Tier II-III cities are key drivers for realty growth

Tier-II and -III cities are hotbeds for growth; as per a recent report by consulting firm Kearney, these cities are opening up opportunities for businesses and industries to expand. For a long time, these cities with abundant resources have been untapped. The country's major developers flocked only towards the metro cities to establish world-class infrastructure. However, the pandemic has reversed the wave and initiated a trend among the real estate stalwarts to rethink their strategies and shift their focus from metros to Tier II-III cities.

Meanwhile, the sector is optimistic about the real estate scenario, particularly in Tier-II and Tier-III cities, especially after a KPMG survey that found that 22 per cent of consumers in Tier-II cities and 30 per cent of consumers in Tier-III cities believe their spending would increase or remain the same as before the COVID-19 pandemic spread. Currently, the top seven cities account for nearly 70 per cent of India's residential market, with tier II and III cities accounting for the remaining 30 per cent.

Now, with pandemic emphasizing the value of a home, people have started becoming more cautious about the regular choices they make. It begins right from their homes; Tier-II cities have limited options in organised living, and only a few seasoned players were able to identify these cities ahead of the time. Self-sustainable integrated townships are becoming the centre of attraction, demand for organised living is on the rise, and people are keen to spend more for a better lifestyle.

The government and industry bodies have also realised the urgent need to distribute industries, capital, and population to these towns to utilise resources. There have been multiple schemes like Smart Cities Mission, AMRUT, construction of a network of new expressways, airports, transit systems for these cities' uplift.

The face of real estate is constantly evolving, and the return of investments promised in Tier II-III cities is much higher and stable due to the developing infrastructure; this leads to developers venturing into more than one segment of real estate. As per the announcements made in the Union Budget 2021-22, the setting up of a Development Finance Institution (DFI) backed by government support and initial capital contribution will pivot better opportunities for the sector.

Also, the price fluctuation in Tier II-III cities is slightly slower than the metro cities, making them an ideal choice for investors looking to enter a long-term investment agreement, especially in volatile market conditions like now.  Although tier-II cities will have lower real estate prices than tier-I cities, residents will enjoy benefits such as wide-open spaces, the freedom to remain close to home, low noise, etc. The majority of tier-II cities now have strong infrastructure advancements such as metro stations, excellent public transportation, and critical services such as schools, hospitals, banks, and shopping markets. 

Many companies are relocating to tier-II cities as a result of the Coronavirus pandemic. It is expected that demand in these cities will increase by the second half of 2021 due to improved employment opportunities, infrastructure development, and enhanced connectivity. Nonetheless, there are a few stumbling blocks. For example, attracting FDI for projects in these cities has proven difficult. On the other hand, the government can help by enticing people to invest and develop living and working bases in these high-potential tier II-III cities through policies, tax initiatives, and benefits.
Authored by:
Kushagr Ansal, Director, Ansal Housing & President, CREDAI Haryana