Not just in large cities, buying residential properties is getting costlier in smaller towns. Tier-2 cities like Raipur, Gandhinagar, and Lucknow and Tier-3 towns like Coimbatore have witnessed over 15% y-o-y change in home prices till March 2022.
So what is driving higher residential housing prices in smaller towns? According to an SBI Research report, the increasing trend of work from home and freelance jobs since the start of the Covid-19 pandemic has led to higher demand for homes in smaller cities and towns, and hence higher prices.
“Housing prices have increased significantly in smaller cities and suburbs than in major cities over the last year. Many tier-2 cities including Vishakhapatnam, Guwahati, Raipur, Surat, Vadodara, Jaipur, Lucknow, Dehradun and tier-3 city Coimbatore have witnessed higher growth in housing prices. Has increasing trend of work from home and freelance jobs led to higher demand of homes in smaller cities and towns? We believe so!” SBI Research said in a Special Report on Emerging Trends in Residential Housing.
How home prices have increased in Tier-1, Tier 2 cities
What is driving the home buying decision?
The report noted that buying decisions are not pivoted to price alone any longer.
“…home buyers’ decisions are increasingly being shaped by significant intangibles viz. locality, facilities offered, distance to essentials/necessities (education, healthcare, financial), common as well as exclusive facilities offered and future growth prospects of the area as housing emerges as a safe and reliable investment option too (in particular, for secondary/tertiary buyers),” it said.
Due to the Covid pandemic, companies in the private and public sectors resorted to ‘work from home’ policy during the first wave in 2019. Many companies are still continuing with the work from home mode, or have moved to a hybrid model as a post-pandemic strategy.
“The increased job opportunities coupled with the lower cost of living had already led many to start shifting their bases away from over-crowded metropolitan cities. Several top-tier developers had already launched international quality lifestyle residential projects to cater to the changing demand patterns. The government’s infrastructure focused schemes like AMRUT and Smart City projects is also helping in developing world class infrastructure in these cities,” the report said.
The number of female borrowers has increased significantly in FY 2022 in tier 3 and 4 districts. “Among the top 20 districts with the highest share of female borrowers in fresh home loan disbursal in FY22 (which are mostly rural), 6 districts are from Chhattisgarh, 3 from Gujarat and Haryana each. These districts have on an average 49% female share in total population,” the report said.
Interestingly, the fresh disbursal of home loans has also increased more in tier 2 districts and below in FY22. The implying ticket size of loans disbursed in smaller districts has also increased in Tier 3 and Tier 4 cities.
New trend: Digital offices within residential homes
According to the SBI report, a new trend of having digital offices within residential homes has started.
“As the pandemic forced buyers to reassess the work-life balance, cities having better infrastructure connect have found renewed interests from new-gen buyers whose digital lifestyle enables them to connect to work from anywhere,” the report said.
The report said that metro cities, facing a crunch in land availability in better localities/prime areas that have greater connectivity and infrastructure proximity, can do well to initiate substantial redevelopment and mixed usage projects to cater to the ‘walk-to-work’ model.
Doubling home loan market
According to SBI Research, India’s home loan market is expected to double in the next five years from the current Rs 24 trillion, mirroring the country’s aspirations to become a US $5 trillion economy by then.