Yatish Sharma, a 24-year-old software engineer working with an IT services firm in Noida, spends at least 8,000 in rent per month for a flat that he shares with his friend. He thinks the rent’s a waste and he can easily afford to pay an equated monthly instalment of 10,000-12,000 on a home loan instead.

With his parents ready to pool in the initial margin money for the loan, he is now looking for a small-sized flat. One of the options that is within his budget and is appealing is a fully furnished studio apartment in Noida with a carpet area of 350 sq. ft. It also has a modular kitchen, a bedroom with an attached toilet and a bathroom.

Though there are bigger apartments available in the market within his budget, but Sharma wants to go for the studio apartment because it is close to his office and offers him basic comforts. Says Sharma: “The best part is I do not have to take the trouble of spending separately on the air conditioner or converting the kitchen into a modular one."

Also Read | Other Mint Money stories

There are many homebuyers who would endorse Sharma’s decision and make that choice themselves. It mostly makes sense for young professionals and students. Says Harinder Singh, managing director, Realistic Realtors, a Gurgaon-based consultancy firm: “Apart from students, it is also meant for business travellers who frequently visit the city and do not want to spend on hotel rents."

If you are one of those who find studio apartments attractive, it is important for you to know the pros and cons of making such an investment.

What works

If you are buying studio apartments from the investment point of view, it makes a lot of sense, say experts. Sharma, too, hopes to sell off his studio apartment and move into a bigger house once he has a family of his own.

Says Prashan Agarwal, head (business), Allcheckdeals.com, an online real estate consultancy services portal: “These products are more successful in cities such as Mumbai, where the prices are really high. In other markets such as Bangalore and Delhi-NCR, it will be confined to places where there will be offices and good-quality infrastructure. Noida is a classic example. That is why one can see so many projects coming up there."

Price appreciation: Studio apartments have a good appreciation potential. Owing to increasing demand for housing, even the limited number of studio apartments are attracting investors. Developers have already started increasing rates that may continue moving up in the future, too. Samarjit Singh, managing director, Agni Group, a pan-India brokerage firm that deals in the builder projects, says, “The stock of apartments that has come in the past year was at the entry level of affordability and has been limited to studio apartments. However, since the market moved up, the prices were bound to increase. In areas like Gurgaon and Navi Mumbai that already command a premium have good appreciation potential for studio apartments in the future."

Illustration: Shyamal Banerjee/Mint

High rentals: Compared with the area provided in these apartments, the rental returns from a studio apartment is usually higher than even a two- or three-bedroom apartment. This is mainly because these are fully furnished with more facilities than regular flats. Besides, the infrastructure and location of these flats is also better. For instance, in Noida, all upcoming projects having studio apartments are within 7-8km of commercial complexes on the Noida-Greater Noida Expressway.

What doesn’t

High prices: An obvious disadvantage of buying a studio apartment is the fact that you shell out more for a small area. In the same money, you may get a bigger apartment, which you can furnish on your own.

For instance, Noida-based realty firm Supertech Ltd’s fully furnished studio apartments in Noida are available at 4,400 per sq. ft. On the other hand, the average rate in Noida’s realty market is 3,500 per sq. ft.

Studio apartments coming up in Noida and Greater Noida are in the range of 10-18 lakh. In cities such as Mumbai, they cost at least 18 lakh and can go as high as 1 crore, depending on the location.

As of now, there is no logic to the pricing of studio apartments as such due to lack of data. Says Singh: “Being new, there is no relevant data around the price movements for this category. It would take two-three years before investors and real estate services firm would actually understand the pricing and premium on such a product."

What it’s worth: Says Rajesh Goyal, managing director, RG Group, a New Delhi-based realty firm: “Cost of fitments such as cupboards, chimney and amenities like modular kitchen and air condition increases the overall cost. If the developer ties up with a services management company to run these as serviced apartments and earn rental returns, the cost goes up further."

However, there is a possibility that your developer may add 50,000 to your total cost for offering you a new air-conditioning system, when it actually costs around 25,000. Says Pradeep Mishra, a New Delhi-based real estate consultant, “A studio apartment can have additional features costing up to 2-2.5 lakh even if the developer uses best brands of marble, air conditioning and fittings in the modular kitchen. If you were to do it on your own with the same material, it would cost you much less. Considering the premium also, the developer should not charge you more than 10 lakh."

Less area: A studio apartment offers you a small living space, which means living in it with a family may not be very comfortable. At the most, the space would be enough for a young working couple.

It makes sense to buy these only from the investment point of view. You can consider buying it if your kid has recently joined college in a Metro and is spending a good amount on rent. However, even in that case, once he gets married and has a family, he would need more space eventually. At that stage, again you may want to sell it or at least rent it out.

Sanjay Sharma, managing director, Qubrex.com, a Gurgaon-based real estate services firm, says, “As studio apartments offer less area compared with a two- or three-bedroom apartment, these are often used for letting out rather than living in it. It has happened in the past that such apartments were used mostly for renting purpose. For instance, most apartments in Palam Vihar in New Delhi apartments in Gurgaon are being used for renting."

These are expensive, so go for it only if it really makes sense for you.