Investing in real estate? Go for emerging cities

Real estate investment in India is slowly but firmly moving from big metros to the emerging cities in the country. If you have plans to invest in real estate, then you may want to keep your options wide open and not just confine yourself to Delhi or Mumbai. While property prices continue to shoot up across the country, growing cities offer better return on investment opportunities for investors. Due to increase in business growth, urbanisation, employment opportunities and booming demand for home added with infrastructure development, cities like Gurgaon, Hyderabad, Ahmedabad, Coimbatore and Indore are promising healthy returns on investment.

Here is a brief overview of the drivers behind escalation of real estate investment opportunities in these cities.

Supply flux in real estate

Indian real estate market has been ailing from a flux in supply. The supply of housing units priced below Rs 3000 per sq ft is estimated to come down as low as 8% in the 4th quarter of 2013 financial year. Property prices continue to rise across the country and in 2012 financial year, housing prices have gone up by 12% in high-end properties and 10% in case of mid-range properties. New launches have also come down by 50% in the last year in metros like Delhi and Mumbai. As, over the roof prices in metros have choked the sale of houses, emerging cities now hold the key in the upcoming years.

Employment generation in developing cities

IT industry has influenced the Indian real estate to a massive extend. IT/ITeS industry has been expanding in the country, creating the highest number of jobs. In 2012, IT industry leads the job generation in India and expansion of IT industry in cities like Hyderabad, Bangalore, Pune, Kolkata, Noida and Gurgaon dictates the realty growth in these cities.

Cities like Pune and Gurgaon have witnessed a huge inflow of population over the last few years, reason being high employment opportunities created in these cities. As the population inflow increases, developers are coming up with more and more projects to tap the demand. Added to housing demand, commercial development will pervade the realty space in these cities, which in turn will push up the prices. Hence real estate investment in these cities can bring in good returns in quick time.

Commercial realty development

Commercial realty has been growing at 30% annual rate and the growth is expected to continue in the coming years. As job opportunities increase, office space will expand across the country. According to estimates, an additional amount of 200 million sq ft of office space will be required in the coming years.

With the government permitting Foreign Direct Investment (FDI) in Indian retail sector, the sector is set to grow to new heights in the coming years. Growing cities will reap the benefit of the influx of foreign capital and mall development in India will reach a whole new dimension in the coming years. India had around 300 big shopping malls by 2012 and the number continues to grow.  The nation is estimated to become the 5th largest consumer economy by 2025 and to tap the demand from a big consumer market, India will need more retail spaces to come up with the aid of foreign capital.

Tier II and III cities: New destinations

Tier II and III cities are the new real estate destinations. Cities like Jalandhar, Kochi, Coimbatore, Chandigarh, Surat, Nagpur, Mysore, Ghaziabad, Mohali, Visakhapatnam, Thiruvananthapuram, Goa, Guwahati, Indore, Japiur, Lucknow, Dehradun, etc. are likely to see real estate growth in the coming years. People are moving constantly into these cities in search of jobs, business opportunities and education facilities. Infrastructure and commercial sector are also likely to grow alongside the demand for residential sector.

Of all the sanctioned home loans under Rs 10 lakh in 2011, over 55% were from tier II and III cities. In 2012, over 40% of home loans under Rs 20 lakh were sanctioned in tier II and III cities. In case of metros, the developers are facing hurdles in form of cash crunch, rising borrowing cost and delay in projects. Hence, the developers are also shifting their focus to tap the demand in tier II and III cities.

IT firms are also moving towards cities like Ludhiana, Kochi, Nasik, Indore, etc. Infrastructure development is also picking up pace in these cities as connectivity through road and rail network are being increasingly emphasised by civic authorities.

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