India’s real estate sector is rapidly spreading its wings beyond the major cities. Tier 2 and 3 cities are now the nuclei of India’s real estate boom. The saturation in the real estate sector in metro cities and the growing economic significance of towns have been the primary reasons for the growth of the real estate sector in these cities over the past few years.
The pandemic and government’s focus on infrastructure development across the nation have opened several new opportunities for growth in the real estate sector in towns. Affordability of commercial real estate has also been an important factor for more organisation looking at these places.
India has been on a progressive path of economic growth forthe past several years, so has the real estate sector. The government’s strong push for infrastructure development has led to better connectivity, higher economic activities, and a rise in the lifestyle in tier 2 cities in the country. The better connectivity to the metro cities has led to many corporates looking towards these cities in search of more economical real estate.
Commercial/ industrial properties like office spaces, warehouses, co-working, retail, etc., have seen a surge in demand in tier 2 & 3 cities. Many corporates already had their manufacturing units in these places and more are gradually setting up their plants. As India is aggressively growing its road infrastructure, the demand for commercial real estate is expected to further grow in these cities. The increased economic activity in towns has created jobs and employment for more people. As a result, per capita income has increased that has been fueling real estate investments.
Start-ups have unequivocally been the leaders of economic growth in the country. There are more than 61,000 start-ups in India. More than 45% of these start-ups are located in tier 2 and 3 cities. Most start-ups have digital technologies as their backbone, thanks to the connectivity in Tier 2 and 3 cities. These start-ups have been generating employment for thousands of people and improving their standards of living. Needless to mention, start-ups are not only contributing to the demand for commercial property but also to residential real estate.
The pandemic forced many corporates to adopt the work from home (WFH) model. Many professionals relocated to their hometowns in a bid to save high rents in the big cities and stay closer to their families. As the work from home models proved successful, many organisations let their employees work permanently from remote locations. As work from home was possible, many such employees invested in the real estate in their home towns, offering better living standards compared to larger cities.
The government has also made its intent clear about aggressive infrastructure development. The allocation of INR 20,000 crore for building 25,000 km of highways in FY 2022-23 will have a multiplier effect for the real estate sector, especially in tier 2 cities. New highways will lead to the emergence of new economic centers in tier 2 cities, which in turn will lead to the development of new urban centers. The development of multimodal logistic parks and SEZs for industrial development will also lead to development in new pockets.
Fierce competition, high property rates, and unsold inventory in metro cities have compelled the developers to explore new markets. Tier 2 and 3 cities offer cheaper land and labour compared to the Tier 1 cities. The logistic infrastructure in these cities is also very good. This makes them ideal for real estate development. The aforementioned factors have already created the demand for high-quality residential and commercial properties in these areas. These markets are easier to penetrate as the competition is either very less, sometimes non-existent. The compliance burden in these cities is also lesser than the tier 1 cities.
The Internet has globalised the aspirations of all Indians. The people in these cities and towns are well aware of the developments across the world. They expect to have world-class amenities to be made available to them in their cities. Like everything else, this sentiment has fueled the demand for real estate too in Tier 2 and 3 cities.
(About the author: Mohit Batra is Regional Director, Realistic Realtors)
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