Tier 2 Cities: The New Real Estate Hotspots
Real estate markets in non-metro, or Tier 2, cities are experiencing remarkable growth, surpassing many metropolitan areas in investment and demand. This surge is fueled by a confluence of factors that make these cities attractive to both businesses and individuals.
According to a joint analysis by Cushman and Wakefield and the Confederation of Real Estate Developers’ Associations of India (CREDAI), India's urban population is projected to reach 50% by 2050, up from the current 35%. This growth puts immense pressure on Tier 1 cities, where space is increasingly limited. Consequently, the focus has shifted towards developing alternative urban centers with the potential to become new economic and real estate hubs – the Tier 2 cities.
CREDAI also predicts India’s urbanization rate will exceed 50% by 2050, potentially leading to significant population migration to these burgeoning urban areas. Manaki Parulekar, Co-Founder of Claravest Technologies, offered keen insight into this trend.
Parulekar explained that the rise of integrated townships, offering a mix of residential and commercial spaces, is a significant factor in the growth of Tier 2 cities. “For example, Panvel in Navi Mumbai is rapidly developing, with townships such as Hiranandani and Godrej, aided by projects such as the Navi Mumbai International Airport and the Atal Setu Bridge (MTHL).”
The development of commercial Grade-A properties, coupled with affordable residential property values and improved connectivity, is further accelerating growth in cities like Jaipur, Bhubaneswar, Nagpur, Surat, and Kochi. Parulekar highlighted several key factors contributing to this increased real estate investment.
Factors Driving Real Estate Investment in Tier 2 Cities
- Diverse Economic Development: Tier 2 cities are outperforming traditional metros in economic growth, driven by diverse sectors like manufacturing, information technology, education, and healthcare. Nagpur, for instance, is expanding in manufacturing, logistics, and IT, while Surat is witnessing growth in textiles, petrochemicals, and IT.
- Cost Advantages: Tier 2 cities offer significantly lower costs than their Tier 1 counterparts. This advantage stems from lower operational expenses, making these locations highly appealing to businesses and investors alike.
- Improved Quality of Life: These cities offer a more relaxed lifestyle compared to larger metropolitan areas, featuring reduced traffic congestion, lower pollution levels, and a generally quieter environment. This translates to a better work-life balance, attractive to both companies seeking a dedicated workforce and individuals seeking a more balanced lifestyle.
- Government Initiatives: Government investments in critical infrastructure, including transportation networks, airports, highways, and reliable power and communication systems, are crucial in supporting the growth of Tier 2 cities. These investments lay the foundation for sustainable development and attract further investment.
- Real Estate Market Growth: The real estate market, particularly the residential segment, is flourishing in Tier 2 cities. The demand for larger apartments, fueled by the rise of remote work and a growing middle class with increased purchasing power, is driving this growth. While property prices are rising, they remain comparatively lower than those in Tier 1 cities, offering attractive investment opportunities.
- Advancements in Education and Healthcare: The increasing presence of reputable educational and healthcare institutions in Tier 2 cities enhances their appeal as desirable places to live and work. Access to quality education and healthcare are essential factors for attracting and retaining a skilled workforce.
In conclusion, these factors combine to make non-metro areas highly attractive destinations for real estate investment. They frequently offer more sustainable growth and profitability compared to the saturated and high-cost environments of traditional metropolitan areas.