Compact housing yields higher returns in Bengaluru

An investment in compact housing (one-bedroom and 1.5 bedroom units) yields annualised returns on investment in the range of 11 to 13.5 per cent in Bengaluru.

The sale value, after principal repayment gives the buyer an investible surplus to be used as down payment for his or her subsequent property purchase to accommodate a larger family, reveals a study, ‘Compact living in Bengaluru’ conducted by Vestian in association with Assetz.

The report said, “Buying a compact home is a sound investment option for an individual in the age group of 25-30. In case of investors, they benefit from a rental yield of 3.5 to 5 per cent a year.”

The addressable market for compact homes in Bengaluru is nearly 16,000 annually to cater to the increasing migrant population working in the IT/ITeS sector.

“However, supply is limited in this product type, hence the market absorbs only 1,200 units annually which accounts for 2 per cent to 4 per cent of the total residential absorption,” the study said.

Close to 8,350 units have been launched in the compact house configuration since 2009 in and around the technology hubs of Bengalauru, out of which 80 per cent of the units have been absorbed. On the inventory side, report said overhang is low at 1.2 years.

The location for these compact housing (one-bedroom and 1.5 bedroom) units is usually close to tech / economic hubs such as Whitefield, Sarjapur Road, North Bengaluru and Hosur Road.

Market for compact homes is currently in a nascent stage; however, compact homes have the potential to capture at least 25 per cent of the annual addressable market (16,000 units) by 2020.

Awareness about the product offerings, its financials benefits, favourable demography and economic conditions are likely to create a sustainable market for compact homes over the next 15-20 years considering ‘Gen Y Next’ and ‘Gen Z’ are also equally large or larger cohorts.

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