Globally, micro-homes are not just becoming popular amongst the prolific single household segments, but are also a hot pick amongst the investor fraternity. All around the world, when the appetite for debt is narrowing down and investors are constantly scouting for risk-adjusted returns – micro units are making a stellar self-reputation for their higher rate of appreciation and better rental yields. In the UK alone, it is estimated that over USD 1.25 billion has been poured into the micro-home segment in 2017. Similar sentiments prevail in other major markets. A separate research by REI Investors, an upcoming real estate investment and educational platform, has suggested that it costs less than USD 100,000 to own a micro-unit in the USA against a return of up to 14% annually. This is indeed a huge number to be discounted!
Micro or tiny apartments, as they are called in some parts of the world, enjoy a very high occupancy due to accelerated demand, backed by growing single households, nuclear families, students and frequent business travelers. High demand coupled with better utilization of the available space makes such apartments conducive for clocking higher capital and rental returns.
As the millennial population continues to move northwards and hovers above 40% in most of the global cities, micro-homes will continue to enjoy uninterrupted demand in the times ahead and in most of the major metropolises of the world.
Investment into India
It is estimated that over 400 million Indians have been born after 1982 and before 2000, thereby making Indian millennial population the largest around the globe. A sizable part of the booming millennial population has travelled or studied internationally and is well exposed to the global standards of business and living. They share the same ethos and value system as their international counterparts. They are socially well aware, love individuality, seek self acclaim and are open to experiment.
With such a rising footprint of the Indian millennial, it is obvious that their residential requirements cannot be fit into traditional homes. They would definitely need more from their homes than just a place to live. They would seek more individualistic experience and facilities that can ensure a quality life. At the same time, their budgets are also limited and there is a growing abhorrence to get entangled with high debt at the onset of the career itself. This puts the micro-apartments priced in the range of 25-35 lakh the sweet spot of an average urban dwelling millennial buyer in India. Although micro-homes are in nascent stage in the country, it has every possible potential to take off in big volume, given the size and economic clout of Indian youth.
Strong Investment Potential
Although there is a restricted supply of small and swanky micro-homes, given the fact that it takes very little time for a studio or a one-BHK to get absorbed in the market, there is ample unmet demand for such tiny units. The attractiveness around such smaller units imply that at a time marked by structural decline of residential real estate as an asset, micro-homes could be the new investor favorite in the country. These small ticket size investments which involve very limited debt but can ensure very high return will naturally pull the pure-play investor fraternity. Of late, the Indian realty has been mostly end user driven with investment activities restricted to the fringes. However, micro-homes can alter the current state and entice more investors to enter the residential realty markets, thereby mirroring a new paradigm.
Globally, rental returns in micro-homes are 50 to 100 basis points higher in general than regular homes. Similar trends will prevail in Indian cities, as per the research conducted at 360 Realtors. As the demand is high for smaller units, capital concentration around them will soon pick up.
Micro-homes can offer suitable opportunities for pure-play investors who are scouting for lucrative deals to accelerate their wealth and income. The attractive potential returns in micro-homes will stem out from higher rental yields along with potential capital appreciation. At a time when price growth in many major micro markets are either stable or are showcasing moderate growth, residential markets will continue to remain mostly end user driven. However, micro homes will continue to offer steady risk-adjusted returns both in the longer and shorter time span. Going forward, both domestic and NRI investors will continue to pivot to smaller units such as micro-homes. A smaller ticket size will also spur investments as it significantly reduces the entry barriers.
(By Ankit Kansal, Founder and MD, 360 Realtors)