Real Estate in Tier II Cities

The Real Estate ecosystem has found a “stable equilibrium” in the top 6 cities in the country. Be it top developers, lenders, media, brokers, IPCs or investment banks; all have a proclivity to focus on the top cities in the country.

Is it all to real estate growth? Given the renewed focus of the government on smart cities, AMRUT, PMAY and growth corridors, I think we should explore beyond the mainstream and look towards bright pockets of growth.

Few factors to consider while picking the right cities–

Demographics – Money is where the market is. The future size of any market will be determined by the population in the working age group (18-55 years). The cities which have a substantial migrant skilled workforce and have an upwards growth trajectory should be the hot-spots.

Cost of Real Estate – The cost of real estate will comprise the land cost (dependent on availability of land), cost of construction and overall ready reckoner rates. In a growth-oriented Tier II city, these would be lesser than the Tier I cities unlocking sales potential in residential real estate.

Infrastructure – The smaller cities which don’t carry infra bottlenecks and have growing industries should be a good bet as the infrastructure can be brought to a sustainable level leading to reduction in travel time and cost helping in migration. Such cities will also witness growth of dominant amenities like malls, commercial spaces, medical facilities etc.

Push on Industrial and IT growth corridors – The specific cities which will see a surge in investment will generate economic activity, employment opportunities, will create effective demand and raise the levels of disposable incomes. This in turn would help the growth of malls, hospitals, hotels and commercial space in these cities.

Future Potential – Cities which have witnessed decent growth in residential price indices and have a substantial population without a first home are the ones which would provide the maximum growth provided better resources and technology are deployed by the ecosystem in these places. These untapped markets are where growth is.

Proximity to Metro Cities – The proximity of upcoming cities to large cities will be an added advantage to their growth. These would be the one who would be able to absorb the burgeoning population from the crowed megacities. The key to this success would be the movement of population which would support government spend. Satellite cities or mini metros like Gurgaon, Thane, Sriperumbudur have developed in the past due to this proximity.

As someone rightly said – “There are cities that get by on their good looks, Detroit has to work for a living”.