Real Estate Market in Tier II cities of India

Real Estate market in India is not just booming but booming in all possible directions. The rays of this hot sun are peeping through dense Indian markets, and are guiding developers deeper into Indian markets. Property builders are exploring Indian cities and towns like never before. The opportunity which this period is presenting has got everyone tempted. More fuel is added to this hunger by Government policies which motivate economic and industrial development.

Foreign direct investment (FDI) into India in the real estate sector for the fiscal year 2008-09 has been US$ 2.8 billion approximately,according to the latest data given by the Department of Policy and Promotion (DIPP). This has added further thrust to real estate market in India.

This budding sector is witnessing development in all areas such as residential, retail, and commercial. Of course the Tier I cities are the ones that are overwhelmed with burgeoning investments in industrial and service sector, but the markets there are getting saturated and this has forced investors seek other alternatives which is leading them to Tier II cities. Emerging areas like these Tier-II cities offer excellent real estate investment opportunities because of the low entry level costs compared to the saturated big city markets where getting space is very difficult.

India Reports latest report 'Growth Potential: Tier II and III cities in India', mentions that Gartner India has predicted that India is likely to lose some of its significant market share in the offshore BPO business – a drop fueled by rising labour costs and shortage of skilled labour. Industry analysts point out that the concentration of BPOs in cities like Bengaluru, Gurgaon, and Mumbai has meant that they target the same talent pool, pushing up demand. The most apparent solution then, is to seek greener pastures in Tier II cities.

Big cities Mumbai, Chennai, Bangalore, Hyderabad, National Capital Region (NCR) and Pune are still the preferred destinations for setting up an IT or a BPO company, but these centres are closely followed by Ahmedabad, Kochi, Bhubaneswar, Chandigarh, Coimbatore, Indore, Jaipur, Lucknow, Madurai, Mangalore, Nagpur, Thiruvananthapuram, Vadodara, Tiruchirapalli and Visakhapatnam, says the NASSCOM-AT Kearney study on `Location roadmap for IT-BPO growth'. Infosys for instance has already established its units in tier-II cities like Mysore, Mangalore, Kochi, Bhubaneswar and Chandigarh.

As industries establish bases in tier II cities, the real estate development will accelerate at a faster rate to fill the gap between the demand and supply of commercial and residential properties there. Tier II cities therefore can be considered as new hottest destinations for investors.

Chandigarh, the silicon valley of India has all the systems in place, the Rajiv Gandhi SEZ saw investments coming from Dell, Infosys, Quark, Ranbaxy, Reliance and Satyam. The ongoing development in IT sector has boosted the realty sector in Chandigarh. It has become the most sought after destination for investors.

Pune which is all set to become the 7th metro of India is another Tier II city which has a booming real estate market. The main drivers now are the EonIT Park, the proximity to revamped airport, presence of 5 star hotels.

Ahmedabad is not an inch behind and has started leveraging its real estate potential now. The upcoming NANO plant, high land availability, and improved connectivity are the driving factors for Ahmedabad.

The Makaan.com Property Index (MPI) also has recorded positive growth for tier II cities such as Pune, Kolkata, Ahmedabad. The Pune property index, as compared to March 2009, in March 2010 has gone up bye 28.1% . The Ahmedabad MPI has gone up by 40% . Kolkata is another tier II which witnessed a rise in MPI by 52% . These figures represent the rise in property prices in Tier II cities.

Industry experts also feel positive about Tier II cities. Rohit Goel, CMD Omaxe credits the growth of Tier II cities to the real estate development happening in those areas.Leading real estate consultant JLLM was reported saying to ET Now that cities worth consideration for long term investments are Pune, Ahmedabad, Nashik, Nagpur, Vadodra, Coimbatore, and other Tier 2 cities.

If we consider the Union Budget 2010-11, its implications also stand in favour of Tier II cities. The budget has extended 1% subsidy in interest rate for housing loan up to 10 lakhs till March 2011. This in turn would stimulate the home buyers in 20 lakh segment. Major beneficiary of the union budget 2010-11 will be home buyers in B&C category towns, and buyers with a budget around 20 lakh or less, says the intelligence of MakaanIQ. which is an initiative by Makaan.com to provide information, intelligence, and tools for an informed property investment decision.