As the Central government is making efforts to encourage increased participation from developers towards the ‘Housing for All’‘ mission, developers in Mumbai are clamouring to meet the affordability needs of the general population. The prominent strategy utilised by these developers is reducing carpet areas to cater to the demands of the burgeoning millennial population.
With the ‘Housing for All’ scheme gaining a foothold across the country, affordability rules the roost in the current real estate market scenario in the top eight cities, Mumbai being the most prominent among them. As developers are leaning towards providing affordable home options to cater to the growing demand for homes worth under Rs 60 lakh, the carpet area of housing units is gradually reducing.
The Knight Frank Affordability Index reports that the ratio of average capital values to average annual household income for Mumbai is 7.2. The optimum ratio should be 4.5 or less. This mismatch is one of the main reasons for slower residential sales in the Mumbai Metropolitan Region (MMR). To bring the apartment prices closer to the affordability threshold, developers in MMR have resorted to reducing the sizes of apartments.
The millennial wave
Developers are zeroing in on the most active buyer segment, the millennials – unmarried professionals starting out in their respective careers. Apartments in the peripheries of Mumbai are available at cheaper rates than central localities. But, young professionals would rather compromise on the apartment size and live near their place of work, and this is the market need that developers are tapping into.
The average sizes of apartments in Mumbai have withered in the past five years, and this is a direct result of a shift in interest to affordable homes in central business districts and well-connected areas over larger apartments in distant suburbs, particularly by millennial homebuyers.
“Mumbai developers are shifting focus from luxury homes to smaller apartments to meet the growing demand from the millennials and NRIs. This is because young buyers today prefer smaller homes closer to their workplace rather than larger houses in far-flung areas. Even NRIs buy apartments where rental demand is high,” avers Ravindra Sudhalkar, ED and CEO, Reliance Home Finance.
Size reduction in different apartment configurations
An abrupt slashing of home sizes was witnessed over the last two years in the city, with the carpet areas of 1BHK units being reduced by as much as 175 sq ft. From the former average of 450-500 sq ft, the size has gone as low as 325 sq ft in many areas, to increase affordability for buyers.
The sizes of 2 BHK units were almost halved from 800-950 sq ft carpet areas to as low as 525 sq ft in areas populated by the IT/ITeS workforce. Also, the average sizes of 3BHK units, which used to be expansive, in the range of 1,250-1,500 sq ft carpet area, diminished to as low as 850 sq ft.
Locality wise home size reduction
Compared to new launches in the various boroughs of Mumbai in 2014, the year 2018 witnessed size reductions to the tune of 52 percent, 41 percent, 36 percent and 25 percent in South, Central, Eastern and Western Mumbai, respectively.
In the city of Thane, just outside Mumbai, peripheral, Central and Western suburbs saw apartments shrinking by 22 percent, 21 percent and 22 percent, respectively. The size reductions have now enabled a homebuyer to purchase a 2 BHK apartment in the central district at the price of a 2 BHK apartment in peripheral suburbs, with a slight difference in carpet areas.
Rising development expenditure
Developers constructing apartments in the MMR region indicate higher land prices, construction and compliance cost as the reason for mounting real estate prices. Developers are, therefore, opting to build smaller homes, not compromising on the per square foot value of the property.
The landmark move by the Government of lowering the Goods and Services Tax (GST) on affordable homes from eight percent to one percent came as an encouraging incentive to developers. Participation from developers towards the ‘Housing for All’ mission has increased greatly due to this development.
“With the government focusing on affordable housing, builders now have enough incentives to build smaller units. However, the challenge here is estimating the demand and correctly predicting the prospective areas for construction. Instead of flooding the market with smaller homes, builders must find a balance in the number of such units launched in central districts versus peripheral suburbs,” Sudhalkar adds.
The strategy of shrinking home sizes has been working in favour of affordability and Mumbai has witnessed an appreciable improvement in the ratio of household income versus home prices. While average capital prices were 11 times the household income in 2010, it corrected down to seven times in 2018. This trend will continue with developers making smaller homes to keep overall prices affordable and market forces, eventually eliminating any imbalances.
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