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Journalism of Courage
Tier 2 and Tier 3 cities have evolved as a better alternative to metro housing,both in terms of value for money and quality of life. This has impacted the prices in many towns across the country. Many of these towns have seen their real estate prices appreciate by 100 per cent in 2-5 years.
The growth of real estate in these cities are fuelled by two major factors. One,home buyers have been facing inflation and decrease in salary,in real terms. Moreover,home loan rates have gone skywards in the last two years. Two,the quality of life is on the downside in metros. House rent,transportation,education,and many necessities have become very expensive. This has also forced home buyers to look for alternatives.
Traditionally,home buyers in tier 2 cities have been local salaried employees in government and private sectors and businessmen. There were very few buyers from outside,if at all. However,industry experts note that the scenario has changed completely in the last few years. There have been an increasing number of people from other parts of the country buying homes in tier 2 and tier 3 cities. The reasons are many.
Businesses moving to smaller cities: Many businesses are moving to smaller cities because of cost advantage. They have to pay lower salary,spend less on rent,and cut the travel time for employees. This helps businesses in increasing efficiency. When businesses move,many employees also prefer to shift. This creates a new set of customers for real estate.
Home buyers looking for second homes: Many home buyers are buying homes in tier 2 and tier 3 cities to support their parents. Parents typically want to live among people they know. Hence they prefer to stay in the same state. This has also fuelled the demand for quality homes. Many NRIs have also bought homes in tier 2 and tier 3 cities for their parents.
Retirement planning: With increasing awareness about personal finance and planning,people have started thinking of planning early for their retirement. Many prefer to spend their retirement in a place they grew up in. Many people,keeping this in mind,are buying properties in their native place or the capital of their states.
Do Remember
While buying homes in tier 2 and tier 3 cities is less expensive and provide much better quality of life,there are important considerations that buyers should keep in mind.
First,the growth in projections are based on future plans. Plans may go wrong or may not be executed as per the vision. Metros still have the capability to absorb shockers from change in policies,economic slowdown,and political apathy. The same can play havoc with tier 2 and tier 3 cities.
Second,speculation,a big driving factor in price appreciation is not caught up in a large way yet in tier 2 and tier 3 cities. However,this scenario could be slowly changing in these cities. Investors should beware of speculative price rise as it tends to distort the real price.
Third,price fluctuations are lesser in tier 2 and tier 3 cities. Demand in these cities is stable and hence there is less fluctuation. If buyers are looking for quick bucks,they may be disappointed. The prices do go up in tier 2 and tier 3 cities but buyers should not expect a spurt in prices as it happens in metros.
Finally,buyers and investors should separate hype from reality. If a tier 2 city in Andhra Pradesh is doing wonders,it doesnt necessarily mean that a tier 2 city in Maharashtra will do the same. Growth of tier 2 and tier 3 cities depend on many factors such as proximity to big cities,infrastructure,public amenities,city administration,and safety factor. Buyers should consider all these factors before buying properties in tier 2 and tier 3 cities.
The author is CEO,BankBazaar.com
