Real Estate Industry Focusing Towards Smaller Cities, Tier II & Tier III Cities
The majority of India’s real estate market is driven by metropolitan cities such as Delhi NCR, MMR, Bengaluru, Chennai, and Kolkata. The action in the real estate industry is now set for change towards smaller cities. The scarcity of land resources, high land and construction-related cost, unaffordable property prices, high inventory levels, declining demand, inadequate infrastructural facilities, and a high cost of living are forcing developers and investors to shift their focus towards Tier II and III cities.
The five major factors driving real estate growth in these cities are:
- Well-established industries such as engineering, textile, pharmaceuticals and capital goods and growth drivers including the availability of skilled labour at cheaper rates, lower fixed costs/overheads in smaller towns are leading to higher disposable incomes. Also, cities such as Chandigarh, Coimbatore, Vadodara, Jamshedpur have become the hub of e-commerce while Ahmedabad, Surat, and Vadodara have made huge progress in the industrial sector.
- Availability of land and labour at reasonable rates compared to metro cities will lead to affordable prices of real estate in these locations. The land is one of the major components for a typical real estate project. Thus, lower land costs will lead to affordable rates of residential units and rentals in case of retail projects.
- 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.
- RERA has led to the realization that the industry will be driven by end-users and investors will have a limited role to play. Consumers in tier II and III cities are currently underserved by industry and these cities have a lot of latent demand for the quality real estate at affordable rates. Going forward, as RERA becomes an integral part of planning, developers will turn towards end users and shift their focus to these cities.
- Smaller cities with high mid-income population base are the epicentre of untapped demand for residential segment. Ticket sizes for residential properties in Tier II and III cities are significantly lower, thus more affordable.
From an investment standpoint, these cities offer better prospects. According to NHB – Residex, on a year-to-date basis, Tier II and III cities have witnessed better price appreciation compared to metros. For instance, property prices in Ahmedabad grew by 8.1 per cent, in New Town (Kolkata) by 6.5 per cent, Chandigarh (5.3%), Nashik (5.8%) while prices declined by 5.8 per cent in Gurugram, Chennai (1.5%), Mumbai (3.6%), and remained constant in Kolkata.
Smaller cities are currently under-served markets for quality retail and entertainment experiences while the population has a high propensity to spend. Therefore, many retailers are actively looking beyond the metros to explore opportunities offered by a large consumer base, which is hungry for experiential retail.
Indian real estate industry is evolving rapidly after the recent turmoil and regulatory developments. Focus on end-user driven demand and consequently 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.
Source Link- https://www.moneycontrol.com/