers validate their concerns. Until these changes are implemented, the dream of owning a home in Mumbai will remain just that—a dream deferred.
Addressing Mumbai’s high premium regime is not just about reducing costs; it’s about rethinking the entire framework to create a conducive environment for development and affordability. Experts and stakeholders suggest several steps:
-
Rationalise Premiums
Streamlining the number of premiums from 36 to 6, similar to cities like Bengaluru and Hyderabad, would immediately reduce costs.
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Stage-Wise Premium Payments
Allowing developers to pay premiums in phases aligned with the project cycle would ease the capital burden and improve cash flow.
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Tax Incentives for Affordable Housing
The government could introduce tax breaks for developers focused on affordable housing, encouraging more projects in this segment.
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Public-Private Collaboration
Partnerships between the government and developers could reduce costs, increase transparency, and ensure faster approvals.
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Reduce Government Share in Housing Costs
Reducing the government’s revenue share in each housing unit could make homes more affordable and increase demand.
Mumbai’s real estate sector is at a crossroads. While lucrative for government coffers, the city’s high premium regime is stalling development, driving up costs, and alienating developers and homebuyers. Without immediate reforms, Mumbai risks losing its appeal as a hub for growth, talent, and investment. Will Mumbai’s policymakers take bold steps to correct this imbalance, or will the city continue to price itself out of reach for its residents and businesses?
For Mumbai to thrive, the answer cannot wait.
About The Author
Titto Eapen is an accomplished entrepreneur, neourbanist, editor and brand strategist with a strong background in Business and Political Journalism and Strategic Consultancy. He is the Founder and Chief Editor of Urban Acres, a leading think tank dedicated to advancing the urban built environment through innovative insights and solutions. Titto also heads Media Guardians, a 360-degree branding agency known for delivering impactful, tailored
strategies across industries. Additionally, through Brand Acres, he focuses on real estate turnarounds, bringing expertise in revitalizing projects to drive growth and resilience. His work seamlessly integrates strategic thinking, urban development, and creative storytelling.
Titto Eapen
Founder & MD
Urban Acres
