Property Plus

Compact homes are here

Newcomers to cities find them a better option for saving as well as asset accumulation.

Compact Homes or self-contained apartments are emerging as the latest asset class in the urban real estate sector in South Indian metros. Consisting of a hall, bedroom, study and a kitchenette with a washroom, they vary in size from 400 sq. ft. to 600 sq. ft. Located close to worksites and in central business districts, they obviate the need for commutation over long distances and serve the accommodation needs of bachelors or couples who have opted to postpone parenthood for a few years.

With a large number of people in the 24-35 age group streaming into these metros, the realty sector eyes them as a new class who could be wooed away from paying guest (PGs) facilities, shared apartments or serviced inns promoted by the branded hotel chains. Offering privacy, maximum utilisation of space, and above all ownership, they come handy for the youth with considerable disposable incomes. With homeowners preferring families over bachelors for tenants, the newcomers to these cities find it tough to rent a small apartment or a portion of a house. They constitute a potential clientele for compact homes as they are located away from the family homes.

‘Compact Homes’ or ‘Studio Apartment’ were conceived in the United States in densely populated cities of New York and Newark where realty prices were sky-rocketing and the need arose to accommodate the newly arrived youth workforce. Soon the practice found replication in Singapore and Tokyo. Around 2011, a few developers in Bengaluru initiated the concept in the city. Pashmina Brookwoods on Budigere Road was the first such facility in the city. Now several developers are eyeing the sector.

Vestian-Assetz report

A report by Vestian and the Assetz Property Group titled ‘Compact Living in Bengaluru’, estimates that the city, being the largest technology cluster in the country, creates one lakh to 1.20 lakh jobs annually and 10 to 12 million sq.ft. of office space is absorbed annually in the city. Of the newly employed workforce, 45% is added to the IT and ITES sector. The pay packets for these employees range from Rs. 5 to Rs. 10 lakh annually. Of those joining the city’s workforce every year, 48% possess a postgraduate degree. The report estimates that ‘free birds’ or solo dwellers or single person households (HHs) now constitute 6.6% of the households in southern metropolises. Surprisingly India takes third place among the top-listed nations that have fast growing single-person HHs.

So, a niche market is up for grabs, for compact homes that offer ease of maintenance and upkeep and are easily commutable from workplaces, and have primary level amenities such as grocery stores, gyms, sport arenas, and terrace or outdoor spaces for recreation. Not to be left unsaid, assigned parking is integral to such homes.

Smaller family size

The new entrants have begun to impact the socio-economic profile of the cities. Not merely the joint family system has disappeared, even the size of the nuclear family is coming down. The average household size is expected to decrease from the current 4.8 to 4.4 members by 2021. Nearly 50% of the total households in India have less than four members. This has led to more economic independence, rising income levels, shift of focus on career from marriage and changing gender dynamics. These are exerting pressure on realty to come up with their needs.

Young married couples who postpone the parenthood post-30s are called ‘nest-builders’. Close to 6.7% of the HHs in the southern metros fall under this category. But a much vital concern for these youth is to find an avenue for saving and investment. Aware that rents for PGs or serviced inns were expense with no backflow, they are looking for investment, saving and asset accumulation. A piece of realty, no matter how small it was, promised them annualised return ranging from 11 to 13.5%. Compact Homes have therefore emerged as a sound investment option.

Says Subhashish Mohanty who works for MSL Group, Bengaluru has a market for 16,000 compact homes on a year-on-year basis and has been absorbing about 1,200 such dwelling units annually between 2011 and now. This is likely to grow to 4,000 units by 2020, i.e., 25% of what is required. Currently, there are no projects in Bengaluru that have developed compact homes exclusively. So far they have been part of larger developments including 2BHK, 3BHK etc., with Pashmina Brookwoods being the only exception.

Faster movement

Overhang in this segment is less than 1.2 years as compared to an average inventory overhang of 2.3 years in the city. These have a faster rate of absorption. The return on investment on compact homes is expected to be 1 to 2% higher than normal apartment projects owing to higher rental yield, high demand and limited supply in the short to medium term. The demand for them is likely to grow near tech-hubs of Bengaluru. Other than compact homes in larger development, in future there will be projects focusing exclusively on compact homes catering to the needs of the 25-34 age group. These projects will be developed on smaller land parcels of one to three acres and will provide amenities that will specifically cater to the needs of the target segment.

Base sale price of Compact Homes located close to economic hubs is in the range of Rs. 4,500 to Rs. 6,000 per sq. ft. However, construction cost for them is higher compared to other standard apartments due to density of toilets and kitchens. Capital appreciation in these projects is in the range of 9 to 11.4%.

With increasing acceptance, Compact Homes are all likely to pull down the average age of first home buyers to the 24-35 group compared to 40 years two decades earlier.

(The author can be reached at maqsiraj@gmail.com)

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Printable version | Jul 12, 2020 7:37:44 PM | https://www.thehindu.com/features/homes-and-gardens/compact-homes-are-here/article7822687.ece

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