Om Prakash, a tailor and a thirdgeneration resident of Dharavi, India’s largest slum, has a steady job and some savings, but he cannot imagine setting foot on the property ladder.

Built on a man-made island, his home city of Mumbai is desperately overcrowded. More than half its 18 million inhabitants live in shantytowns, many, like Mr Prakash, paying significant rents for the privilege. The slum landlords know that their tenants have little scope for negotiation: a 70 sq m flat near the centre of town costs upwards of £300,000.

“We ask God to help,” said Mr Prakash, who earns about 7,500 rupees (£94) a month, “but in this city I don’t think good property is within the grasp of ordinary men.”

A change in strategy by India’s property developers could answer Mr Prakash’s prayers, along with those of millions of other tailors, drivers, maids, teachers and tea stall owners who long for a place of their own. The developers’ plans hinge on two elements: a new building boom that is set to give rise to a slew of ultra-cheap apartments, and a fresh incarnation of sub-prime mortgage lending.

In the wake of the global credit crisis, house prices collapsed by as much as 50 per cent in some Indian cities. Worst hit was the market for luxury homes, previously the focus for most residential builders. Left with large numbers of pricey apartments unsold, property companies are moving to broaden their buyer base by building super-low-cost homes for India’s working poor.

The most prominent company in this fast-expanding budget market is Tata, the conglomerate that makes the £1,200 Nano, the world’s cheapest car. It is building 1,500 über-basic flats at Boisar, on the northern fringe of Mumbai. The cheapest are priced at 390,000 rupees (£4,900) — within the reach of Mr Prakash’s family.

Other companies are setting the price bar even lower. East of Mumbai, Matheran Realty is building 15,000 flats, starting at 210,000 rupees (£2,625). Costs are being kept low by building far from the city centre, where land prices can rival those in Central London or Manhattan.

Tata’s “nano flats” are also limited to three stories, to avoid expensive structural work, while the use of lightweight precast blocks means that the buildings go up quickly.

Indeed, no stone has been unturned in the mission to slash costs: spending on publicity, which usually accounts for 5 per cent of the top line on a residential development, was cut to 1.5 per cent. Even so, such was the hype around the new “nano flats”, the project was five-times oversubscribed in a matter of days.

Those buyers lucky enough to be chosen through a lottery will get what they pay for: measured by “carpeted area”, Tata’s smallest homes are only 218 sq ft, about a third of the size of a squash court. The most basic are one room, with a sink in the corner and a toilet behind a partition. Still, they will beat most slum dwellings: in Dharavi, India’s largest shantytown, there is a stall of six lavatories that serves 16,000 people.

According to Brotin Banerjee, the Tata Housing managing director, providing safe, cheap homes fits well with the group’s history of philanthropy. McKinsey, the consultancy, estimates that India needs 25 million new homes. “The Government is not going to be able to provide them by itself,” Mr Banerjee said.

He also believes that targeting the working poor makes commercial sense. According to Monitor Group, another consultancy, India has 180 million households earning between 90,000 and 200,000 rupees a year, precisely the income levels that Mr Banerjee is catering for. Many in this bracket — including Mr Prakash — had been barred from buying property by the impossibility of accessing credit. To tackle that problem, Tata has teamed up with a microfinance institution that will advance loans without requiring reams of documentation. Other state-backed lenders have been ordered to extend cheap credit to low-income homebuyers by India’s central bank.

With the sub-prime credit flowing, Mr Banerjee sees his little homes as a source of big profits. “There is massive pent-up demand,” he said. “These people are poor, but that doesn’t mean they don’t have aspirations.”

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