From India: First Nano's $2,000 Car. Now the $7,800 Nano Home

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Michael Rubenstein / Redux for TIME

Ratan Tata, head of India’s giant Tata conglomerate, at the Taj Palace Hotel in Mumbai

India's giant Tata conglomerate, whose subsidiary Tata Motors just successfully launched the $2,000 Nano, the world's cheapest car, is ready for an encore: ultra-cheap homes. (Read "The World's Cheapest Car Debuts in India.")

Tata Housing Development, the real estate arm of the giant Tata group, is poised to start building apartment-style homes priced from $7,800 to $13,400 in a township being planned at Bhoisar, an industrial suburb located 31 miles (50 km) north of Mumbai. Like the Nano, which was designed to bring some middle-class comforts to the masses, the homes are geared for the hundreds of millions of Indians making less than $5,000 a year who are unable to afford decent dwellings. "We have realized that there is an opportunity at the bottom of the pyramid," says Brotin Banerjee, CEO of Tata Housing Development. (Read "India's Top Automaker, Tata Motors, Hits a Rough Patch.")

The homes will be built in three sizes, all extremely cramped by Western standards: 283 sq. ft. (one room, including kitchen plus a bathroom), 360 sq. ft. (ditto), and a 465-sq.-ft. model with a tiny bedroom. In addition to the modest proportions, Tata is relying on economies of scale and careful sourcing of materials to keep costs low. The Mumbai project, for instance, will get its steel from group company Tata Steel, which has plant at nearby Tarapore. Land-acquisition costs will be minimized by giving the original landowner a percentage of each project's returns. The homes will occupy cement buildings no more than two stories high, because construction costs go up as buildings get taller. There will be eight to 12 homes per building.

Bargain-basement housing is a departure for Tata, which previously has developed luxury apartments costing upwards of $220,000, along with office complexes and shopping malls. The property company is planning to build 4,000 of the low-cost homes across India over the next four years. Projects near Bangalore in the south and Gurgaon in the north are the next destinations.

Tata officials say they expect demand to be strong, even though India's once-booming real estate market has been deflated by a slowing economy and the global credit crunch. India has a shortage of 24.7 million dwellings in its major cities, according to a recent joint study by McKinsey and the Federation of Indian Chambers of Commerce. Housing shortfalls are exacerbated by migrant workers streaming into many cities who are forced to live in slums made up of shanties lacking basic amenities like sanitation and running water. Roughly 70% of India's 1.2 billion people live on less than $1 a day.

With the high end of the property market in a downturn, other developers such as Unitech, Puravankara and Ansals are now eyeing low-income housing. ICICI Ventures, the venture funding arm for India's largest private bank, has a project underway in Pune. The apartments, which come in 450 sq. ft. and 800 sq. ft. versions, are priced at $22,000 and $38,000.

Buyers are already flocking to the Tata construction site at Bhoisar. Overwhelmed by the response, the company is beefing up security to handle the rush. Customers can book flats by paying an initial installment of $200; successful applicants will be chosen by lottery. The Bhoisar township, the first phase of which will have 1,244 apartments, is expected to open for occupancy in two years.

See the 10 things you should know about the Nano.

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