Easy disburesement of home loans, access to information on the Internet (thanks to cheaper data costs), better paying jobs and a slew of government policies have added hopes to millions in tier-2 cities to own a home. As several reports point out, the Indian real estate market is on a healthy path, and will grow at 6-7 per cent annually till 2020. Government initiatives such as Smart Cities and Amrut are expected to boost public funding for housing. Coupled with the ongoing reforms to REITs (real estate investment trust), there is a projection of accelerated private investment. Simultaneously, the home-buyer protection law — The Real Estate Regulation Act or RERA is also expected to raise consumer confidence. Post demonetisation, there are reasonable expectations for the strong growth of credit facilities. This too will drive demand. Budget 2017-18 has already lent infrastructure status to affordable housing. Additionally, it has allocated substantial funds to drive the construction of affordable homes in a time bound manner.
According to Conrad D’Souza of HDFC Housing Finance, top 8 metros account for roughly 70 per cent of home loans, but there is increasing traction coming from tier-2/3 cities. D’Souza says the high potential markets include state capitals such as Raipur, Dehradun, Guwahati, Lucknow and cities like Vijayawada and Coimbatore. “The key drivers for real estate and housing finance is the creation of jobs, while infrastructure like transport networks and power also play a major role. The shift from renting to ownership primarily occurs with rising disposable incomes created by better job opportunities,” says D’Souza who is also a member of executive management at HDFC Housing Finance.
Anshuman Magazine, Chairman, India and South East Asia, CBRE, says, “In the recent past, we have seen a number of tier-2 cities emerging as preferred locations for real estate development.” He further adds, “Cities such as Ahmedabad, Kochi, Indore, Vizag, Thiruvananthapuram and Coimbatore are slowly gaining prominence with corporates and investors.”
But what is driving this growth? According to Magazine, proximity to leading tier-I towns work in favour of these new hot spots. “An abundant talent pool, active government support, proximity to leading commercial hubs, and significant emphasis on infrastructure development work in favour of these cities. This, coupled with lower rentals of office space as well as a lower cost of living are making these cities attractive for real estate investment,” says Magazine.
“The Smart Cities initiative by the government, in particular, is likely to be a huge catalyst for renewal of Indian cities and will take the focus away from the top 8 cities, which have, till now, been the centre of employment generation,” says Getamber Anand, President, Credai National, the apex body of private developers.
According to Anshul Jain, MD, India, Cushman & Wakefield (C&W), there is a need for developing alternate urban economic centre in India as the tier-1 cities may soon be exhausted in terms of infrastructure to be able to support the expected/desired growth of India. A recent research report by the firm has identified 11 tier-2 and -3 cities that are expected to spur housing demand, driving cumulative incremental residential demand to approximately 0.9 million units between 2016 and 2020. “These 11 cities are poised well to become the next growth centres owing to their inherent strengths, government initiatives and attraction of foreign and private investments, albeit over a period of 5-7 years,” says Jain.
The report estimates that the middle income group or MIG will fuel demand for housing, accounting for 39 per cent of the total cumulative incremental demand in the coming years. Surat has emerged as the frontrunner and is likely to account for one-fourth of the total cumulative incremental demand, followed by Kochi and Visakhapatnam. These three cities account for 47 per cent of total demand expected till 2020, the C&W research indicated.
BW Reporters
Ashish Sinha is an experienced business journalist who has covered FMCG, auto, infrastructure, tourism, telecom among several other beats. Ashish has keen interest in the regulatory scenario impacting different sectors. He writes on aviation, railways, post and telegraph, infrastructure, defence, media & entertainment, among a wide variety of other subjects.