As luxury homes gain prominence amongst sales and supply, Mumbai's smaller homes are fast vanishing from the city. Large scale redevelopments are pushing the humble 500 square homes and 1BHKs far from the central city deeper into the suburbs. On top of this, the existing homeowners of such homes are also expected to see a newer form of tax.
Mumbai municipal authorities are mulling a sewage tax on the city homes that are under 500 square feet. The attempt aims to amplify its revenues as well as undo a move by the former Maha Vikas Aghadi (MVA) which abolished property tax for such homes, and since water and sewage tax is a part of property tax - its moves to bring homes under the tax net. As per reports, over 50,000 homes could come under the net.
A lot of experts believe that citizens must pay for basic utilities such as water. "We are living in a time where climate concerns and water scarcity is a reality. Water is a valuable resource and pricing the entire water cycle is very important from sourcing to sewage treatment to drive efficient use. Water is also a basic need and hence BMC should devise usage fees based on principles of equity, financial feasibility and environmental economics," says Rishi Aggarwal an urban governance expert and founder of Mumbai Sustainability Centre.
Some such homes already pay a water tax, but since many homes do not have water meters, they're slipping out of the tax system. Many newer buildings and Mumbai suburbs have water meters, yet a lot of older properties do not.
"Most places in the island city do not have water meters. Even if a few have it, a building or a society has it. Ideally homes should have their own water meters, so that individual usage can be monitored real-time like gas and electricity," says Gautam Kirtane, an urban planner.
Most experts are of the opinion that a survey-based method might not be the best way to assess taxation; and must build the infrastructure in place before taxes are collected. "If a tax is being collected towards a purpose like a recycling plant or some other such capex like desalination and demonstrates intent on the ground, a tax could make more sense," Kirtane adds.
BMC is the richest municipality in the country, it has been spending on infrastructural projects like Coastal City road, sewage treatment plants as well as road repairs. Apart from the added taxes, smaller homes and 1BHKs are becoming rarer in the city whose real estate story is shifting towards premium and ultra premium homes.
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Show Me The Small Homes
While luxury and upper end segment sales have been going substantially in Mumbai, affordable housing has taken a huge hit. As per Anarock data, the affordable housing segment made up 31% of the supply in 2021, shrunk to 14% in 2025, and stood at 18% as of H1 2026. In fact, homes priced below Rs 1.5 crore made up for 57% in 2021 but only 34% in 2025 and 39% in H1 2026.
Average capital values rose by around 61% between 2021 and H1 2026, tightening affordability in core markets. Rapidly rising prices of land, coupled with increase in construction costs have rendered the city unaffordable and thereby little stock of smaller homes are coming in.
"The number of homes under 500 sq ft in Mumbai is shrinking steadily, and the city's overall supply of affordable housing (priced below Rs 40 lakh) has declined to a single-digit share of just 6% of total launches in Q2 2026, according to Anarock data. Such compact units, usually between 300-360 sq ft, are most concentrated in peripheral zones such as Thane, Navi Mumbai, and the Peripheral Western Suburbs, where land is cheaper," says Dr Prashant Thakur, executive director & head - research & advisory at Anarock Group.
According to an Anarock survey, 18% of respondents of Mumbai listed 1BHK as their preferred home, but it's the highest amongst all top real estate markets. Pune is the only other market with 10% preferring it, for the rest, this number drops to single digits - Bangalore (9%), Chennai (6%), Hyderabad (4%), Ahmedabad (6%) and Kolkata (5%).
A large number of such under-500 square feet units are launched by Slum Rehabilitation Authority (SRA) though other developers too are entering the market. "Not all homes falling in this size are from SRA projects. Local developers with small budget projects on the outer suburbs also offer compact units. That said, SRA rehab buildings are certainly major contributors," adds Thakur.
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The City Hits Vertical Limits
The city which has long since run out of land to house its vast population - has been depending on redevelopment to rebuild the city vertically. As per a report by the National Real Estate Development Council (NAREDCO) and real estate consultant JLL, there are as many as 1,200 active redevelopment projects in Mumbai. Also, redevelopments makeup for 13% of overall launches and 15% of sales between 2025 and first half of 2026. The sales rose from around 6% share recorded over 2016-2021.
Newly launched redevelopments are altering the landscapes, accommodating more units but due to higher land prices, larger homes are the flavour of the season which also cost more.
"Large-scale redevelopment, including SRA schemes and cluster redevelopment of old cessed buildings, do change the character of many older, low-rise neighbourhoods into denser, premium-oriented developments. We are seeing gentrification in areas like the previous mill lands in the city centre, Bandra and older suburbs," says Thakur.
As per the aforementioned JLL report, most of redevelopment projects in South Mumbai (Prabhadevi, Dadar West and Parel), South Central Mumbai (Chembur, Matunga) and North Mumbai (Bandra and Khar) - have 2BHKs, 3BHKs and 4 BHKs with unit sizes ranging from 700 sq feet to 1,400 square feet. A few Eastern and Western suburbs like Bhandup, Kurla and Malad have 1BHKs amongst dominant options with average home sizes around 400-600 square feet.
On the other side of the coin, luxury homes priced over Rs 10 crore are seeing an upwards momentum and saw a record-breaking sales of ~CHECK~18,512 crore in the first half of 2026, as per a report by Sotheby's and CRE Matrix. It also adds that the sweet spot for such home sizes is 2,000-4,000 square feet which sees the maximum demand.
Billionaires & NYLON Effect
Mumbai which is home to 95 billionaires and countless multimillionaires - is not just taxing the smallest of its homes. It's also going against the tide, wherein New York and London cities are taxing the richest of the rich homeowners.
New York's mayor Zohran Mamdani pied-a-terre tax is a surcharge on high value second homes. London also scheduled a mansion tax - a new tax on highly valued properties expected to take effect in 2028. Both these taxes escalate with the price of the properties.
Experts however say such taxes might not work in Mumbai as most ultra luxury homes are purchased for personal use and when they're not, are rented out to large corporations. "The super rich around the world buy homes as safe deposit boxes in NY and London. But if you look at Mumbai, the outgo in terms of maintenance for a Rs 60-70 crore etc is anyways high, and a tax on them won't make any difference," says Kirtane.
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