FM’s Viksit Bharat theme to boost the real estate sector in Tier II and Tier III cities: Experts

Experts say that with an outlay of 3.4 percent of the GDP, the benefits of such focused and continued efforts will percolate down to the real estate segments, especially in Tier II and Tier III cities.

Finance Minister Nirmala Sitharaman announced key infrastructure allocations in her budget presentation today, February 1, pertaining to expansion of existing airports and railway corridors, which according to real estate experts will boost increased real estate activity, especially in tier II and III cities.

Presenting the interim budget on Thursday, the FM announced the implementation of three major railway corridor programmes under PM Gati Shakti and the expansion of existing airports under the UDAN scheme. Additionally, the government elevated its capital expenditure (capex) allocation for the fiscal year starting April 1, 2024, to Rs 11.11 trillion.

Experts say while the interim budget itself did not announce specific announcements targeted at Tier II and III cities, the Gati Shakti initiative launched earlier and the focus on infrastructure and technology in the budget could potentially boost real estate in these cities.

The infra affect

Speaking to Moneycontrol, Vivek Rathi, National Director of Research, Knight Frank India said, that real estate verticals such as industrial, warehousing, and the retail sector are set to see benefits the most. "Today, we already see increased consumer demand from the Tier II and Tier III cities --- thus pushing more corporates to expand their footprints in these markets."

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Souptik Datta

Sub Editor|Moneycontrol

Vimal Nadar, Head of Research at Colliers India added that with an outlay of 3.4 percent of the GDP, the benefits of such focused and continued efforts will percolate down to the real estate segments, especially in Tier II and Tier III cities.

Increased allocation for urban infrastructure development in smaller cities could lead to improved water supply, sanitation, waste management, and public transportation, making them more livable and attractive for potential residents and businesses.

The interim budget allocated Rs 80,671 crore for the flagship scheme Pradhan Mantri Awas Yojana (PMAY), giving a further boost to the government’s programme to provide affordable housing. "Continued government focus on schemes like PMAY could benefit developers and buyers in Tier II and III cities, leading to increased construction activity and further affordability," Anuj Puri, Chairman of ANAROCK told Moneycontrol.

Developers add that the new economic railway corridors are very crucial to bringing down the logistics cost in the country. "Currently, it is around 13-14 percent; we need to bring it down to 7.5 percent to be globally competitive and help our manufacturing sector and exports. China’s logistics cost is around 9 percent. The railway economic corridors will also help a lot of ancillary industries like real estate in developing warehousing and logistics hubs in cities," Nesara BS, Chairman of Bengaluru-based Concorde said.

Technological, tourism push

In her budget speech, Sitharaman said, "A corpus of rupees one lakh crore will be established with a 50-year interest-free loan. The corpus will provide long-term financing or refinancing with long tenors and low or nil interest rates. This will encourage the private sector to scale up research and innovation significantly in sunrise domains."

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Lauding the move, Prateek Mittal, executive director of Chandigarh-based realtor Sushma Group, said it will majorly boost the commercial realty segment's growth in Tier II and Tier III cities.

Experts said that tourism development initiatives envisaged in the budget will induce a multiplier effect on these cities in terms of real estate and infrastructure development, Dr Samantak Das, Chief Economist and Head of Research & REIS, India, JLL said.