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What Makes Tier-II And Tier-III Cities Attractive For Developers?

What Makes Tier-II And Tier-III Cities Attractive For Developers?

What Makes Tier-II And Tier-III Cities Attractive For Developers?
PropGuide takes a look into how major Indian cities have been fared in the recent past. (Wikimedia)

Gone are the days when owning a home in big cities used to bring pride and confidence of earning returns to homebuyers and investors. Today, the consumer is considering cost-effectiveness and market economics more than the big city dream of owning a house. While the metro cities have become unaffordable due to the unavailability of land and subdued demand, the fast growing infrastructure in smaller cities have attracted major real estate players for the development of modern structures and high-rises. 

According to market¬†research,¬†real estate¬†investments in Tier II & III cities¬†have increased¬†by¬†around 20 per cent as compared to last year. These cities include¬†Chandigarh, Jaipur, Udaipur,¬†Sohna, Amritsar, Nagpur, Lucknow, Surat, Vadodara and Visakhapatnam.¬†The development of physical and social infrastructure¬†has pushed¬†up¬†the affordable housing demand in these cities. ‚ÄúMovement of businesses and employment¬†centres, townships with mixed developments,¬†etc.,¬†in these suburban and peripheral areas are the main catalysts for this housing demand. Such developments support affordable housing growth when compared to bigger cities‚ÄĚ, says¬†Prateek¬†Mittal,¬†executive¬†director,¬†Sushma¬†Group.¬†

Tier III cities such as Moradabad and Gwalior are other prominent markets where major real estate development is happening. Both of these cities are well-connected to major metro cities and have well-established basic infrastructure. Various government schemes and development authorities have been formed in these cities to fast-pace real estate growth and infra development. This has also attracted some developers such as Mantri Developers in Gwalior, Supertech and Parsvnath in Moradabad for bringing in the apartment culture to independent housing-dominant property markets.  

"Even the state government knows that sound infrastructure is the key facilitator of economic development and thus, have adopted an integrated approach to develop industrial and supportive infrastructure that will encourage private participation in this sector. As part of its efforts to boost the development and progress of the state, the government is developing free enterprise zones, theme parks, food parks, gems & jewellery parks, apparel parks, footwear and leather garment parks in different areas and zones. The setting up of these zones will supplement the development of semi-urban areas in the economically backward regions of states like Punjab," says LC Mittal, Director, Motia Group. 

Hotspots of tier II and tier III investment 

A larger number of geographies are drawing the attention of property investors. The primary driver for real estate is job creation and the other factor is affordability. Smaller cities now increasingly have good job markets driven by IT and BPO firms and thus, there is a steady demand for budget homes. In fact, with the launch of REITs, the Indian retail assets are also becoming lucrative in Tier II and Tier III cities.  

Uddhav¬†Poddar,¬†director & CEO,¬†Bhumika¬†Group says ‚ÄúSmaller cities now have investment-grade retail assets¬†and commercial spaces¬†that can generate good returns. Apart from Delhi NCR, the cities that might see maximum traction will be Udaipur, Jaipur, Chandigarh, Indore Bengaluru, Pune,¬†etc.¬†Most of the investment in these cities is happening from people who live in tier I cities¬†and¬†who believe in long term investments and rental incomes. With co-working spaces¬†too¬†coming up in smaller cities, people prefer to live near their offices and this will give rise to more demand for residential homes,‚Ä̬†Poddar¬†adds.¬†

Last Updated: Tue Jul 02 2019

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