Honey, I shrank the house

Honey, I shrank the house

Affordable housing is the catchword now, but does it make sense to buy a studio or one-bedroom apartment?

One of the biggest financial concerns of an individual is buying a house. More so as property prices continue to zoom upwards. One way to find a house that fits your budget is to shrink your requirement. Fortunately, developers have anticipated this need and have been offering projects with apartments between 300sq.ft. and 800sq.ft.

However, most buyers worry whether such small apartments offer value for money, especially where the resale value is concerned. It makes sense for a young professional or a couple to buy a small house, especially if it's near their office.

Sanjay Dutt, CEO, Business, Jones Lang LaSalle India
Sanjay Dutt, CEO, Business, Jones Lang LaSalle India
Rather than paying rent, it is better to pay EMI as one also builds an asset. Most such apartments are coming up in the suburbs, which makes them cheaper than renting a room within the city limits. Also, these apartments are adjacent to industrial and IT hubs, so it cuts down on transportation cost.

"There is a steady demand for studio apartments, both in the metros and Tier II cities. They are usually the first to be sold out in a residential project because they are the most cost-effective, especially in projects close to workplace hubs," says Sanjay Dutt, CEO, Business, Jones Lang LaSalle India. As long as these centres continue to thrive, so will the demand for such apartments.

"Demand is ample and supply is trying to catch up. The demand is so high in certain cities that residential bungalows in Bangalore are now being converted into studio and onebedroom apartments," says Shveta Jain, Director, Residential Services, Cushman & Wakefield India. Other than young professionals, developers are also targeting senior citizens, who may not want the burden of maintaining a large house. Medical tourism, too, has given a boost to the demand for these apartments, particularly those in the vicinity of specialised hospitals.

Which one do I choose?
Size Does Matter
Here's a look at some projects that are offering small apartments across the country.

In India, the terms studio and onebedroom are often used interchangeably. The main difference is that studio apartments do not have concrete walls dividing the interiors (other than the bathroom), while one-bedroom apartments have proper walls delineating the rooms. If your company provides regular meals, buying a studio apartment with a tiny kitchenette will make more sense. For privacy, you could always erect temporary partitions. This will also help to decide the sizes of various rooms.

If you plan to stay in the same area for a couple of years, opt for an unfurnished flat. Though developers offer fully furnished studio apartments, they will not tell you the cost of each piece of furniture or electrical fitting. You might find it cheaper to buy and install things yourself.

Smaller apartments are also more cost-effective in terms of the stamp duty and registration charges. For instance, if you buy a house worth Rs 35 lakh in Chennai, the stamp duty will be Rs 4.5 lakh, but if you opt for a Rs 15 lakh flat, you will have to pay less than Rs 2 lakh. However, other costs, such as those for the parking slot and club membership will be fixed, no matter what the size of your apartment. In the case of annual maintenance charges, ensure that these are calculated on the basis of the area of your house and is not a fixed fee.

Shveta Jain, Director, Residential Services, Cushman & Wakefield India
Shveta Jain, Director, Residential Services, Cushman & Wakefield India
If you want to buy a house only as an investment, you could also consider a serviced apartment. These are fully-furnished flats and also come with a range of services, which could include a cleaning crew, a cook, laundry services and a car with a chauffeur. Though this increases the price, the rental income from such apartments is high. These can be leased to companies or those staying for a fortnight to six months.

The tariffs for these apartments start from Rs 2,000 per night for a 300 sq. ft. apartment, depending on the location. The monthly rent starts from Rs 10,000 in the National Capital Region. Though a part of this goes to the operator who manages the apartment, about 50 per cent comes to the owner. "Serviced apartments are a good investment as you earn rent and also benefit from capital appreciation," says Jain.

Will I get good returns?
Once the size of your family expands, you will obviously want to sell the small flat and move to a bigger house. But will the price appreciation of your studio apartment be on a par with that of the larger ones? "The appreciation for serviced apartments is not as high as that for a 'traditional' one, but it is usually 10-15 per cent year-on-year, a better return than most places where you would otherwise park your money," says Jain. She cites Assotech Cabana in Indirapuram, Ghaziabad, which she says has appreciated nearly 100 per cent since it was built five years ago.

Before buying an apartment, your prime consideration should be its location. Opt for a project in a suburb that has good connectivity and where new industries are being set up. Find out if any major hotels or government projects are coming up. All this will enhance the resale value of your house. "The rise in prices is a function of timing and demand. When the prices were not very high in metro cities, the houses most sought after were those with an area of 1,500-1,700 sq. ft. Now, with prices having zoomed, the demand is the highest for 1,100-1,300 sq. ft houses. Perhaps, in a few years, the dynamics may change again and flats with space less than 700 sq. ft will be the only ones that are affordable," says Jain.

Courtesy: Money Today