E Rohan, a resident of Malad West, has been searching for a 1 BHK in Evershine Nagar where his family could live for the next three years, as his current residence in an old building in the same suburb is likely to undergo redevelopment soon. Finding a suitable home is becoming a challenge due to the significant disparity between the amount the developer has offered him for temporary accommodation and actual real estate rentals.

Rohan said that after hard negotiations with the developer, he agreed to raise the rent from ₹20,000 to ₹22,000 per month. He is considering apartments that are about 100 square feet smaller than the one he occupied before, even with the updated amount. I will have to pay an extra ₹5,000 out of pocket for a 430-square-foot apartment in Mumbai.

E Rohan’s situation exemplifies a substantial increase in rents in the Mumbai Metropolitan Region, attributable to a surge in redevelopment projects. While builders offer an annual increase of between 5-10% in rentals, it still falls short for consumers.

Redevelopment is Business, Not Charity

No one is giving to charities. According to Abhishek Kiran Gupta, CEO and co-founder of CRE Matrix and IndexTap.com, a prop-tech platform, a developer also pays corpus, gives away extra space after the building is renovated, provides new amenities, and offers compensatory rental, among other things. Between 2020 and 2024, Mumbai's housing rental market saw an overall increase of about 14%.

A simple calculation shows that a developer's annual outlay will be ₹60,000 per person if he matches the current market rental by paying an extra ₹5,000. The additional burden on a builder will amount to lakhs when multiplied by the number of apartments being redeveloped.

Reason For The Rise In Rentals

Pankaj Kapoor, managing director of Liases Foras, a real estate research and rating company, stated that this phenomenon stems from two primary factors: the after-effects of the Covid-19 pandemic and the surge of redevelopment projects.

There are over 2,000 buildings at various stages of redevelopment in Mumbai, predominantly located in the western suburbs, with more set to be added to the list soon. Industry players that HT spoke with indicated that the redevelopment upswing will be sustained for the next five years, during which time the upward trend in rentals will continue, as most displaced families, original residents, and commercial establishments will seek premises on lease.

In the months of the lockdown, rentals fell by as much as 50% to 60%. The salaried population in tier-2 and tier-3 cities continued to work from home after restrictions were removed. Demand increased as businesses started calling their workers back to work, Kapoor said, adding that the current state of the market can be attributed to a correction to earlier levels in comparison to the rents that were in place in 2020.

According to Gupta, redevelopment has become profitable since the government loosened FSI and updated development control regulations following the pandemic. As a result, about fifty buildings are being rebuilt in a prestigious Santacruz West suburb. In places like Borivali, Mulund, Khar, Bandra, Chembur, Kurla, etc., the situation is comparable. More than half of the three- to four-story buildings in Borivali's IC Colony are either undergoing renovations or the owners are negotiating with builders.

"In the past few years, Bandra West (Pali Naka, Carter Road, Mount Mary, Rizvi Complex, Hill Road) and Khar have seen a sharp increase in rental prices; never before have so many buildings undergone redevelopment at the same time," stated Arshad Khan, a property consultant in Bandra.

A studio apartment in Bandra West is being offered for ₹50,000 after renting for ₹25,000 to ₹30,000 a few years ago. In the same suburb, the rent for a one-bedroom apartment has also skyrocketed from ₹50,000 to about ₹75,000. "Owners are getting any price they quote because there aren't enough accommodations," Khan said.

As a result, the rental yield - the percentage of an apartment or commercial unit's value that represents the return on investment when a property is leased-has increased. "Traditionally, the yield on a residential property was between 1.5 and 2%; today, it has more than doubled," Gupta stated, acknowledging that the salaried class can no longer afford Mumbai real estate.

The following statistics from 99acres.com demonstrate this: The eastern suburbs' Vidyavihar has a 9% rental yield, followed by Jogeshwari and Govandi, both of which have 7% yields. Kurla, Dadar East, and Borivali command an average of 6%. The affordable and mid-segment housing societies are where these returns are evaluated.

The rental yield in premium neighborhoods like Worli, Tardeo, Cumbala Hill, Khar, and Bandra East is 5%, which is lower than that of mid-segment and affordable homes.

According to data from the Anarock Group for 2021–2024, average monthly rentals in Chembur and Mulund increased by 42% and 29%, respectively. "An opportunity for investors who are looking for long-term capital appreciation, while rental-focused investors must look to invest in localities where rents are rising steadily," stated Anuj Puri, chairman of the company, about the growth story.

To Rent or Buy?

Since Chembur is close to her place of employment, Sarayu Menon has lived there for the past four years. She paid ₹21,000 a month to rent a one-bedroom apartment back in 2021. She was forced to search for an apartment in an old building without any amenities, such as a lift, after the rent was increased to ₹24,000 in 2024. "Rentals in recently renovated buildings are expensive. I am playing in an old building, and the rent for a 2BHK near the station is ₹75,000 a month. We constantly worry that the building will be redeveloped at any moment," Menon said.

The demand and increase in rents are also influenced by the delays in redevelopment projects. Sheldon Pinto, a resident of Kurla East, left his one-room kitchen apartment in an old building in 2016 after the developer started charging ₹19,000 a month. "I had to pay the additional amount out of pocket because the builder failed to account for the required 5% increase in the annual rent. I paid ₹25,000 for a two-bedroom apartment, which cost me ₹6,000 a month," he said. After three years, he wisely decided to purchase a two-bedroom apartment in Kamothe, Navi Mumbai, for which he now pays ₹20,000 a month in EMIs. "I can call this a home at least," Pinto remarked.