Amid businesses in India realizing the advantages of the work-from-home (WFH) concept in the backdrop of the Coronavirus pandemic, there has been a major shift of the workforce towards tier-2 cities. In Tier-2 cities the cost of living is generally less, the work-life balance is better and also the housing remains more affordable as compared to megacities. And this has inspired the Indian Real estate developers, as well the state governments to focus more on these high-potential yet untouched markets.
What are Tier-1, Tier-2 & Tier-3 cities?
In India, cities are categorised as X (tier-1), Y (tier-2) and Z (tier-3) by the government based on the population density. There are 8 metropolitan tier-1 cities- Delhi, Mumbai, Banglore, Chennai, Hyderabad, Kolkata, Ahmedabad and Pune. And 103 cities categorised as tier-2 like our Guwahati city and the remaining are considered as tier-3.
Tier 1 cities are densely populated and have a higher cost of living. These cities have all the major airports, top multi-speciality hospitals, industries, education and research institutes, etc. Some economists believe that certain tier-2 cities like Gurgaon, Noida, Vellore, Guwahati, Kochi, Goa, Jaipur and a few more cities are as good as tier-1 cities and could elevate to the next level in the upcoming years.
Advantages and Disadvantages of Tier-2 cities
| Advantages | Dis-advantages |
| Decent infrastructure and connectivity | Poor international air connectivity |
| Low pollution levels | Lesser economic activity |
| Fewer traffic bottlenecks | Absence of MNCs |
| Moderate cost of living | Fewer job opportunities |
| Better quality of life | |
| Low real estate prices | |
| Low cost of doing business |
How COVID-19 has changed buyers’ preferences?
Aditya Kushwaha, CEO and director, Axis Ecorp, points out that the COVID-19 pandemic has altered how we live, work, learn and play. The overall health, hygiene and wellness concerns during COVID-19, have significantly shifted the focus towards spacious homes, set amid verdant greenery, away from densely packed cities. Further, riding on the wave of sustainability and prospective investment, the holiday homes/secondary housing segment has emerged as a sought-after option for buyers, whose jobs and lifestyle have remained unaffected in the wake of pay cuts. People’s preferences have shifted from the top metro cities to tier-2 and other tourist destinations, he says. “Investors believe that they can find better entry prices, flexibility and sizable returns in such locations,” he explains, attributing the shift to the concept of remote working.
What is the future of real estate in 2021 in tier-2 cities?
Hiral Sheth, HOD, marketing, Sheth Creators, also believes that the internet has been the backbone of 2020, with most people working from home. With a lot of people shifting back to their home towns during lockdown and people realising the importance of having a home of their own, there has been a spike in home buying in tier-2 cities. With this trend attracting reputed developers, the quality of housing would also improve in these cities. “While realty costs in tier-2 cities will be lesser than tier-1 cities, people will also have benefits like large open spaces, the ability to stay close to family, low pollution, etc. Most tier-2 cities today have good infrastructure advancements like metro stations, excellent public transport and availability of basic facilities like schools, hospitals, banks, and shopping markets,” says Sheth.
Deepak Goradia, vice-chairman and MD, Dosti Realty, points out that with offices planning to adopt work-from-home on a long-term basis, many prospective home buyers are considering shifting base to the peripheral areas and investing in homes at more affordable prices. “The buyer’s preference for a change in location is fuelling property demand in the peripheral locations of cities today,” he says.
Following the Coronavirus pandemic, many businesses may also shift to tier-2 cities. Hence, it is believed that by the second half of 2021, demand would increase in tier-2 cities, owing to better employment opportunities, infrastructure growth and improving connectivity. Nevertheless, several roadblocks remain. For example, FDI for projects in these cities has been a major challenge. However, this can be made easier by the government through policies and tax initiatives and benefits that could entice people to invest and set up living and working bases in these high-potential tier-2 cities.
Conclusion:
In the future, real estate development in Tier 2 cities will be a lot dependent on the Smart City mission of the Central government which is already in its first phase. Nearly 9.96 crore of the urban population will be affected by this mission which has the potential to spur real estate development to greater heights in Tier 2 over the next few decades. Demand for residential as well as commercial and warehouse spaces is expected to rise in the 100 smart cities after they are developed.
From the home buyers’ standpoint, tier-2 and tier-3 home towns are more affordable to live in and feasible to work. After all, many industries are investing heavily in IT infrastructure, making work from home a reality for their workforce. Consequently, after adopting the new normal, these companies are unlikely to reverse the trend, as it also allows them to reduce costs incurred on office spaces in the process.
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