Posted by: Prashant Gopal on May 07, 2009
Tata, the Indian company that made worldwide headlines with its $2,000 Nano car, now plans to build 1,000 tiny apartments outside Mumbai that will sell for $7,800 to $13,400 each. The company plans to roll out low-cost projects outside other major cities.
Tata’s housing division is targeting a segment of the market that was largely overlooked during the housing boom. India’s builders were concentrating on building shiny new high rises and mansions on golf courses. Builders were after profits, but they were also trying to justify their fast-accelerating land costs, especially in and around Mumbai (formerly known as Bombay) and other major cities.
But some business consultants (most prominently, C.K. Prahalad) were arguing that companies would profit handsomely if they target the “bottom of the pyramid” where the bulk of consumers are. It looks like Tata is taking that advice.
Luxury flats in Mumbai can cost more than ones in Manhattan. But these apartments won’t be luxurious. The Tata apartments will be built on 67 acres in Boisar, an industrial area where many lower-wage commuters already rent. These apartments will be absolutely tiny. The carpeted area of the smallest units will be 218 square feet, too small even for most Manhattanites. The largest units would be about 373 square feet (Click here to see the floor plans). Can you imagine squeezing a family into one of these units? The community would have its own garden, post office, meeting hall, schools, and hospital.
Tata is not targeting India’s poorest people or even the lower middle class. I worked as a journalist in New Delhi in 2007 and paid my driver $1,500 a year — well above the going rate (I’m almost embarrassed to mention this, but expats in India often have drivers).
My former driver, Deepak, considers himself lower middle class. Deepak, 31, lives with his wife, mother and 3-year-old daughter in a small rented room (They share a kitchen and bathroom with others on the same floor). His dream is to own a home. But it’s unlikely that he could ever earn enough to buy one of these units. They are targeted at folks earning an annual salary of $6,000 to $10,000. The average call center employee with 10 to 20 years experience earns 320,000 rupees or about $6,400 a year.
BusinessWeek editors Chris Palmeri, Prashant Gopal and Peter Coy chronicle the highs and lows of the housing and mortgage markets on their Hot Property blog. In print and online, the Hot Property team first wrote about the potential downside of lenders pushing riskier, "option ARM" mortgages and the rise in mortgage fraud back in 2005—well ahead of many other media outlets. In 2008, Hot Property bloggers finished #1 in a ranking of the world's top 100 "most powerful property people" by the British real estate website Global edge. Hot Property was named among the 25 most influential real estate blogs of 2007 by Inman News.