Realty cos to shift focus to tier-II & III cities next year

The real estate boom in tier-II and -III cities, thought to have gone bust after the 2008 slowdown, may be resurging. In fact, leading companies like DLF, Unitech and Sobha developers have all been tacitly ramping up project launches in non-core markets. However, there are two sides to the coin. Expanding in smaller cities comes with its own set of challenges, reports CNBC-TV18’s Priyanka Ghosh.

Also read : Godrej Properties Q4 net up 33.7% to Rs 53.2 cr Tier-II and -III cities are now back on the realtor's map. While things may have gone quiet on this front post the 2008 slowdown, recent data seems to suggest a revival. In the first half of FY13, 68 percent of Sobha Developer's new launches were in tier-II cities like Coimbatore and Thrissur,  30 percent of Unitech' s project launches were in non metro cities and 57percent of DLF's launches were in tier-II cities. Rohit Kumar Head - Research, DTZ India said, "The forecast is quite optimistic, for the next four to five years it looks like there is going to be an upward bull run from here onwards. So to that extent the builders and occupiers are getting themselves ready for the next 3-4 years. They are looking at towns like Jaipur, Chandigarh, Coimbatore. From the investor’s point of view, the whole story comes back to where they can get higher returns." So why is the focus back on tier II and III cities? A report by India Ratings observes that launching projects in these cities makes them more affordable. It said, “Developers will continue focusing on affordable housing and increasingly shift to tier-II and tier-III cities in the next year." However, not everyone is convinced that the trend is here to stay as sales in these cities have not kept pace with the rampant launches. Its still big cities which are bigger draws, for instance, sales in Chennai, Thrissur, Coimbatore, Mysore and Pune combined. Account for 14 percent of Sobha developers' total sales while sales in Bangalore contributes 63 percent. Infact, this current trend is being termed as "cleaning the clutter". Developers who had acquired land in smaller cities during 2006-07 are now launching these projects in order to monetise and move on. Moreover, they are not buying any more land, which also puts the sustainability of this trend into question.