A greater portion of India’s real estate market is concentrated in metropolitan cities like NCR, MMR, Bengaluru, Chennai and Kolkata. But, the real estate industry is now eyeing smaller cities like the Tier I and Tier II. Developers are moving from metropolitan cities to Tier I and Tier II cities for various reasons like scarcity of land resources, unaffordable property prices, high land and construction-related costs, declining demand, high inventory levels, inadequate infrastructure facilities and high cost of living.
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The scarcity of land resources, high land and construction-related costs, unaffordable property prices, high inventory levels and declining demand are forcing developers and investors to shift their focus towards Tier II and Tier III cities. Also, the urban population in India is expected to surpass 850 million by 2050. Around 50% of such population is expected to be in the age group of 19-58 years. This means there will be a huge demand for housing in the future.
See Also: BBMP Property Tax
Following are 5 major factors driving real estate growth in Tier I and Tier II cities:
The first and foremost reason is that land and labor rates are reasonable in Tier I and Tier II cities when compared to metro cities. This automatically leads to affordable prices of real estate in the respective locations. Lower land rates mean affordable residential properties and rentals. The ticket sizes for residential properties in these cities are lower and more affordable. Mortgage or Home Loan lenders are aiming to grow their home loan book and expanding their network to new locations in these cities, given the strong growth potential.
Tier I and Tier II cities have well-established industries such as engineering, textile, pharmaceuticals and so on. While cities like Chandigarh, Vadodara and Jamshedpur are the hub of e-commerce, Ahmedabad, Surat and others are making tremendous progress in the industrial sector.
Recently, the Central Government released a list of 20 cities which would benefit under the Prime Minister Narendra Modi’s pet scheme ‘Smart Cities Mission’. To make this happen, these cities have also been conferred upon favorable government policies. Infrastructure development is also evident in the form of airports, flyovers, metros, and so on. The Credit Linked Subsidy Scheme (CLSS) under the PMAY (Urban) is making housing for EWS/LIG/MIG beneficiaries possible.
Tier I and Tier II cities offer great investment opportunities. According to NHB, Tier II and III cities have seen better price appreciation compared to metros. Property prices in Ahmedabad grew by 8.1%, Chandigarh by 5.3% while prices declined in metros like Gurugram by 5.8%, Chennai by 1.5% and Mumbai by 3.6%, but remained constant in Kolkata.
Developers are not only aiming at residential projects, but also the warehousing space. Growing businesses like Amazon, Walmart and so on are planning to have strategic locations in remote cities in Indian sub-regions to meet the growing demand.
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