How the rise of Tier 2, Tier 3 cities is driving a realty rally

Published: February 13, 2020 1:02:08 PM

High property prices and overburdened infrastructure in metros, as well as Smart Cities and AMRUT, are all contributing to a steady shift of people and companies to small cities.

real estate, real estate in India, Tier 2, Tier 3 cities, metro cities, Housing for All by 2022, Delhi, NCR, Mumbai, Kolkata, Chennai, Bangalore, Gurgaon, ghaziabad, Noida, Smart Cities, AMRUTAffordability, better road-and-air connectivity, spacious homes, walk-to-work options with the rise of local industries and other conducive factors have all contributed in small cities and towns facilitating a realty rally.

Over the decades, as metropolitan cities in India were flooded with migrants, the influx led to growing shortfalls in civic facilities. As the number of residents rose every year, living conditions gradually went from bad to worse. Conversely, property rates kept rising with each passing year, making most people’s chances of owning their home a distant dream. Metros such as Mumbai, Delhi, Kolkata, Chennai and Bangalore, etc. all became progressively difficult to live in because of overcrowding, chaotic traffic, soaring pollution, crumbling civic facilities, etc.

Nonetheless, every dark cloud harbours a silver lining. With the tier 1 cities unable to cope with the relentless rise in numbers, the nearby cities and towns began attracting attention. For instance, Delhi’s burgeoning populace began settling in nearby places such as Gurgaon, Ghaziabad, Noida, Greater Noida, Faridabad, Sonepat and Meerut. In Mumbai, people began shifting to Vashi, Virar, Kalyan, Navi Mumbai and other outlying regions. The biggest advantage of these places was that property rates were affordable.

Smart Saviours

Recognising this trend, the Central and State governments began establishing these regions as satellite cities/towns to ease the burden on tier 1 areas. The benefits of smart planning in creating more liveable cities slowly became apparent. Chandigarh was already an excellent example of the smart planning model in post-Independence India.

The first contours of urban planning emerged via the Jawaharlal Nehru National Urban Renewal Mission (JNNURM) – a programme launched in 2005 for massive modernisation of cities. As many as 65 mission cities were shortlisted (Bhopal, Jabalpur, Dehradun, Imphal, Nanded and Pondicherry, to name a few) based on the Census 2001 urban population.

Those early lessons are now being taken to an entirely new level through the Smart Cities’ mission. Beginning with 100 Smart Cities, the list has presently grown to 105. Along with the ‘Housing for All by 2022’ programme, the Smart Cities’ mission has come as a turning point of sorts for real estate developers. Both the Central programmes have shifted the focus to tier 2/3 zones.

Recent empirical evidence indicates a growing tide of people is opting for tier 2/3/4 cities/towns. In fact, the latest Economist Intelligence Unit survey lists three Indian cities among the world’s fastest-growing urban zones – Malappuram (No.1), Kozhikode (No.4) and Kollam (No.10). Incidentally, all three fall in Kerala, none are in the 100 Smart Cities’ list and, yet, they are akin to future smart cities.

Clearly, the rapid rise in urbanisation is occurring for varied reasons, not just the Smart Cities’ mission. The emergence of many industries, including sunrise sectors and start-ups, has witnessed the ascent of tier 2/3 areas where large land parcels are available at affordable rates. Even IT companies have set up base in places such as Hyderabad, Pune, Gurgaon and Ahmedabad, among others.

Beneficial Shift

The same scenario began repeating itself in non-metro cities. As a 2019 Consumer Sentiment Survey reveals, realty investors have been moving to tier 2/3 cities, with 26% of property investors viewing Ahmedabad, Kochi, Chandigarh, Jaipur and Nashik as hot destinations. Affordable property prices apart, companies believe growth prospects are better in such regions, unlike saturated metros. Significantly, small cities are also backed by other official initiatives such as AMRUT (Atal Mission for Rejuvenation and Urban Transformation). Unlike tier 1, implementation in non-metros is moving much faster.

Another attraction in the growth of small cities is that people, particularly Generation X, feel this is an excellent option for moving closer to their native place. With numerous residential projects underway, people have the opportunity of enjoying the kind of lifestyles they find in tier 1 areas. Even Generation Z is more than happy to invest or resettle here as employment and entrepreneurial opportunities are increasing each year.

Property investments in hometowns are also considered an excellent after-retirement-years option by millennials, especially if retired elders are present to oversee the property. Furthermore, robust rental returns act like icing on the investment cake. Additionally, for millennials, the work-from-home concept of the cities is gradually being replaced with a ‘work-from-hometown’ ethos. What’s more, in tier 2/3 cities, walk-to-work is a ground reality, unlike the metros.

The authorities also benefit from promoting satellite towns since it relieves the pressure on overburdened metros. This works perfectly in advancing the ‘Housing for All’ programme too since land is available at lower rates. Consequently, many housing hubs have mushroomed in NCR zones such as Noida, Ghaziabad, Faridabad, Manesar, Ballabhgarh, Meerut, Sonepat and others. Take Faridabad. Some years ago, the popular refrain was the city would never match its true potential. But a 4.4-km, six-lane flyover at Badarpur in 2010 transformed the scenario overnight.

The advent of Metro services later worked wonders by boosting connectivity between Faridabad and Delhi-NCR. Similarly, the start of Metro services (or commencement of work) in other cities such as Ahmedabad, Lucknow, Kochi, Nagpur, Pune, Jaipur, etc. has spurred greater residential and commercial activity by developers. Recognising the opportunities, MSMEs, Indian companies and MNCs have all opened offices or units in these regions. As land and talent both remain available at reasonable rates, shifting to smaller cities is a cost-effective option.

Moreover, as MSMEs and other companies gravitate towards a particular region due to varied advantages, it soon creates industrial clusters, further reducing operational expenses. Surat (gems and jewellery), Ankleshwar (chemicals), leather (Kanpur), textiles (Tirupur and Ludhiana), Baddi (pharma), Pune (auto components) and marble (Kishangarh) are some examples of industrial hubs.

Undoubtedly, affordability, better road-and-air connectivity, spacious homes, walk-to-work options with the rise of local industries and other conducive factors have all contributed in small cities and towns facilitating a realty rally. Not surprisingly, both big and small developers are making their presence felt in all these geographies – auguring well for the real estate industry and the Centre’s ambitious ‘Housing for All by 2022’ programme and the Smart Cities’ mission.

(By Anand Singhania, Chairman, CREDAI MSME Wing)

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