As prices spiral up, is the compact studio apartment a better investment?

Technically, studio apartments are single large rooms that encompass the bedroom, living and dining areas, with compact kitchens and bathrooms attached. Sometimes, the sleeping area or kitchen could be visually partitioned into an alcove or put on a higher plane. They are usually about 500 to 600 sq. ft. in size.

Popular abroad for a long time, where they are rented chiefly by students or single people, they are now becoming more visible in Indian cities. When they first made their appearance here, they found favour largely with bachelors who spent most of the day at work.

One reason why they might be making a comeback today is because of the high rise in property prices and the steady decline in real estate absorption across cities. Developers are looking at studio apartments and 1BHK flats as a way to increase sales and generate some much-needed liquidity in the market.

A recent Knight Frank finding shows that more than one-fourth of the total 5.2 lakh housing stock being constructed in the national capital region (NCR) is unsold due to weak demand. Absorption in Mumbai is at its 25-month low, while in Chennai more than 40 per cent of units have remained unsold.

“The demand for studio apartments comes primarily from software professionals and manufacturing sector executives who have generally spent over a year stationed in a metro and decide to pay EMIs on an affordable living unit rather than shell out high rents for flats or serviced apartments,” says Om Ahuja, CEO-Residential Services, Jones Lang LaSalle India.

The demand for studio apartments is growing not just in the metros but also, surprisingly, in Tier 2 cities where there has been an increase in IT and BPO jobs that attract young workforces from across the country.

“Usually, these are the first to be sold out in a residential project,” says Ahuja. They are also popular as investment tools because of the ease with which they can be rented out or sold in the secondary market, he adds.

The typical Indian home buyer still prefers large-format homes mainly because they look at it as a long-term investment that will need to accommodate either a growing nuclear family or an extended family. However, with property prices rising sharply, studios are becoming the logical choice for buyers who cannot afford larger units.

Today, studio units are also in demand from newly-married couples who want to set up home immediately and plan to eventually upgrade to larger homes. In this scenario, the cost-effective 1BHK flat is also seeing higher demand.

According to Ahuja, the demand for studio apartments is percolating down from the equally high demand for serviced apartments, and is still picking up from there. “About 80 per cent of the overall demand for studio apartments in cities like Mumbai, Delhi NCR, Bangalore, Pune and Chennai is driven by software professionals and recently relocated manufacturing sector executives,” he says. Price points vary according to city, location and amenities offered, but generally range between Rs.12 and Rs. 35 lakh.