Why Developers should focus more on Micro-homes

Why Developers should focus more on Micro-homes
11/10/2018 , by , in EXPERT ZONE

Real estate sentiments have moderated due to high inventory overhang and softening of demand of late. This was further undermined by policy contingencies around RERA and demonetization drive. However, eventually as RERA started to move out of policy contours, it has been instrumental in reigniting the confidence levels on Indian housing markets. In most of the major Indian metros, developers are back with pipelines of new launches. Likewise attractive schemes are rolled out to further incentivize real estate purchase.

By Ankit Kansal, Founder and MD, 360 Realtors

The structural decline that has happened to residential markets recently won’t be reversed very soon. Most of the developers are still working on wafer thin margins, which are further getting squeezed due to GST impositions. Despite growing positivity, rise in property prices are still expected to be modest in the foreseeable future. This will further deter the investor class and the market dynamics will mostly be end user driven.

New Concepts – Small is Beautiful
In a time when profit margins are narrowing down, it is imperative for developers to come up with new concepts as in the times ahead- success would rely largely on translating carefully created expertise into industry defining practices. As one of the most populous and largest economies in the world, there is no dearth of potential in the Indian market. However, in order to cater to unmet potentials, developers need to enter new verticals, tap into new markets and design new products that are in sync with the evolving demand patterns.

Downsizing could be a possible solution. At the onset of the current decade in some of the major markets in the world such as LA, NYC, London, Tokyo etc. there was huge unmet demand for housing. However, the market was still reeling under the subprime crisis and average bandwidth to invest was limited.

To tackle the problem many developers started coming up with small sized homes called micro-homes or tiny homes. Sized between 150 to 350 Sq. Ft, these were mostly located in the down towns and prime locations of the city. As for the young professionals and students, location is preferred over square foots, these small units were an instant hit. They offered a suitable solution to the housing needs of the millennial population that mostly hovered northwards of the 40% city population and represented huge demand.

Potential in India
Aligned with evolving global trends, micro-homes or micro-apartments have started to expand its foothold in India as well. Although the market is in its nascent stage at the moment, some of the major developers such as Artha, OCUS , Supertech etc. have launched such project recently. At a time when bigger units were suffering from compression in sales volumes, market has been highly conducive for such smaller units. Earlier launches have shown 100% inventory turnaround within few days of launch. Due to rise in preference for smaller units, on a YOY basis average ticket sizes have shrink in the current FY, both across NRI as well as segment. Interestingly, the degree of downward dip is steep in the NRI segment.

The explosive response in the market has been primarily driven by the young millennial Indian population that today represents a formidable economic potential. Currently the Indian millennial is sized over 400 million with an annual consumption of around USD 330 billion. Similar to their western counterparts, they seek constant appreciation and are inclined towards experiential living.

Likewise, the rental returns are also attractive backed by attractive demographic dividend. Pan India research by 360 Realtors has indicated that smaller units (1 BHK and studio) are clocking much better rental returns than their 2 and 3 BHK counterparts.

As most of the apartments generally come within a budget range of 25-35 lacs, it also falls within the sweet spot of the millennial population. The initial down payment (~ 1.5 Lakhs) sometimes might not event require savings as a single swipe of a credit card would suffice. At a time, which is marked by ultra short debts but refined tastes, it is natural that younger households will gravitate towards such swanky smaller units.

Hence in order to cater to the evolving buyer’s preference, it is imperative for developers to focus more on smaller units such micro or tiny homes, which have high chances to become the fad in the times ahead. Like other global metropolises, a sizable part of the demand will be concentrated around the central locations of the Indian city.

However, even in peripheral locations, micro-units can pick-up, provided there are employment catchments nearby to feed demand.

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