As per the 2011 census, there are 53 urban areas with a population of more than a million each. The manufacturing, trading and services activities in these cities are the major contributors to the Indian economy.
The top seven cities of Bangalore, Chennai, Delhi-NCR, Hyderabad, Kolkata, Mumbai and Pune play an extremely important role in the country's economic growth.
However, these cities have reached saturation levels and hence many industries are moving to other cities which offer immense potential. These cities offer a number of attractions such as cheaper talent pool, sizeable and cheaper land and real estate options, relatively lower operating costs and conducive business environments created by state and local governments.
Rapid industrialisation and increase in growth of services sector activities has resulted into increasing disposable income, favourable demographics, changing lifestyles and growth of population, which is becoming upwardly mobile.
Prominent tier-II and tier-III cities such as Ahmedabad, Jaipur, Visakhapatnam, Surat, Chandigarh, Vadodara, Indore, Lucknow, Coimbatore, Nagpur, Bhopal, Lucknow, Bhubaneswar, Kochi to name a few are witnessing increased interest by investors, particularly in the residential real estate market. A number of factors such as increased cosmopolitan population, increasing employment opportunities and improvement in infrastructure have primarily aided this growth.
The growth in tier-II and III cities is well supported by government policies and initiatives that have over time encouraged developers to tap potential real estate demand. These cities have better infrastructure, more open spaces and greener areas unlike other congested metropolitan cities.
With the growth of sectors such as manufacturing, IT/ITeS, banking and financial services industry, consumer goods, the demand for commercial real estate space in these cities has been increasing consistently over the last few years. This rise in demand for commercial properties has resulted in increased employment opportunities within the cities, which has further fuelled the demand for residential real estate.
Many reputed developers have built and are coming up with residential projects in these cities that offer lifestyle facilities, comfort and security similar to those in tier-I cities. Also, since tier-II and III cities offer investment options that are relatively cheaper, individuals with limited risk appetite and investment size may opt for diversifying their investment portfolio.
The risk factors with respect to such investments are relatively less as most markets are driven by fundamentals and speculative activity is limited. Therefore, these cities are likely to witness a stable and steady price appreciation and not volatile price movements over time. The growth in residential property prices in these cities portrays a promising future to the investors and end-users both.
The offerings are also varied with residential properties such as apartments, plots and villas in both mid- and high-end segment at relatively affordable prices.
Recreational options are also growing in these cities as several new malls, multiplexes, sports facilities such as stadiums, golf courses, etc are opening up to cater to the needs of change in resident population and rapid urbanization. Rising income levels, increase in quality and number of educational facilities, availability of bank loans, variety of supply of residential projects and improvement in economic conditions are collectively contributing to the increase in demand.
These cities are also witnessing a rise in demand for homes from NRIs and individuals wanting to retire to smaller towns and cities due to better quality of life and greener environments available.
A gradual increase in penetration of home loans in these cities along with shift in preference from independent houses to apartments will increase sales. It is important to realise that these markets are at a critical juncture, wherein they have attained sufficient scale. As emerging cities, they offer potentially lower costs, necessary and inexpensive infrastructure and suitable business environments for companies to take advantage of.
There is scope for the residential sector to grow and even expand in these cities without the bottlenecks of scarcity or high costs of land, choked infrastructure, environmental restrictions, etc that are usually found in the top seven m. These cities are building a strong place in the residential market and have a rewarding future as well.
—The author is Executive Director, Residential Services, Cushman & Wakefield India