The latest Residex, the residential property price index released by the National Housing Bank (NHB) shows that while home prices are in general witnessing an upward movement, the prices in several Tier-II and III cities during the October-December quarter have seen an increase of the same levels as metropolitan markets or even greater.
Nagpur has seen the maximum price rise of 8 per cent as compared to the preceding quarter, followed by Guwahati at 7.4 per cent, Pune at 7.3 per cent, Surat at 6.2 per cent and Ahmedabad at 3.1 per cent. Other notables include state capitals Patna at 6 per cent, Bhubaneswar at 4.7 per cent, Bhopal at 1.4 per cent, with Raipur and Dehradun hovering around the same levels. Contrast with the 3.2 per cent in Delhi, or the stagnant levels in Mumbai.
One factor driving the growth in these cities is the increased levels of economic activity. Industries are battling increased real estate costs in metro cities and wherever comparable quality was available at lower costs, they moved. This is particularly true for Pune that hosts the IT industry.
“Saturation of Tier I cities has necessitated the growth of Tier II and III cities which is supported by talent pool, sizeable and cheaper land and real estate options, relatively lower operating costs and conducive business environments. Prominent Tier II and III cities such as Ahmedabad, Jaipur, Visakhapatnam, Surat, Chandigarh, Vadodara, Indore, Coimbatore, Nagpur, Bhopal, Lucknow, Bhubaneswar, Kochi to name a few are witnessing increased interest by investors, particularly in the residential real estate market,” says Shveta Jain, Executive Director, Residential Services, Cushman & Wakefield India.
Jain lists crucial factors such as increased cosmopolitan population, increasing employment opportunities and improvement in infrastructure that have attracted investor interest. “Also, since Tier II and III cities offer investment options that are relatively cheaper than Tier I cities, individuals with limited risk appetite and investment size may opt for diversifying their investment portfolio.” In fact, Chandigarh, which is a Tier-III city is home to several IT companies, and has also led to the emergence of two satellite cities — Mohali in Punjab, and Panchkula in Haryana — that are now the new centres of investment.
Proximity to growth centres has generally seen a spurt in real estate activity. “A few Tier II and III cities have shown a spurt in both new launches and absorption in the last two years eg Bhiwadi and Vadodara. This growth has been fuelled by new employment generation. Investor interest in these cities is due to their proximity to well established cities of Gurgaon and Ahmedabad respectively, where the property prices have reached a high,” says Samir Jasuja, …continued »