When it comes to buying a house, millennials prefer smaller units that are more affordable rather than booking into bigger and more expensive real estate projects. Developers are now tapping into this trend by reducing the average unit size of apartments to make them more affordable for millennial homebuyers.
A month ago, we reported that developers are reducing apartment sizes to attract more buyers (read more here ). A new report that confirms the trend adds that developers are targeting millennials in particular for the affordable housing category as they prefer buying smaller apartments that fit into their budgets. Millennials prefer smaller yet affordable units in central and well-connected areas, it said.
According to data gathered by real estate consultancy firm Anarock Property Consultants, the average sizes of apartments in most large Indian cities have shrunk in the past five years, and this can be attributed to a shift in demand, especially on the part of millennial homebuyers, to affordable homes in central and well-connected areas over larger apartments in far-flung suburbs.
“Property prices are proportional to square footage, and it makes sense that reduced flat sizes result in a lower burden on homebuyers’ pockets. This is not always an easy equation to master, since prices go up as locations become more central," said Anuj Puri, chairman, Anarock Property Consultants.
The data shows that properties costing below ₹40 lakh saw a 23% fall in average sizes in the 2014-2018 period. In the top seven cities, the average property sizes declined 17% in the past five years, from a high of 1,390 sq.ft in 2014 to 1,100 sq.ft in 2018. Among these cities, the Mumbai Metropolitan Region (MMR) witnessed the maximum reduction at 27%, followed by Pune and Kolkata. Bengaluru saw the least decline in average property sizes at around 12% in five years.
“Smaller apartment sizes allow buyers to purchase flats in areas which would otherwise be out of reach for them. Many millennials are willing to forsake extras like balconies, so as to be able to buy ‘starter’ homes in good locations sans frills which can later be sold for upgrading to bigger homes when purchase power increases," said Puri.
What also works for developers when it comes to millennial buyers is the fact that they are flexible. “Millennials attribute high value on location flexibility and do not get ‘tied to’ neighbourhoods the way the previous generations did. Frequent ‘switching’ of cities is rapidly becoming the new normal for millennials on the lookout for faster career growth," said the report. This means they prefer to buy into smaller units that are easier to sell rather than getting locked into larger units.
As reported earlier, this is not a new trend. According to a report published in 2015 by property portal Commonfloor.com, Reducing Apartment Sizes Across Metros, sizes of apartments in all metros in 2014 reduced considerably over the preceding five years. In Delhi-NCR, apartment sizes increased till 2011, but started seeing a fall soon after. Pune and Bengaluru witnessed an increase in apartment sizes in 2012, but from the following year, both cities started to witness a decline in sizes.
According to the report, this happend largely due to the overall economic slowdown in the country at the time. But in case of MMR, the reduction in apartment sizes can be attributed to skyrocketing property prices in the region and scarcity of land. “Mumbai is the costliest city, even if you go by the median per square foot size. In such a case, if you want to pull up affordability while keeping per square foot price intact, you have to reduce the size of the apartments. We have observed that this happens majorly in costlier areas or micro markets within a city," said Samantak Das, chief economist and executive director, research, JLL India, a property consultant firm.
What should you do?
“The market will take some time to show whether this experiment will succeed and people will respond positively to this shrinkage. But for a family of four, an apartment with a carpet area of say 300-400 sq.ft would not be very viable. Affordability is going up, but the question is whether it is being imposed by builders by forcing buyers to compromise on size. Small one-bedroom apartments might be good for singles and DINKs (couples with double income but no kids) but they shouldn’t be pigeonholes, since livability is one of the most important factors," he said.
The inevitable space crunch in metros and demand for centrally located apartments means that compact homes are here to stay. But while a small and affordable starter home can be a good idea for those on a tight budget, when buying a home, you must consider factors like comfort and space requirement, as well as the resale value and potential if you intend to upgrade later. Don’t forget that with time, your family and need for space will expand.