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Tier II cities: Upcoming destinations for affordable housing
Financial Express  |  May 2, 2019

Amit Wadhwani

The current population of India is over 136 crore. The nation ranks No. 2 in the list of countries by population and is likely to rank No.1 by 2025. The ever-increasing population is adding pressure to the existing infrastructure of the country and is one of the major reasons driving urbanisation and migration to metropolitan cities. The Indian real estate market used to be primarily driven by the major metropolitan and urban regions of the country such as MMR, Delhi-NCR, Chennai, Hyderabad, Kolkata, and Bengaluru. The existing infrastructure of these major urban mega cities is already encumbered and hence there is a need to expand proximity of these urban areas to meet the housing demand, eventually resulting towards a better infrastructure for the city. The internal population migration is not only moving towards metro cities but also towards commercially important tier-II cities in the country. This has emanated into subsequent rise in housing demand.


In parallel to this situation the accelerated infrastructure growth with on-going mass rapid transportation project, upcoming commercial centres have created job opportunities in major commercially important cities in India, thereby giving a rise in demand for affordable housing. According to a recent Knight Frank report, cities like Ahmedabad and Pune have shown improved affordability since 2010 and apartment prices here stand at just 3 times of their average household incomes.


A few factors have played a key role in the growth of the demand for affordable housing market in tier II cities:


Low Construction Cost


Building a home in tier-II cities is cheaper than building one in tier-1 cities which subsequently brings the ticket size down for the housing units. Also, the construction costs and the price of construction materials in these cities are comparatively lower than metro cities. Real estate players are further finding ways to cut costs in these cities and planning development of more projects in the affordable segment. The availability of skilled labour force and cheaper land prices is making affordable housing a lucrative proposition for real estate developers in the tier-2 markets.


Affordable alternative for consumers


The scarcity of space has contributed directly to the sky-rocketing property prices in the metropolitan cities of the country, making consumers look for affordable alternatives to own a home. A great majority of population in metro cities has migrated from various parts of the country and thus an individual aspires for a home in his/her native place as well, if not in the city they would have moved to in case of employment.


Meaningful intervention by Government policies


The government has shown strong support towards upgrading of the urban infrastructure by upgrading the MRTS, airports, introducing SEZs etc.


Additionally, the proactive government policies and incentives for residential developments under the affordable segment have consolidated the sentiments of the market in these cities. The currently proposed projects like bullet train from Ahmedabad to Mumbai will create job opportunities for millennials and also play the role of catalyst in the development of the industrial and commercial hubs around such infra projects.


In a bid to enhance the affordability further, the government has introduced a new GST regime for the affordable segment which will benefit the real estate sector and buyers of tier II cities. Better infrastructure and affordable housing units will, therefore, boost the demand in these markets and will attract buyers towards the tier 2 cities.


(By Amit Wadhwani, Co-Founder, Sai Estate Consultants Chembur Pvt Ltd)