Tier-I, Tier-II cities driving growth of real estate in India

Published: June 5, 2018 2:58 PM

For a long time, the growth in the real estate sector is mainly attributed to the metropolitan and tier-I cities. However, there has been a noticeable rise in the participation of tier-II and tier-III cities in the recent past.

real estate in india, real estate investment, housing market, smaller towns, tier I cities, tier II cities, Delhi, Noida, gurgaon, mumbaiProperties in the tier-II and tier-III cities come with a significantly lower base and therefore the ticket sizes are much lower as compared to the large cities.

For a long time, the growth and development in the housing and real estate sector is mainly attributed to the metropolitan and tier-I cities. However, there has been a noticeable rise in the participation of the tier-II and tier-III cities in the recent past.

The trend is welcomed by the market, as smaller cities continue to demonstrate a robust growth in terms of business activities. Thanks to the strong levels of domestic demand and low cost of living, residents of these cities are well placed to save more and buy homes.

The fundamentals

Properties in the tier-II and tier-III cities come with a significantly lower base and therefore the ticket sizes are much lower as compared to the large cities. Land prices are much lower and so does the cost of construction and labour. This is why, the overall cost of developing housing projects in these cities is significantly lesser than the tier-I cities.

Naturally, the housing properties in these projects enjoy the cost advantage. Sample this: One can get a 1500-sq ft 3BHK apartment in the prime areas of tier-II cities like Ahmedabad or Bhopal at Rs 35-50 lakh whereas the same would cost not below Rs 70-80 lakh in any large city like Noida, Gurgaon or Bangalore.

Being a part of national-level programmes such as ‘Smart Cities’ and ‘Atal Mission for Rejuvenation and Urban Transformation (AMRUT)’, the tier-II and tier-III cities have accelerated levels of infrastructure development. Developments like these definitely spell good for their respective housing and real estate markets.

Homebuyers’ perspective

With the tier-II and tier-III catching up pace in terms of economic development, more and more corporate houses are setting up their campuses in these towns. That means the young and talented workforce, who mostly migrate to large metro cities in search of employment, would be retained by these cities and that would want to buy homes as early as possible.

Certainly, given the low ticket sizes, it makes sense to buy real estate in these cities. They are easy to buy and easy to resale also. There is no compromise in terms of construction quality and project delivery. In smaller cities, the project sizes are usually not that large and developers are able to manage that comfortably. Unlike metro cities, rarely there are projects where developers do not deliver at all or delay it for an indefinite period.

It is a relatively safe bet to book a home in tier-II cities such as Ahmedabad, Bhopal, Chandigarh, Coimbatore, Indore and Kochi.

Thanks to the advent of Real Estate Regulatory Act (RERA), the real estate sector is fast moving away from the dubious distinction of being an unorgainzed sector to an industry which is having sufficient regulatory oversight and where interests of homebuyers are well-protected.

(By Honey Katiyal, Founder & CEO, Investors Clinic)

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