Investment in the real estate sector has remained a favourable choice for investors seeking long-term capital appreciation. Tier-1 cities in India have remained the most lucrative markets for long. However, Tier-3 cities and towns have emerged as compelling alternatives in recent years.
Emergence of small towns as real estate hubs
The real estate sector in India is witnessing the emergence of small towns as real estate growth hubs with immense potential for exponential expansion. The key factors driving this growth include enhanced economic growth, infrastructural development, improved connectivity, low cost of living, and favourable real estate prices. Hence, Tier-3 cities have evolved into robust real estate destinations for both homebuyers and investors, offering profitable returns.
Amid global economic crisis due to inflationary pressures and supply chain disruptions, India’s economy continues to shine as a beacon of stability and competitiveness. This resilience can be attributed to the growth of Tier-3 cities and towns, which serve as important development centres and hold promise for socio-economic growth.
Some of the key Tier-3 cities include Bhubaneshwar, Vadodara, Mysore, Madurai, Mangalore, Nashik, Raipur, Tiruchirappalli, and Vijayawada. These are transforming into growth hubs and economic powerhouses. They will offer a plenty of investment opportunities in residential and commercial segments at par with big cities.
Investors to get good returns
Investment in Tier-3 cities and towns presents a promising growth picture for investors due to continuously improving infrastructure and better connectivity. Residential and commercial projects offer lucrative deals for capital appreciation and high rentals, sometimes surpassing those in metropolitan cities. Small towns offer rental yields that can exceed 12% for commercial properties and 5% for residential ones, while also showcasing unique attributes including low entry cost, consistent rate increase, and availability of open space. Therefore, investors are likely to benefit from good returns.
The steady growth of Tier-3 cities and towns is also garnering interest from NRI investors due to affordability and relative liquidity, making it easier to buy and sell properties. The government is also investing heavily in infrastructural development across India and implementing proactive growth policies, improving the overall sentiment and ease of investment.
Tier-3 cities and towns are also rapidly expanding their peripheries and attracting new businesses. This boosts employment opportunities. Towns in strategic locations serve as connecting hubs in national warehousing and logistics networks, that promise to reinforce the supply chain in India. Many such towns have been declared as special economic zones and smart cities, which can further improve development prospects in the areas.
With rapid urbanisation and rise in the income of the middle class, there is an increase in the demand for affordable housing. Accordingly, Tier-3 cities and towns are witnessing more such demand. Moreover, the demand for residential properties in these cities is expected to grow, providing more opportunities for investors. The availability of various financing options combined with high income levels will further boost demand.
As a result, big and reputed real estate developers have started adding such towns to their asset portfolios and expanded their business operations in these locations. This provides a great availability of high-quality housing options at competitive prices for homebuyers. These residential projects have an array of amenities at par with those found in metropolitan cities.
Covid pandemic and surge in housing demand in towns
The recent surge in demand for real estate projects in towns is largely driven by the Covid pandemic and the adoption of work from home model. The hybrid work culture is expected to continue attracting more skilled professionals to towns and encourage more developers to try hands in such locations.
Allocating resources for the real estate investments in Tier-3 cities and towns also has a risk mitigation strategy. By making investments across properties in various locations, one can minimise loss due to regional economic downturns. This approach encourages a diverse and resilient investment portfolio, less vulnerable to market volatility.
Further, India will witness an exponential increase in residential and commercial real estate supply. A significant portion of this development is expected to come from Tier-3 cities and towns as they promise more opportunities for sustained growth and expansion.
(The author is director at Aparna Constructions and Estates Private Limited.)
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