Affordable homes - Good for Investment

The concept of affordable housing is a gift of the downturn. Like it is said, ’sweet are the uses of adversity’. While at no time is an economic downturn useful or welcome, the 2008 recession gave those looking for homes in the Rs 20 to Rs 35 lakh segment something to cheer. The lack of activity in the midrange segment led many developers to venture into the affordable homes market. The result is a concept here to stay. Affordable homes typically combine the best of both worlds to the extent possible. The carpet area is relatively smaller but many of the other basic amenities are offered. This is possible due to the relatively lower land costs at locations these projects are developed in - invariably in the suburbs. Land forms a large chunk of an apartment’s cost and when this cost is low, the apartment can be sold for a much lower price tag. This is also the reason why an apartment in the core city areas is expensive even if the carpet area is lesser too. The largest buyer-base for affordable homes is the salaried segment and the individual entrepreneurs running small business setups. As the number of nuclear families increases, the demand for affordable homes too goes up. Though a new phenomenon in the city this market segment has already indicated that it holds huge potential for developers as well as investors.

Location and connectivity

A unique aspect of an affordable homes project is its relative price advantage in the near term. As connectivity improves thanks to the many road development projects or the Metro Rail, the neighbourhood will have more residential and commercial projects being developed. This in turn will lead to a market for social infrastructure. It will then not be long before the locality turns into a self-sufficient neighbourhood and prices escalate with more demand for property. Then, the erstwhile affordable homes project will command a much higher price. Those who, in this context, buy an affordable home early, are holding a good investment too, that will earn them handsome capital gains in a matter of time.

Base for second home

The capital gains the home earns over time helps those looking for a bigger property in a matter of time. Liquidating or mortgaging it helps in making a downpayment for the second home comfortably. In the current times, an affordable homes project serves as an efficient hedge against inflation.

Temporary option

For young couples relocating to the city for a job, or for those looking at setting up home after marriage, this is a viable temporary option - for those who plan for a larger accommodation later on. This saves on rent while developing a corpus alongside. Also, given the tax advantage on home loans, it is an ideal option for an interim period before the combined earnings afford them a bigger home. Investment angle

Affordable homes serve as good investment options for property investors who don’t have a large budget. It is easy to find a tenant as the rentals will also be relatively lower. The capital appreciation, especially in emerging localities, will be sharp. Property investors now have the option of investing in a mid-range home in the city and a budget home project on the outskirts, across long and medium - term horizons.