Small houses, big demand

Market demand and policy decisions are driving real-estate developers in the South to look at lower priced homes. In the face of a slowdown in sales, the best way to improve demand, they believe, is to offer apartments in the Rs 20-30 lakh price range

Low supply

While there is a huge demand in this segment, supplies are low from established players in the South. Developers here are now recognising the need for smaller-sized apartments � like in Mumbai and NCR, where one can find 1-BHK (one bedroom-hall-kitchen) apartments of around 700 sq.ft.

In the South, this segment is at a nascent stage.

For long, developers in the South, thanks to lower land prices compared to that in the West and the North, have been offering 2-BHK and 3-BHK apartments of at least 1,000 sq.ft, and often 1,200-1,500 sq.ft or more. This means Rs 45-60 lakh for an apartment.

But now, increasing costs, driven by spiralling land prices, higher home loan rates and costs of construction, have resulted in flagging demand, the buoyancy that pushed developers to offer big budget homes is definitely absent.

The rising costs have also discouraged speculators and investors and left only the �occupiers� in the market, resulting in a slowdown in sales for the developers.

This has left companies with surplus stock of high-priced apartments and insufficient stocks in the segment that is in demand.

Developers agree that most major players have left the sub-Rs 30 lakh apartments to the small players and the unorganised sector, which does not have the capacity to cater to the large demand and also leaves the buyers open to issues of quality and transparency.

Where available, projects in this price range are about 15-20 km from the city suburbs and do not find takers. Large developers are now looking at projects closer to the city, with plans of controlling costs through smaller-sized apartments. Ideally, they are looking at 700-800 sq.ft apartments with two bedrooms and going up to a 1,000 sq ft.

Interest rates

On the policy side, the RBI�s decision enabling banks to provide for lesser risk weightage for loans up to Rs 30 lakh and signals from the Government indicate that the banks are not for raising home loan rates for borrowers up to this limit. Interest rates for loans up to Rs 30 lakh are expected to at least hold steady, if not soften. This too would increase the demand for products in the price range of up to Rs 35 lakh.

This is seen as a positive move to keep the costs in control for the buyer.

Developers see this as a huge opportunity to drive up demand for apartments in this price range � which they describe as an affordable segment. Developers say there is a huge market for apartments costing Rs 25-35 lakh in the South, especially in Chennai, Bangalore and Hyderabad.

The major urban centres apart, protecting this segment from price increases will also help support the market in the Tier-II category � the smaller towns and cities where there is unmet demand.

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