Maximum city, minimum returns: Is it time to rethink your investment in Mumbai property?

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For example, a typical 2BHK flat in Powai costing Rs 2.5 crore normally generates a monthly rent of Rs 45,000, or Rs 5.4 lakh annually, which works out to a yield of 2.16 percent.

When adjusted for property tax, maintenance charges, brokerage, and void periods (when properties are unoccupied between tenancies), the yield goes down below 1.8 percent — lower than inflation and much lower than returns provided by other asset classes.

On the other hand, Real Estate Investment Trusts (REITs), which have become increasingly popular with investors over the past few years, now provide dividend yields of 6 to 7 percent (Mindspace 5.83 percent, and Brookfield 7.04 percent).

REITs provide access to cash-generating commercial realty that’s professionally managed and offers liquidity and transparency. They afford investors the opportunity to enjoy monthly income (and capital growth) without having to deal with property management, risk of tenant default, and regulatory issues. For investors wanting real estate exposure from purely a returns perspective, REITs offer a more efficient and diversified option than owning a residential unit in Mumbai.

However, even with the yield disadvantage, most homeowners in Mumbai hesitate to sell. The emotional value of property ownership often outweighs purely monetary considerations. This is particularly the case with inherited homes or those associated with significant life events — marriage, childbirth, or career milestones.

There is also a strong inclination to view residential property as a legacy asset to be passed down to children, or as a future residence for non-resident Indians considering a return. In many cases, this long-term emotional attachment outweighs short-term rental inefficiencies, especially when the property is debt-free and held without the pressure of optimising returns.

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That said, Mumbai’s property market is not entirely stagnant. In recent years we’ve seen a revival in certain micro-markets because of infrastructure development. ANAROCK data reveals that the Mumbai Metropolitan Region saw average residential prices increase 7 to 9 percent in 2024, led by mega-infrastructure spends such as the Coastal Road, the growing metro rail system, and the upcoming Navi Mumbai international airport.

Redevelopment of older structures, notably in the inner parts of Mumbai as well as sections of the western suburbs, is tapping into new demand, attracting both end-users and investors. This is infusing new hope into parts of Chembur, Sion, Mulund, and Bhandup — areas that had long been neglected but are now benefitting from upgrades in connectivity and urban planning.

For retirees or near-retirees, even a low-2 percent rental return can seem palatable, particularly if the property is paid off and constitutes a secure, low-risk source of income. For them, the property is more than a source of monthly revenues; indeed, it’s a buffer — immune to the fluctuations of the market, and with the potential for long-term capital growth. Real estate, after all, is still one of the most concrete and historically reliable instruments for creating wealth, especially in a city like Mumbai where land is limited and demand strong.

But for younger investors or money-conscious homeowners, low rental yields coupled with elevated property taxes and weak liquidity are triggering a strategic reassessment. Most are opting to invest in either newer residential projects in emerging areas, or commercial space that promises greater returns.

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Some are going a little further out to fast-developing pockets such as Panvel, Kanjurmarg, and Thane, where property prices are more in tune with rental prospects and future growth potential. Others are getting out of physical assets altogether in favour of REITs and diversified financial products offering superior yield, transparency, and liquidity.

Ultimately, though Mumbai property still has sentimental and historical significance, the data shows that holding on to low-yielding residential property solely for passive rental yields might not be ideal economically. In a rapidly changing investment environment, where returns, liquidity, and asset performance are constantly being questioned, homeowners may do well to review their portfolios from time to time. In the realm of financial planning, flexibility and pragmatic analysis are a must.

The writer is CMD of Arkade Developers.

Disclaimer: The views expressed by experts on Moneycontrol are their own and not those of the website or its management. Moneycontrol advises users to check with certified experts before taking any investment decisions.