Will tier II cities steal the 'real' show from metros?

With constant infrastructure upgrades, increased economic activities and the growing interests of the IT/ITeS and BPO sectors, tier II cities are going through a paradigm shift. Realising the immense potential that these cities hold, the Central government is also actively participating by making huge investments in several infrastructure projects across these cities. For instance, the advent of metro rail project in cities like Kochi, Jaipur, Lucknow, etc. has had a remarkable impact on the real estate market of each of these cities. Add to this, the Smart Cities and AMRUT tag is further accentuating the growth prospects here, particularly of the real estate market. Buoyed by these developments, consumers and investors have also shown keen interest in making investments in some of these Tier II cities. As per QuikrHomes recent consumer sentiments survey, nearly 43 percent prospective buyers showed interest in Tier II cities, majorly in Kochi, Coimbatore, Jaipur, Chandigarh and Lucknow, among few others. On the other hand, in another recently conducted ‘Real Estate Experts Outlook H1 2016’ “nearly 22 percent property experts cited that Tier II cities will be their most preferred destination for launching their new projects. Also, nearly 47 percent experts said that they are eyeing Smart Cities for launching their new projects.”Major Growth Factors Land is available at a much more attractive rate and thus finished projects are also priced competitively. With the introduction of more IT-friendly policies, an increasing number of IT and BPO companies are setting up base and expanding their operations in these cities. This, in turn, will contribute to the growth of residential real estate across these cities. Several government initiatives such as Smart Cities mission, AMRUT Cities, ‘Digital India’, ‘Skill India’, ‘Housing for All by 2022’ are also expected to change the skyline of these cities. Out of the 33 cities finalised for Phase I of Smart Cities Project, nearly 82 per cent were Tier II cities, while a mere 18 per cent were metros. The Government of India had also announced the list of 13 cities selected to be taken up for development as Smart Cities in the Fast-track round, out of which except Faridabad, rest all were Tier II cities. Several leading national developers like Supertech, Prestige, Tata Housing, etc. have already set their foot in these smaller cities. Talking Numbers If we consider statistics, there has been an increased activity in terms of new residential supply across Tier II cites over the last one to two years. QuikrHomes data indicates that several trends defined the course of real estate in these smaller cities. Here’s a snapshot: Percentage Increase in Listings Volume: There has been a significant increase in the volume of property listings in Tier II cities. For instance, as per QuikrHomes research, volume of online listings in Chandigarh and Kochi have recorded an average growth of nearly 30 per cent and 22 per cent respectively in H1 2016 as compared to H2 2015. This rate of growth was relatively higher in comparison to that seen in metros. Apartment Culture Gaining Grounds: As per the property type, clear domination of apartments can be seen in metro cities. This can be attributed to shrinking land and higher property prices. On the contrary, plots and layouts dominate the property spectrum in Tier II cities due to ample availability of land at relatively lesser prices. Moreover, the mind-set of owning an independent house is still prevalent in smaller cities. However, it is interesting to see that apartment culture is slowing catching pace in Tier II cities like Chandigarh, Ludhiana, Kochi, Jaipur, to name a few.Metros vs Tier II Cities Over the last one year, metro cities have primarily outshined in the commercial space with significant office uptake. As per market reports, the office space absorption increased by more than 40 per cent in Q2 2016 as against the preceding quarter. Delhi NCR and Bangalore led the show with maximum office absorption. And with REITs, relaxation in FDI norms and the recent passage of the GST Bill, the future of commercial sector looks even more promising. Needless to say, that there will be a direct impact of this commercial activity on the residential real estate. For every new commercial space coming up in an area, the demand for housing will also get a shot in the arm. While one may argue that the current residential scenario in metros is witnessing a slowdown, however, it is bound to grow in the times to come with increased commercial activity.Tier II cities, on the other hand, have essentially recorded a spurt in growth in residential real estate when compared to the metros. The data mentioned earlier clearly reflects the growth pattern in these smaller towns and cities. More so, trends also indicate that majority growth in the retirement housing segment is primarily concentrated in Tier II cities such as Coimbatore, Kochi, Nashik, Mysore, among several others. To say that Tier II cities will steal the ‘real’ show from metros is thus not entirely true. However, the pace at which metros are witnessing growth is relatively slower than its Tier II counterparts. This could be so because development in metropolitan cities is reaching saturation. India’s economic outlook is looking favourable, and the country is poised for ache din in the times to come. Now, it is left to the makers and breakers of the sector to make the best of the opportunities in both metros and Tier II cities.