Real estate in smaller cities to get a boost
Over the years, real estate has grown vastly in the prime cities of India such as Mumbai, Delhi-NCR, Chennai, Bangalore and Kolkata. The leading cities witnessed rapid growth with the wide-spreading industrialisation attracting massive population.
After the tier-1 cities, now it’s time for the tier-2 and tier-3 cities to see significant pressures on their infrastructure and sustainability. Many such cities have been witnessing strong economic development in the past decade, mainly due to the increased participation of private sectors.
Factors including proximity to key cities, various infrastructural developments, industrial developments, employment opportunities and SEZs, are the fundamental drivers for real estate development in smaller cities.
Low cost
Developing any infrastructure or real estate project in a small city involves less cost compared to the development expenditure required in prime cities due to different factors such as slow and rather uneven development of infrastructure, high cost involved in execution and completion of projects, shortage of labour, skyrocketing land and operational costs in key cities. This is one of the attracting developers and investors towards the tier-II and tier-III cities.
The cities include Ahmedabad, Jaipur, Bhopal, Nagpur, Chandigarh, Mangalore, Kochi and Coimbatore among others.
Plans of JnNURM Phase-2
Urban development ministry has also planned to enhance its focus on smaller towns and cities in the next phase of JnNURM (Phase 2). However, the Urban Local Bodies were unable to benefit much from phase I of JnNURM. The State Governments will set up dedicated Municipal cadres to avail of funds under JNNURM phase II.
While the phase 1 of JNNURM had focused on planned development in cities, while sanctioning projects related to urban transport, water supply and sewage, etc, the second phase is planned to be more reforms driven. The government focuses on building information technology enabled transport systems and developing smart cities in JNNURM 2.
The JNNURM 1 was launched in 2005 in order to bring up improvements in cities in phased manner for seven years. The tenure has been extended for two more years till March 2014.
Change in SEZ policy
Another important aspect that is likely to contribute to the growth of tier-II and tier-III locations is the amendment in land use policy for SEZs. Two months ago, the Centre has removed the mandatory requirement of 24.7 acres of minimum land area for setting up an IT/ITeS SEZ. Now, the minimum built-up area required for an SEZ will be 24.7 acre for the seven major cities, 12.35 acre for Category B cities and 6.17 acres for the rest of the cities.
Relaxing the land requirement and reducing minimum built up area will now make it feasible for IT SEZs to come up in tier-II and tier-III locations in many parts of the country. Also, as the land availability is more in smaller cities, several companies and developers prefer to develop SEZs in smaller locations than in major cities. The move is believed to widely impact the commercial real estate in India. This would further increase the employment opportunities in small cities which would consequently boost the residential real estate in those parts.
Real estate scenario
With several developers coming up with large-scale townships, malls, IT Parks, SEZs, etc., much of the development and investment activity has already started shifting its focus from the developed centres to smaller towns and cities. Both commercial as well as residential real estate have been witnessing increasing demand and exhibiting huge growth potential.
Though most of the real estate development was seen in tier-1 cities till 2010, it is anticipated that a sustained focus on infrastructure development by the local authorities, large-scale investment in education and economic development, will continue to safeguard the growth potential of smaller cities.
Adding to this, the affordable and mid-segment housing units in the towns/cities close to prime cities have been seeing rising demand. However, investors seem to be cautious about smaller locations, as they are still in a wait and watch mode before investing in small locations.
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