In the past few years, the real estate growth story has clearly shifted from the metros and Tier-I cities to small towns and cities, typically known as Tier-II and III cities. The central government mission of Housing For All and Smart Cities will further provide growth in these towns and cities. Scarcity of land resources, high land and construction-related cost, unaffordable property prices and declining demand, inadequate infrastructural facilities and high cost of living across metros and Tier-I cities have prompted end-users as well as developers to shift their focus to Tier-II and III cities. From investment point of view too, these cities offer better prospects on the back of steady price appreciation in recent times.

Apart from the spill-over demand from metros and Tier-I cities, there are various advantages which Tier-II and III cities offer to the end-users (buyers as well as investors) such as:

The emergence of Tier-II and Tier III citiesEconomic establishment

Most of the Tier-II and III cities have well-established skill-based manufacturing industries such as automobile, engineering, textile, pharmaceuticals and capital goods. In addition to these small and mid-scale industries, number of multinational corporate, especially IT/ITES majors, have started setting up their campuses in these cities due to availability of skilled labor at lower cost, reasonable real estate cost, lower cost overheads and conducive government policies. The increasing disposable income of the people has further created opportunity for corporate as well as developers to focus on these growing markets.

The emergence of Tier-II and Tier III citiesGovernment programme

Programmes like Jawaharlal Nehru National Urban Renewal Mission, Housing For All and Smart City are designed to deviate the pressure from metros towards these cities by achieving total development in terms of physical infrastructure, social amenities like healthcare and educational facilities, affordable housing and employment centre.

The emergence of Tier-II and Tier III citiesImproving infrastructure

Pro-active government initiatives have resulted in better infrastructural facilities in form of Greenfield airport, flyovers, bypass, industrial corridors, metros and bus rapid transport system. The improved connectivity and easy movement have made these cities more accessible and hassle free.

The emergence of Tier-II and Tier III citiesReal estate trends

Availability of large land resources at comparatively lower rate, lower labor and raw material cost and faster pace of construction are some of the advantages offered by these cities to the end-users. Further, stable price appreciation and growing demand have resulted in stable and higher return on investments for developers as well as investors. These cities offer number of affordable and mid-segment housing options to the end-users.

In addition to the above factors, the Tier-II and III cities mitigate the disadvantages associated with metros like reduced quality of life, higher cost of living, expensive transportation, inadequate infrastructure and expensive healthcare and educational facilities. In recent times, some of emerging Tier-II and III cities are Vadodara, Surat, Nashik and Nagpur in the west; Coimbatore, Kochi, Mangalore, Thiruvanathapuram and Vizag in the south; Bhubaneswar in east and Chandigarh, Mohali, Pantnagar, Rudrapur, Lucknow, Kanpur, Indore and Jaipur in north.

According to National Housing Bank – Residex, on a two-year horizon, Tier-II and III cities have displayed steady price appreciation. Property prices in Surat grew the maximum by 20 percent, followed by Nagpur by 14.72 percent, Raipur by 10.90 percent, Guwahati by 9.80 percent and Lucknow by 9.29 percent.

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