Playing On Sizes: A New Key To Unlock Realt Estate Potential

Today's under-construction properties were designed in 2010 or earlier. It was a period when the economy was in a better shape, inflation levels were moderate, and salaries and monthly savings were comparatively higher. These factors allowed developers to plan larger homes given the improved financial condition of the middle-class home buyers. As it stands today, spending power of home buyers are lower, while interest rates have gone up. With that, chances of such properties being sold remain bleak.

The first quarter of 2015-16 saw total home sales go down 18 per cent across top nine cities from the last quarter of FY2014-15. The biggest victims were Mumbai, NCR, Chennai, Hyderabad and Pune, according to a PropTiger.com report. Apart from adding to the inventory, this also affected new projected launches. New project launches went down over 70 per cent in Ahdmedabad, Bhiwadi, Sohna, Hyderabad and Navi Mumbai in the same period.

Trimming it to size

A recent Kotak Institutional Equities report says: “Developers will need to change their business models… Currently, there is a mismatch between supply and demand and, hence, the market is slow. Too many developers are launching luxury projects creating an over-supply of such products.” As reducing cutting prices seems unlikely, builders are coming up with new strategies to bring down loses. Cutting apartment sizes is one of the key change made by developers to attract home buyers, apart from offering discounts on spot-sales and flexible payment schemes.

Reducing home sizes is easy to execute, especially if the floor construction is complete and building walls are yet to be closed. No extra sanctions and approvals are required to change the size and number of units in buildings. However, reducing sizes and increasing units will require developers to speed up sales and marketing activities.

A working model

Due to the lack of space and an urban culture where working professionals prefer to stay closer to their workplace, small-size apartments are a hit in Mumbai. 1BHK apartments in Mumbai are also popular among families. When builders came up with 2BHK apartment projects in Mumbai, it only led to a demand-supply mismatch. Builders in Bengaluru have been high on larger homes. A number of 2BHK apartments in Bengaluru have a carpet area of around 1,500 to 1,700 square foot. While this added to a huge unsold inventory, it also led to a sharp price rise, leaving middle-class home buyers with fewer options.

Chennai is also known for its luxury and premium homes. It is common to find listing for 2BHK homes in Anna Nagar, with a carpet area of 2,500 sq ft. The market also needs moderation in home sizes.

(Katya Naidu has been working as a business journalist for the last nine years, and has covered beats across banking, pharma, healthcare, telecom, technology, power, infrastructure, shipping and commodities.)