Up and Away – The rise of the large flats in Urban India

Buying a house – particularly for the first time is always a significant event for a family. There are various factors related to the property (location, cost, size etc.) as well as the family (savings, asset allocation, liquidity, income potential, age etc.) which play a key role in the decision.

Today let us look at one variable – the size of the unit and how it impacts us. This also manifests itself in the need to move from 2 to 3 bedroom apartments.

Average unit size aspiration has gone up

Recently Housing.com and Makaan did some research which showed us that the average unit size aspirations of Indians in cities continues to grow and it was around 1300 square feet.

Hyderabad leads the way with an average aspiration of 1757square feet followed by Gurgaon (1600) and Bangalore (1409). The only exception is in Mumbai where the aspiration has gone down to 875 square feet (down 8%), possibly because of the high prices.

This is in line with global trends. In the US, the average home size has increased by a 1000 sq. feet over the last forty years and is now 2687 sq. ft.However, financial planners in the US have started pointing out the challenges with such large apartments.

So does larger apartment size help?

We all love having more space for ourselves. From the days of having a joint family in a 1 or 2-bedroom house, having a larger 3-bedroom house for nuclear families (typically couple and 1-2 kids) has increased the space available per individual. In addition, the larger apartments tend to be inside gated communities which offer more facilities and space for our children.

This UCLA study in the US highlights the downside of such large apartments

“costly but virtually unused “master suites”; children who rarely go outside; stacks and stacks of clutter; entire walls devoted to displays of Barbie dolls, Beanie Babies and other toys; garages so packed with household overflow that cars have to be parked on the street”

While the context in India needs to be studied, one also has to keep in mind that education is very important to us and time and again we come across families sending their children abroad for education.

From a sustainability viewpoint also, larger houses inhabited by fewer people does impact the environment adversely.

What are the financial implications

Typical financial implications are the following

• Apartment value – Increase in size is another form of leverage! If the real estate prices go up then there is significant capital appreciation from larger flats. However, if it remains flat or starts to fall (what we are seeing over the past 4-5 years) then this can be a burden
• With more size comes more EMI!! – As the size increases the overall cost of the apartment goes up. Of course, if the property is brought with own funds then it locks up capital
• Increase in community maintenance cost – In most communities, maintenance is computed based on the apartment size. This expense will increase in the coming years
• Cost of maintaining the apartment – there is an increase in this cost as well

What we can do?

Ultimately the size of the ideal house would be different for each individual considering their circumstances. Also, the emotional satisfaction from living in a dream house (of the right size) with our family cannot be measured.

Purely, from a financial and maintenance viewpoint, we need not blindly follow the trend. Be it an increase in the size of the apartment or moving to three bedroom apartments, understanding our current situation, future income and needs will help us choose the right size. In the long run, compact houses are easier to maintain and are easier on the pocket as well!