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Smaller flats: What is the best investment option?

New Delhi: In India's larger cities, there is a huge demand for homes of all sizes. However, it makes perfect sense that the demand is highest for smaller-sized homes with sizes ranging from 550-800 square
India TV News Desk August 11, 2014 11:02 IST
India TV News Desk
New Delhi: In India's larger cities, there is a huge demand for homes of all sizes. However, it makes perfect sense that the demand is highest for smaller-sized homes with sizes ranging from 550-800 square feet.

Obviously, compact homes such as studio apartments and 1 BHK flats tend to be affordable to the highest number of buyers in any city.

Many home buyers at the beginning of their careers look for ‘starter homes' in cities like Mumbai and Pune - homes which fall within their current budgets and can be sold at a future time as their family as well as their incomes grow. As a result, the demand for smaller configuration homes such as 1 BHK, 1.5 BHK and even studio apartments is constant and dependable in the metros. Most reputed developers provide 1 BHK flats in their projects. In Pune, the newer townships in areas like Charoli offer excellent options.

Because of the constant demand for them, property investors are also focused on smaller homes. Apart from the fact that smaller homes are always the most affordable and the easiest to sell once they have appreciated enough, the rental demand for smaller homes is also steady in cities like Mumbai and Pune.

Many home seekers cannot afford to purchase homes in the costlier locations of these cities, and therefore prefer to live in rented ones. This makes compact flats an ideal investment option for property investors, both from a capital appreciation as well as rental income point of view.

The most attractive locations for investment into smaller flats are naturally the most central ones, as these invariably offer ready access to the city's important workplace hubs. Commuting time to and from work is and will always be the primary consideration for any home buyer in a large city. These locations are also the most expensive ones, which means that capital appreciation as well as rental income potential is highest in these areas.

However, thriving workplace hubs have also been cropping up all over the peripheral areas of Mumbai and Pune. Examples in Mumbai include Navi Mumbai, Thane and Panvel, while in Pune we have Baner, Wakad and Kharadi as notable examples. These locations are the focal points of new residential catchments, and while properties in these areas tend to be relatively more affordable, they tend to appreciate fast because they are driven by employment.

Even in these areas, there is invariably a huge demand from smaller homes on both the purchase and rental markets. It is important to note that smaller flats available for rent in both central and workplace-driven peripheral areas tend to see a lot of demand from large banks and other corporates, since such units are ideal for use as company guesthouses. Flats given out on long-term corporate leases are an ideal source of higher and steadier rental income.

(Arvind Jain is Managing Director of Pride Group
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