More than half of India’s real estate market is driven by metropolitan cities such as NCR, MMR, Bengaluru, Chennai, and Kolkata. The key drivers of the Indian real estate industry are now set to change towards smaller tier 2 and tier 3 cities. Many of these cities are seeing increasing economic activity and infrastructure growth, at a significant rate reducing the outward migration to metros. This shift will eventually result in a more uniform spread of real estate demand across the country, and reduce the pressure on the larger cities.
The prices of residential properties in tier 2 and tier 3 cities and towns start from a significantly lower base, due to cheaper land prices and also because active developers in these cities are more aligned with affordability. Buyers tend to be more cost-sensitive as economic drivers in the city may not be at par with those in the larger cities. Also, under the incumbent government, many of these cities are now seeing significant infrastructure deployment. Quite a few have come under the Smart Cities program, which bodes very well for their real estate markets. Conducive government policies and thrust on physical infrastructures like airports, flyovers, metro corridors, and expressways are fuelling rapid growth in smaller towns. For instance, smart city project plans to build 100 smart cities. Besides this, National Urban Housing Fund has been approved by the union cabinet with an outlay of Rs 60,000 crore. Under the Credit-Linked Subsidy Scheme (CLSS), housing for EWS/LIG/MIG beneficiaries is being sanctioned by the HFCs under the Pradhan Mantri Awas Yojana (Urban). The target is to cater to the demand of housing shortage of 1.2 crores (approx.) and fulfill government vision of ‘Housing for All’ by 2022.
Economic drivers in tier 2 and tier 3 cities determine its options for investments which are favourable for higher returns.
Availability of land and labour at reasonable rates compared to metro cities also lead to affordable prices of real estate in cities like Lucknow and New Chandigarh. Land is one of the major components for real estate projects. Thus, lower land costs lead to affordable rates of residential units and rentals in case of retail projects.
Residential real estate in tier 2 and 3 cities are mostly untapped by developers and these cities have a lot of latent demand for quality real estate at affordable rates. As RERA now becomes an integral part of real estate, the developments and transactions will take place in an orderly fashion.
According to National House Bank Residex, on year-to-date basis, tier 2 and 3 cities have witnessed better price appreciation compared to metros. For instance, property prices in Chandigarh grew by 5.3%, and Nashik (5.8%) while prices declined by 1.5% in Chennai, 3.6% in Mumbai and remained constant in Kolkata.
Indian real estate industry is evolving rapidly after the recent turmoil and regulatory developments. Focus on end-user driven demand and consequent shift towards smaller towns is at the focal point of this change. While it may not help everyone, those who will embrace changing market dynamics will emerge as winners.
We at Omaxe have been successfully delivering homes in Northern India including Uttar Pradesh, Punjab, Haryana and Delhi NCR to name a few. With our presence in 8 States and 27 cities across Northern India, specialising in commercial and residential real estate, we are one of the few leading real estate companies who has cleared all the latest government regulations and reforms such as RERA. To know more about us, call us at +919015161718 or log onto www.omaxe.com