In July, Mint reported the data published by the National Housing Bank (NHB) index of residential property prices that showed that Chennai saw a phenomenal 249% rise in house prices over the past seven years, translating to an average annual rise of 20%, the highest among the 26 cities surveyed. Photo: Mint
In July, Mint reported the data published by the National Housing Bank (NHB) index of residential property prices that showed that Chennai saw a phenomenal 249% rise in house prices over the past seven years, translating to an average annual rise of 20%, the highest among the 26 cities surveyed. Photo: Mint

Homebuyers settle for smaller houses due to high prices

As prices become unaffordable in cities and mid-income housing moves to distant locations, homebuyers are forced to settle for smaller apartments to stay within city limits

Bangalore: Neha Khandelwal, 32, works for a financial services firm in Mumbai’s Lower Parel business district. She has booked a one bedroom, hall and kitchen home (one-BHK) flat on resale in suburban Chandivali for about 85 lakh.

Considering that the price of a brand new one-BHK apartment can be as much as 1.3 crore or above in the neighbourhood of Powai and Vikhroli, it would seem like a good deal. But is it what Khandelwal really wanted to buy? Maybe not.

“I waited for nearly a year and a half to buy a two-BHK because everyone said the market is down and prices will fall. My budget was 80 lakh but I didn’t want to move to Thane or places that are very far," she said.

Homebuyers such as Khandelwal, who want a house of their own, or a larger apartment, go for smaller houses, as property prices have not dropped despite that demand for homes has.

As prices become unaffordable in cities such as Mumbai and so-called mid-income housing moves to distant locations, homebuyers are forced to settle for smaller apartments to stay within city limits.

While top developers are making way for this booming customer base by building apartments in smaller, compact formats, prices range at 80 lakh- 1.3 crore in suburban Mumbai and outside city limits in peripheral Thane, for 60 lakh and above.

Hiranandani Constructions Pvt. Ltd is selling one bedroom homes of 376 sq. ft carpet area (livable area) for 1.3 crore and upwards in Hiranandani Gardens, Powai.

“The target is to build 1,000 apartments," said Niranjan Hiranandani, chairman, Hiranandani Constructions.

The firm is building smaller and so-called affordable houses after the Bombay High Court in 2012, hearing a public interest litigation (PIL), pulled it up for building large apartments on the land violating the agreement it has with the state.

In Thane, outside the limit of Bombay Municipal Corporation limit, it is selling 419 sq. ft carpet area houses for around 97 lakh.

Om Ahuja, chief executive, residential services, Jones Lang LaSalle, a property advisory, said, “One-BHK is a necessity, so people are compelled to buy them if a two-bedroom home doesn’t fit their budget."

He said buyers either buy a smaller house in a more convenient location if there are choices available, or move to faraway places for a larger one.

In cities such as Pune, most developers ignored small homebuyers and built large numbers of luxury houses of 4-5 crore each.

But where are the buyers?

“Right ticket size is key. If you price two-BHKs above 2 crore, it is tough to sell, but one-BHK at 1 crore and below, they will certainly sell," Ahuja said.

In July, Mint reported the data published by the National Housing Bank (NHB) index of residential property prices that showed that Chennai saw a phenomenal 249% rise in house prices over the past seven years, translating to an average annual rise of 20%, the highest among the 26 cities surveyed. Pune came second, with prices rising by 132% over the same period followed by Mumbai with 129% growth.

Mumbai-based Lodha Developers Ltd has a slew of one and one-and-half BHKs, starting from 42 lakh in a project called Belmondo, Pune and at 42-55 lakh in suburban Mumbai and around 1.7 crore in its central Mumbai project Enchante, New Cuffe Parade.

“We see demand for these type of homes particularly from two segments: first time home-buyers, who are looking for ticket sizes that suit their budget; and investment-driven buyers who look at these as productive assets, backed by strong rental demand. Overall, we see very robust demand for these types with between 70-80% homes sold out within three months of their launch," said a Lodha spokesperson in an emailed response.

It’s a compromise buyers are making because larger homes are so unaffordable, said Pankaj Kapoor, managing director of Liases Foras Real Estate Rating and Research Pvt. Ltd.

“Developers haven’t reduced prices for one-BHKs and have only shrunk the sizes of apartments, so that it fits the budget of the buyer or investor," said Kapoor. “In cities such as Bangalore, where there is no definite market or demand for one-BHK, developers are offering upgraded, serviced one-BHKs to draw customers."

In Bangalore, where prices are steadily rising and one-BHKs have never been a priority of top developers before, they are slowly creeping into projects now.

Ben Salmon, chief executive of Assetz Homes, said while they are mostly building premium and luxury homes in their projects in Bangalore, they now plan to build a residential tower in an upcoming project with only one-BHKs.

“We plan to build these homes and give them out on rent, and not sell them, because there is a lot of demand from the neighbouring office complexes," Salmon said.

In a bid to cater to the one-BHK buyers, Sobha Developers Ltd plans to launch a new project.

In the national capital region (NCR), real estate firms are tapping a large investor base along with actual users by offering what they call studio apartments, a two-room set-up with an open kitchen, priced at 20-30 lakh and above.

“Internationally, one BHKs or studios are substantially cheaper, but in India the challenge would be costing. In markets such as NCR, there is quite a lot of demand for one-BHKs but not that much supply," said Anshuman Magazine, chairman and managing director, CBRE South Asia Pvt. Ltd.

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