COVID-19 impact on Housing Demand in Tier-II and Tier-III cities

With still a long time for the COVID-19 pandemic to be over, work from home has become the new normal for most corporates. A majority of corporate professionals are working from home and spending a lot of time indoors. In this scenario, reports suggest that most professionals, who migrated to the metropolitan or tier-1 cities from their hometowns (primarily in tier-2 cities), are considering shifting back or have already moved to their hometowns, to manage costs and to maintain the standard of living.

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Tier-2 cities eating into tier-1 cities’ realty market share

Following the COVID-19 pandemic, several migrant millennials have been working from their hometowns, as geography is no longer a constraint. “We were living in a 3BHK paying a rent of Rs 45,000 per month in Navi Mumbai for the last two years but with the pandemic and the working base shifting, we did not find it cost effective to continue here. Instead, we invested in an independent ready-to-move-in house in a gated community in our hometown, Coimbatore, which has worked to be a good decision,” says Rajamani Iyer, working in the shipping industry.

Housing markets in tier-2 cities that are witnessing greater demand

“Locations that comprise a strong mix of physical and social infrastructure and are relatively better priced in comparison to costly locations, have witnessed a higher demand, recently. Home buyers prefer buying spacious apartments in self-sustained developments at growing locations, as it enables them to experience convenient living at a relatively lesser cost, than paying the price for a smaller apartment at an expensive location,” says Surendra Hiranandani, chairman and managing director, House of Hiranandani.

Infrastructure developments have played a pivotal role, in aiding the growth of real estate in tier 2 and tier 3 cities. The starting of metro services in several cities and the establishment of IT hubs, have also given a fillip to the demand for real estate in those cities. Properties with a strategic location and excellent connectivity are sought-after by consumers and investors alike.

“The development of physical infrastructure leads to the strengthening of social infrastructure, such as schools, banks and financial institutions, retail spaces and many more. Also, both, central and state governments, have contributed to the establishment of a conducive policy landscape for encouraging real estate growth,” says Rahul Singla, director, Mapsko Group.

Today, when tier-2 locations are equipped to provide the convenience one aspires for, there is no stopping home buyers. “All that is needed is good data connection and once that is available, people are happy with tier-2 cities that have benefits like being closer to their family and lesser financial output,” says Hanil Sadhwani, an independent property valuer.

Demand for co-working spaces in tier-2 cities

Owing to this shift, in addition to realty picking up in tier-2 cities, the pandemic could also push demand for co-working spaces in these cities, mention realty industry experts. “With incomes increasing and the talent pool migrating to tier-2 cities, many MNCs are also showing interest in setting-up bases, which, in turn, will lead to co-working options springing up here,” says Jay Arora, a property consultant.

Another important reason for co-working spaces to be introduced in tier-2 cities has been the increasing numbers of home-grown start-ups and entrepreneurs in such locations. “We believe that the need for flexible space will rise in the current scenario, as companies also look to cut capex on setting up their own offices. It will also help them remain agile and retain the flexibility to adjust operations, based on market conditions,” says Manas Mehrotra, founder, 315 Work Avenue.

Advantages of tier-2 cities over tier-1 realty

While tier-2 cities will well reduce the cost of living, once the pandemic is over, getting back to a tier-1 city can be a challenge. Arora mentions that choosing the fringe areas in tier-1 cities that are becoming popular realty hotspots, is an option.

“The prime areas have exhausted their potential and are witnessing saturation in their vacancy levels. In contrast, fringe areas are now the ‘destination next’ for real estate, due to infrastructural developments, improving connectivity and push by the government. For instance, New Gurugram is seeing infrastructural developments like revamping of the Southern Peripheral Road and opening of the KMP Expressway. The proposed ISBT developments, along with the establishment of multiple centres of excellence as envisaged in the Delhi-Mumbai Industrial Corridor (DMIC), will ensure a massive socio-economic transformation of the region,” says Singla.

FAQ

Which cities will have greater real estate demand post-COVID-19?

Tier-2 and tier-3 cities, as well as the peripheral areas of tier-1 cities are likely to witness greater demand for housing, following the Coronavirus pandemic.

What should home buyers look for in tier-2 cities?

Home buyers should ascertain whether basic infrastructure and transport are in place, whether the project has proper electricity, water and sewage connections and whether there is proper internet connectivity, if one intends to work from home.

Why has demand for property in tier-2 cities increased?

The demand for property in tier-2 cities has increased due to the high real estate costs in tier-1 cities and the remote working norms that have been adopted by most companies after the COVID-19 outbreak.

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Anuradha Ramamirtham

With 16+ years of experience in various sectors, of which more than ten years in real estate, Anuradha Ramamirtham excels in tracking property trends and simplifying housing-related topics such as Rera, housing lottery, etc. Her diverse background includes roles at Times Property, Tech Target India, Indiantelevision.com and ITNation. Anuradha holds a PG Diploma degree in Journalism from KC College and has done BSc (IT) from SIES. In her leisure time, she enjoys singing and travelling.
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