Hunting houses? Tier II & III cities are the next stop

Realty boom in India

Rapid urbanisation and expanding economy have transformed the Indian economic scenario in post liberalisation era and not long after did India started to grow, real estate sector started to grow at a rapid pace.

Real estate industry in India has grown with an unprecedented speed in the last few years. Cityscapes have been decorated with skyscrapers and high-rise apartments and property prices have shot up astronomically in metros like Mumbai and Delhi. However, in the recent past, a new era of growth has been ushered in the smaller cities and real estate industry in these cities holds the key to a sea of developers as well as home buyers.

Tier II and Tier III cities

Tier II and Tier III cities are touted to be the torch bearers of Great Indian Growth Saga by the experts. Tier II cities are the cities with a population of around one million, such as Pune, Cochin, Dehradun, Mangalore, etc. Tier III cities are the minor cities like Nashik, Trichy, Madurai, Baroda, etc where growth scenario has waken up due to industrial and service sector developments.

With real estate market in cities like Mumbai and Delhi witnessing stagnation due to ever escalating prices, smaller cities are the next big thing in real estate sector. Affordability of homes has made them lucrative for customers. As the peripheral infrastructure including transportation, education and employment improves in these cities, the real estate industry is seeing corresponding growth.

Not every city in the bracket of tier II or tier III have the same housing demand. While demand in tier II cities such as Pune, Ahmedabad and Noida exceeds the others by huge margins, there are others like Jaipur, Nagpur, Surat, etc that are not far behind.

What attracts a home buyer to a tier II or tier III city?

1. Employment opportunities have come up in these cities with the growth in manufacturing and service sector. Big companies are expanding their businesses across the country and there is a huge potential for retail growth in small cities.
2. Homes are more affordable in small cities compared to tier I/metro cities.
3. Infrastructure is catching up in these cities. Good quality schools have come up, offering better education; road and train connectivity has improved to near by cities.
4. They are hot spots for property investors as investments promise high returns in long run in these cities.
5. Housing demand is invariably related to the proximity of a location to tier I city such as Delhi, Mumbai, etc. Pune is a classic example of this trend.

Things to consider before investing in tier II and tier III cities:

1. Realtors have been rather slow in moving to these cities. Options for middle class people are extremely limited in most of the areas.
2. Housing complexes with all facilities and amenities may still be difficult to find in many of the smaller cities. While local players do provide a steady flow of supply, the development is slow and the overall level of quality has a long way to go.