The contribution of the commercial and housing boom to the construction industry, which in turn impacts GDP numbers in a big way have been well discussed. What is probably not as avidly discussed is the fact that the growth rate derived from sub industries such as retail, hospitality, entertainment (hotels, resorts, cinema theaters), economic services (hospitals, schools) and information technology (IT)- enabled services (like call centres), etc is beginning to hit a wall in the main metros. The future clearly points to opportunities outside these traditional cities.
As one witnesses a saturation in the economic growth and construction opportunities in major cities of India, it’s the tier II and III cities that emerged as the key drivers of growth in the sector this past decade. Despite low public investments, these cities promise great potential.
The metro cities are facing impediments such as slow and uneven development of urban infrastructure, increasing operational costs, land paucity amid escalating land values and exorbitant real estate prices, shifting the focus to the emerging hubs i.e. the tier II and III cities of the country. The biggest reason for this shift in focus is the gigantic gap between availability and demand. The metros are dwindling under the burden of space, time and infrastructure.
Smaller towns and cities closer to the metros and industrial hubs are seeing a significant housing demand, owing to lower land cost and increased prosperity. According to the National Housing Bank (NHB) data, there is significant price appreciation in cities such as Lucknow, Surat, Guwahati, Chandigarh, Raipur, Faridabad, Patna and Ahmedabad, and a visible fall in prices in metro cities like Delhi and Bangalore.
A number of factors co-exist that make these cities an attractive investment destination for all. Real estate firms are shifting to these cities for cheaper real estate and manpower. Walk-to-work concept, quality lifestyle, media exposure, the emergence of software companies and an increased affinity to retail are some of the many factors driving growth of the real estate industry in the small towns. There has been a significant improvement in real estate options in cities like Chandigarh, Patna, Mohali, Nagpur, Lucknow, Agra and Udaipur. Also, the concept of low-cost housing or affordable houses seems to work well here.
A recent study conducted by Cushman & Wakefield on the Top 10 emerging business destinations in India reveals that the growth in tier II and tier III cities is due to the increasing disposable income of the people and has created immense opportunities for companies looking out for new markets to grow. The study also mentions that companies being drawn to these cities are being enticed due to the availability of talent pool at a lower cost, reasonable real estate prices and a conducive business environment created by State and local governments. The study identifies the cities of Ahmedabad, Bhubaneswar, Chandigarh, Coimbatore, Jaipur, Kochi, Indore, Nagpur, Vadodara and Visakhapatnam as the top 10 emerging cities of India.
Many people have been investing in these cities as their second homes especially for aged parents, for whom the fast paced life of metros is a deterrent. The improvement in connectivity adds to making these cities accessible and hassle free. These cities are great opportunities for investors like NRI’s too, who avoid going vertical and prefer a bungalow spread over large acres of land.
While metros are suffering various delays in projects and overall slowdown in demand, smaller cities like Pune are experiencing increased demands for mid-segment housing. These cities come with less risk factors as the appreciation in real estate prices are gradual unlike metro cities which experience a steep escalation.
The overcrowding in Tier I cities have compelled people to move out to open spaces with wider infrastructure, and nature-friendly ways. The change in real estate trend is quite visible in cities like Jaipur, Chandigarh, Indore, Nasik etc. Mohali and Agra are considered a favourite destination for global investors. Leading developers like Tata Housing, Lodha Builders, Raheja, Ansal Housing and DLF have launched projects in these smaller towns to ride the wave. For developers still anchored to metro India, a further delay could be the difference between being a winner and an also ran.