The Indian economy remains a bright spot amidst the global economic turmoil witnessed on account of supply chain disruptions, various conflicts and the COVID-19 pandemic. The country’s economy remains competitive and stable, thanks to its domestic resilience! Much of the resilience has come from the growth of Tier 2 and Tier 3 cities, which are the development centres and promise socio-economic growth. Thousands of prospective homebuyers and investors see these cities as a substitute to polluted, overcrowded metros. Some key names include Lucknow, Chandigarh, Ludhiana, Bhopal, Indore, Kochi, Amritsar, Goa, Guwahati and Jaipur, among others.

These cities are fast emerging as real estate markets where a robust housing segment continues to complement the overall infrastructure growth. Other cities such as Agra, Coimbatore, Patna, Srinagar, Thane, Vadodara, Varanasi, Visakhapatnam, Bhubaneswar, Gwalior and Udaipur are also on the list of emerging markets.

In the future, these cities will be at par with the metros and offer plenty of investment opportunities in residential and commercial segments. There are reasons to believe this:

Economic growth and good connectivity

Most of these cities are gradually transforming to be the economic powerhouses while contributing to the state and national GDP. Rising levels of infrastructure development and connectivity have added to the economic boom. For example, Lucknow, in recent years, has expanded around its periphery and has attracted millions in investments. New businesses and companies have set operations boosting employment and local economy. The state capital of Uttar Pradesh is now a connecting link between cities of the state and the National Capital Region (NCR).

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Cities like Ludhiana and Indore are now a part of the country’s developing multi-modal logistics network that promises to strengthen the supply chain in the country. Kochi and Amritsar are already on the international tourist maps and are popular globally. Several of these cities have now got their designated special economic zones. These, in turn, continue to add to the employment potential of these cities.

High rental yield and appreciation potential

Investments made in Tier 2 and Tier 3 cities have the potential to grow. Developing infrastructure, rising levels of connectivity have turned these locations into popular real estate hubs. As a result, group housing projects coming up in these cities offer capital appreciation and high rental yields. The yields are often higher than those in bigger cities. Realty investors and genuine end users look at these cities and the projects for their lower average prices, steady growth in rates and availability of open spaces in and around their properties. One can expect rental yields to be as high as 12-15% in Tier 2 and Tier 3 cities for commercial properties and 5-7% for the residential segment.

Presence of branded developers

Owing to the growth potential, listed and branded developers have added these cities to their portfolios and have set operations in recent years. For homebuyers, it means quality supply at competitive rates. These projects offer amenities similar to projects available in the metros. COVID-19 has driven a lot of latent demand into Tier 2 and Tier 3 cities. Moreover, the new work from home (WFH) dynamic has worked most strongly in developers’ favour. The hybrid work culture will continue to attract migrant professionals to Tier 2 and Tier 3 cities and will propel more developers to enter these regions with quality project offerings.

The outlook

In the coming quarters, the country will likely witness an increase in residential and commercial supply. A significant portion of the housing supply will come to Tier 2 and Tier 3 cities in addition to the Tier 1 metros. Development firms are figuring out where the maximum post-epidemic housing demand will be in order to determine where to focus their next efforts – Tier 2 and Tier 3 cities are the places to look for future growth.

(By Rohtas Goel, Chairman, Omaxe Ltd)