Non-metro cities are becoming the new realty hotspots

In the struggling market, investors are looking at cities like Ahmedabad, Lucknow, Bhopal, Kochi, Bhubaneshwar for housing and infrastructure projects, as metros get saturated and outrageously expensive.

Lower prices, bigger homes and better returns on investment — paired with government incentives for affordable housing — have seen markets outside the prime metro cities pick up considerably over the past five years.

According to a survey by property consultancy Anarock, 26% of property seekers looking to invest in real estate in 2019 listed cities like Ahmedabad, Lucknow and Chandigarh as their top preferences. Kochi and Bhubaneshwar in the east have seen steady growth over the last five years too.

For a city like Ahmedabad, a growing realty investment hub, rapid infrastructure growth and industrialisation have been big factors driving this interest, says Santhosh Kumar, vice-chairman at Anarock. “Good connectivity and hubs like the Gujarat International Finance Tech-City have helped considerably.”

The key impetus for markets in non-metro and non-prime metro cities has come from the government’s push for affordable housing. “Since 2015, more than half of all units launched nationally have been in the segment priced at less than ₹40 lakh,” Kumar says.

The incentives announced in 2014 included tax rebates that work better, in fact, in non-metro cities, says Pankaj Kapoor, managing director at realty research firm Liases Foras.

“Tier 1 cities have registered 28% growth since 2015, whereas in Tier 2 cities the growth has been around 42%, according to our research. In the latter — cities like Jaipur, Bhopal or Lucknow — affordable housing projects get way more potential buyers as they can be built in prime locations because land prices and construction costs are lower. In cities like Mumbai, such projects are difficult to conceive of anywhere close to the central districts. They are always in far-flung areas,” Kapoor says.

Another factor that has worked for the smaller cities is that, as the gaps in infrastructure and lifestyle have narrowed, businesses have moved in, drawing migrant professionals, creating a melting pot culture that is more cosmopolitan and urban, and eventually drawing people back home to those cities from prime metros.

“People who had been working in metros are coming back for a similar lifestyle, at a lower cost, and the chance of a home of their own that they couldn’t dream of in the cities they had migrated to,” Kapoor says.

UPS AND DOWNS

The growth remains erratic, though, as demand and supply grow in spurts rather than a smooth upward graph. Office projects in Mohali have large vacant spaces, while in cities like Indore and Jaipur, rental rates are growing unusually fast as supply falls short of current demand, says Rohan Sharma, research head for India at the realty services firm, Cushman and Wakefield.

A large potential area for growth is in the east, adds Neha Naidu, senior manager for retail at realty consultancy, Knight Frank India.

“Thus far, eastern India has been considered one of the most conservative realty zones in the country. However, this is changing. The region is in the midst of being transformed from a traditional customer demographic to a product-aware, brand-savvy market,” Naidu says.

An indicator is the entry of retail brands like Inox, Westside, Pantaloons and Spencers in cities like Bhubaneswar in Odisha and Dhanbad in Jharkhand.

“With airports, IT hubs and multiple institutes of higher education in the region, it has a lot of factors working for it,” Sharma says.