Real estate firms do a Nano...

R Nagaraju, head, corporate planning and strategy, Unitech, calls it "the Nano effect." His company is now pinning its hopes on the sub-Rs 5 lakh (Rs 500,000) category of flats to counter the slowdown in the property sector.

So are a host of others. Apart from Unitech, others such as Omaxe, Raheja, Tata Housing and Ansal API are planning new projects in the suburbs of satellite towns or smaller cities to target the bottom segment, to generate more cash.

New Delhi-based Unitech and the Raheja group are planning to build single-bedroom homes in and around Gurgaon. While Unitech is busy conceptualising the project, Raheja has announced plans to construct 10,000 flats in the Rs 5 lakh (Rs 500,000) range at Gurgaon, the satellite town bordering New Delhi. Tata Housing Development, too, is working out the feasibility of a sub-Rs 5 lakh (Rs 500,000) housing project.

Unitech plans to launch mid-segment residential projects in the Rs 5-10 lakh (Rs 500,000-1 million) range in metros like Chennai and Kolkata, and suburban cities like Gurgaon, over the next few months.

Another developer, Omaxe, is planning a sub-Rs 4-10 lakh (Rs 400,000-1 million) project at Peetampur and the Dewas industrial area near Indore to target workers. In the first phase, to be launched in the next 10 days, Omaxe would launch 5,000 flats and in the second phase, 5,000 more flats, the company said.

"The inspiration to develop smaller and cheaper apartments comes from the Nano, which is eliciting a tremendous response. I am sure our project will see a similar response, given the fact that we will come up with such low-cost apartments near metros," said Nagaraju.

"Many industries around Udyog Vihar and Manesar are looking for houses for their workers. Our demand survey has shown tremendous interest among such firms to provide houses for their employees in the vicinity of the workplace. The new project will take care of their interest," said Navin M Raheja, managing director, Raheja Developers.

"Nothing is selling today, as people do not have money. When both large and mid-income projects are not selling, developers have to come up with smaller projects, though they cannot earn the 30-50 per cent margins that they used to make earlier," said Akshaya Kumar, chief executive of Park Lane Property Advisors.

Developers are battling slowing sales since the beginning of 2008. Higher property prices, which more than doubled in metro cities during 2004-07, and high interest rates have made property buyers stay away from new purchases. Despite a nearly 30 per cent fall in property prices and a cut in loan rates from 11 per cent to 8.5 per cent in recent months, property sales have fallen 70 per cent from their peak last year.

DLF, Unitech, Parsvnath and all other major developers have entered the Rs 20-40 lakh (Rs 2-4 million) segment to generate liquidity, even as their top line fell as much as 80 per cent in the last quarter.

But property experts believe sub-Rs 5 lakh (Rs 500,000) projects have few takers, even in smaller cities like Indore. "Even a good wage earner wants to stay in a comfortable home, which costs between Rs 8 lakh (Rs 800,000) and Rs 10 lakh (Rs 1 million) in smaller cities and Rs 18 lakh (Rs 1.8 million) and Rs 20 lakh (Rs 2 million) in the metros," said a top executive of a New Delhi-based realty firm who did not wish to be quoted.

"At such as a price (sub Rs 500,000), either the houses have to be small or not in a good location. Prices should at least be in the range of Rs 10-15 lakh (Rs 1 to 1.5 million per flat) for a project to make profit," said Kumar of Park Lane Advisors.

But developers are still launching projects to generate cash. Ansal API has launched 4,000 apartments in Jaipur, Jodhpur, Agra and Meerut. "We have priced these apartments in the range of Rs 5-10 lakh (Rs 500,000-1 million) per unit, keeping in mind customers who are ready to buy small apartments. The size of a one-bedroom apartment is 500-550 sq ft, while a two-bedroom apartment has an area of 850-900 sq ft," said a company spokesperson. The company will launch another 6,000 apartments in the coming months.

Inputs: Raghavendra Kamath and Neeraj Thakur.