Infrastructure development, budgets fuelling demand for housing projects in smaller cities, towns

After living in Bengaluru for more than 40 years, Rekha Rao has finally decided to shift to Mysuru. "I got fed up with the traffic and the infrastructural problems in Bengaluru. And on top of that the real estate prices are improving every day," she said. Rao has bought an apartment in Mysuru for about Rs 60 lakh and is selling her current apartment in Jayamahal, about 12 minutes from Bengaluru’s central business district. Like Rao, more people in the tech city  are slowly deciding to invest in houses in Tier II cities like Mysuru, Mangaluru and even Hubballi.

"I see a lot of young couples also buying houses in these Tier II cities. Though they can't shift out of the city due to work, they use these apartments as second homes and stay there on weekends," said Kiran Kumar, vice president of Hanu Reddy Realty.

Prashant Thakur, regional director and head, research, at property consultancy ANAROCK Group, is of the view that while the top seven real estate markets are seeing robust demand, Tier II cities like Ahmedabad, Chandigarh, Mohali, Kochi, Coimbatore, Jaipur, Lucknow, and Nagpur, to name a few, are also seeing significant uptick in demand after the pandemic.

“What aids the real estate market in these smaller towns and cities is their affordable price tags as against big cities and the superior infrastructure that many of these Tier II and Tier III cities provide. Also, cities like Ahmedabad or Kochi that previously also attracted NRIs (non-resident Indians) are further witnessing rise in demand by them post the pandemic. Many NRIs who want to return to India are eyeing these (Tier II and III) markets,” he said

As per ANAROCK Research, Ahmedabad saw total new launches of approximately 34,600 units in the first nine months of 2023 while nearly 29,910 units were sold in the same period. What is interesting is that the average residential prices have seen a 27 percent jump in the city between 2019 and 2023—from Rs 3,010 per sq ft in 2019 to nearly Rs 3,810 per sq ft as of September-end 2023.

ANAROCK’s consumer sentiment survey conducted after the Covid-19 scourge has also shown that out of all respondents who stated a preference to to buy in any of these Tier II and III cities, 61 percent are end users while others are buying for investment purposes. At least 47 percent of these end users have a budget of less than Rs 45 lakh (affordable), followed by 34 percent whose budget is anywhere between Rs 45 lakh to Rs 90 lakh (mid segment).

Some real estate developers have launched or are planning to come up with luxury projects in Tier II cities. Omaxe has a few luxury projects in Lucknow such as Kingston and Legends. Eldeco is planning to launch an ultra-luxury project in Rishikesh. Several independent floor projects have been launched by Tier 1 developers in Panchkula as well. Trident Group has launched an independent floors project in Panchkula.

Another report by real estate consulting firm Cushman and Wakefield has shown that Tier II cities are also witnessing an upswing in retail and commercial activity.

“Rising incomes and consumption levels have made tier-II cities a magnet for retail investments. As large Grade-A malls and prominent high streets are getting developed, India’s tier-II cities are evolving into major consumption hubs, a trend that is likely to gain momentum in the coming years. The residential sector has also witnessed significant growth in many of these cities and they are performing well on affordability parameters. These tertiary cities are likely to grow faster than Tier 1 cities,” the report noted.

With inputs from Ashish Mishra in Delhi-NCR and Souptik Datta in Bengaluru.