Indian Real Estate : The Rise of Tier II And Tier III Cities

A report by Ernst and Young (E&Y), a global research and consultancy firm says several Indian cities with a population of 0.5-1-million will emerge as the most promising market for residential and retail developments, within the next 3-5 years.

According to the report, it is a trend that has to some extent started already, as property prices rise in metros, and the dearth of skilled cost-effective manpower, comparatively high cost of living and high operational costs drive technologically sound companies towards Tier-II and Tier-III cities. “We expect huge investments across asset classes in most of the Tier-II and Tier-III cities over the next 2-3 years, it adds, although affirming the ongoing rapid real estate development in larger cities will continue unabated.

Further, the report goes on to say following the trend, bigger regional developers will aggressively expand and diversify their operations across the country, while city-focused developers will venture out into locations, such as, Chandigarh, Nagpur, Vizag, Coimbatore, Kochi, Pune, Ahmedabad, Jaipur, Indore and Mysore.

E&Y expects several large and established business groups in India to expand exponentially over the next 2-3 years, emerging as market leaders due to their inherent advantages, such as, high brand recognition, goodwill, sound financial backing and project management experiences. “Several other leading business groups within India will foray into the real estate segment in the coming years, which will create significant opportunities for global developers. As such Indian groups would most likely opt for strategic alliances with experienced global developers, it said.

The report also believes the value of developed property as compared to undeveloped property will rise manifold in the coming days, fuelled by international investments. “With de-concentration of development activity, increasing trend of suburbanisation and supply of additional land parcels in some of the metropolitan markets will result in the stabilisation of the rising land prices against the property prices, it said.

E&Y also points out, consumer acceptability towards household residential properties will increase significantly in the coming years, an expected trend due to the changing landscape of the real estate industry and shifting consumer preferences, adding it will be a trend that is more prevalent in metros.

Buoyed by the current upbeat outlook of the real estate sector coupled with favourable government support, the report says the emergence of a stronger real estate capital market in India is imminent. It also believes the introduction of real estate mutual funds in coming months will substantially improve the transparency and liquidity in the sector.


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