Why Are 1-BHK Flats Selling More In Mumbai and Pune?

In real estate, the concept of 'the bigger, the better' is not always true. A lot depends on how many can afford what is big. For the common man, who usually has to put in his lifetime's savings, plus hefty home loans, housing transactions are more about affordability. And, it is this common man who drives the real estate market in a country like India. So, keeping things affordable for him is one of developers' priorities.

This fact was evident in a major housing trend that emerged in the market in 2015-16. In areas where real estate was very expensive, developers reduced unit sizes to make housing more affordable for the common man. For example, if a 1-BHK unit built in a 600 sq ft area typically costs Rs 30 lakh, a 1-BHP unit in a 400 sq ft area can be sold for Rs 20 lakh. If data are to be believed, this strategy did work for the market.

Also, in cities where the average price of property is high, units of smaller configurations got more traction.

According to PropTiger DataLabs' annual report for FY16, 1-BHK units accounted for 24 per cent of new launches across nine major cities of the country. The top nine cities were Ahmedabad, Bengaluru, Chennai, Gurgaon (including Bhiwadi, Dharuhera and Sohna), Hyderabad, Kolkata, Mumbai (including Navi Mumbai and Thane), Noida (including Greater Noida and Yamuna Expressway), and Pune. In FY14 and FY15, the share of 1-BHK units in total had stood at 21 per cent. The report revealed that cities like Mumbai and Pune saw the highest proportion of 1-BHK units in total launches – 53 per cent and 25 per cent, respectively.

Why so?

Mumbai's space crunch: Mumbai and its classic space crunch are well known. Another fact that is well known about Mumbai is that real estate in the city is highly expensive. The financial capital of the country, with an ever-growing population, has been grappling with the gigantic problem of housing its residents. While authorities struggle, the city landscape has seen unauthorised settlements growing and public places getting encroached. This has been a major reason for the rise of 1-BHK unit launches in the city. While a 2-BHK may be affordable in, say, Noida, it is indeed a luxury in Mumbai.

Pune's educational hub: Pune is certainly a different real estate market when compared to Mumbai. What could then be behind a similar trend in the two cities? Maharashtra's cultural capital is famous for the unmatched lifestyle it offers its residents, and that has made property in the city expensive. Going by the same logic, what is affordable in, say, Hyderabad, may not be so in Pune. Another reason behind 1-BHK units gaining popularity in the city is its rental market. Home to thousands of students – Pune has some of the best educational institutes in the country – the demand for smaller units has been higher and may gain further traction in future.

More from PropTiger DataLabs' India Realty Report FY 2016:

• FY16 Was A Mixed Bag For Real Estate, But Downsides May Be Limited: DataLabs Report
• How Inventory Pile Is Stopping Developers From Having A Swell Time
• Why FY16 May Mark An End Of Home Sales Slump
• Did Discounts Drive Realty Deals In FY16?
• Cities Where Real Estate Will Shine In FY17
• 5 Reasons Why FY17 Will Usher In Realty Revival