Invest Guide November 2024

The rising appeal of tier 2 cities for residential investments.

India's Real Estate - a Snapshot :

Real Estate has been one of the most prominent and interesting asset class in household, institutional, government, and private company portfolios. Real estate markets have always been characterised as dynamic and unpredictable often posing as challenges, also present potential opportunities for investors who are constantly analysing the changing landscape and trends in the emerging markets. A multifaceted sector characterized by its diverse segments and evolving trends, let us take a quick look at the basic framework of this industry and bodies responsible for regulating various aspects.

Market definition and structure :

Real estate includes all homes, buildings, and lands that are utilised for residential, commercial, or industrial reasons. Residential real estate involves the sale and rental of residential properties, including apartments, villas, and single-family homes. Commercial real estate includes office buildings, retail spaces, and hotels. Industrial real estate comprises warehouses, factories, and logistics facilities whereas agricultural real estate involves land used for agricultural purposes.

Key Stakeholders and regulatory framework :

The real estate sector in India is governed by a variety of significant parties, including developers, builders, real estate investment trusts (REITs), estate agents, and brokers. Regulatory bodies, including as the Real Estate (Regulation and Development) Act of 2016 (RERA), as well as central and state governments, are in charge of regulating the industry's different aspects.

Highlights of Real Estate India - 2024 and beyond :

• The Real Estate market in India is expected to reach a projected value of US$45.32tn by 2024
• Among the various segments, Residential Real Estate holds the largest share, with a projected market volume of US$39.18tn in 2024
• This segment is anticipated to grow at an annual rate of 2.61% from 2024 to 2029, resulting in a market volume of US$51.54tn by 2029
• In comparison to other countries, United States is projected to generate the highest value in the Real Estate market, with an estimated US$132.0tn in 2024
• The real estate market in India is experiencing a surge in demand due to the growing urban population and increased investment opportunities
• At a CAGR of 13%, the market is projected to reach USD 1 trillion by 2030

In the last couple of years, the residential market has come out of a long period stagnancy in prices. Attracted by the prospect of capital gains, the residential market is currently witnessing huge participation from investors, according to international property consultant Cushman & Wakefield.

The Next Big Thing: Tier II Cities Transforming India's Real Estate Landscape:

As major cities such as Bengaluru, Hyderabad, Chennai, New Delhi, and Mumbai continue to expand, a noticeable wave of opportunity is emerging in the tier 2 and tier 3 cities. Cities like Chandigarh, Coimbatore, Kochi, and Jaipur provide several benefits, including lower operational costs, a more relaxed lifestyle, quality educational opportunities, and a pool of untapped skilled and semi-skilled workers.

The Indian real estate landscape has undergone dynamic shifts and transformations over the last couple of years owing to rapid urbanization, changing lifestyle preferences and improved infrastructure. As the cost of living in Tier 1 cities continue to rise, increased rate of urbanization which jumped from 32% in 2013 to 36% in 2023, and the population boom have added more pressure, straining the existing infrastructure in Tier-I cities. Today, the future of real estate in India is poised to expand beyond traditional metropolises to smarter Tier 2 and Tier 3 cities that have picked the interest of both businesses and residents. With a promise for a better-quality life at more affordable prices, let us look at the key aspects influencing the shift.

Rapid expansion of job opportunities in Tier 1 and Tier 2 cities -

India's job market is migrating from Tier-1 to Tier-2 and Tier-3 cities, which are now major talent hubs. The rise of remote work, improved skill development opportunities in Tier-II cities, and the spread of numerous sectors to these places are catching recruiters' attention emerging emerging them as the next real estate goldmine. Telecom, consumer electronics, retail, and financial industries are expanding career opportunities for tech experts outside of big cities transforming the previously quiet, small towns into vibrant economic zones contributing to the nation's growth.

Tech giants like Apple are enlarging their Indian workforce, seeking talent in locations like Hubballi and Dharwad. Apple is just one example; numerous other major multinational companies are also recruiting in tier-2 and tier-3 cities across India. Over 30 major domestic and international retail brands have entered 14 tier-2 cities, according to a report by CBRE.

Government Initiatives and Infrastructure development:

The Indian government is actively promoting infrastructure development through CAPEX, reforms, and growth initiatives. Government backed programs like Smart Cities Mission, AMRUT (Atal Mission for Rejuvenation and Urban Transformation) have aided significant support with greater employment possibilities, capital appreciation and rental values. Tier-II cities are likewise becoming more connected as metro rail, airports, and super corridors are introduced. These attempts to improve connection are another important component in making these towns and cities attractive for real estate investments, particularly in the housing sector.

Quality of life:

Tier 2 and 3 cities provide a distinct lifestyle advantage that improves employee health and wellness. Unlike Tier 1 metro cities dealing with water scarcity, these cities frequently have sufficient access to this crucial resource. Offering a cost advantage to home buyers and businesses along with a lower cost of living, Tier 2 and 3 cities have become an emerging urban centre to be not only viable alternatives to congested metros but also places where they can build fulfilling lives.

Thriving E-Commerce and changing consumer behaviour:

The exponential growth of e-commerce sector in India has significantly impacted Tier II and III cities, transforming the way people shop, work, and live. Adding to the internet penetration, discretionary spending with better disposable incomes have fuelled the demand for retail spaces in Tier 2 cities. The demand for commercial real estate is rising due to the need for warehouses and fulfilment centres, particularly in emerging markets. This trend presents new opportunities for real estate developers and investors.

Emerging trend of NRI investments:

NRIs are increasingly identifying India's Tier 2 cities as promising investment options. With a combination of affordability, development possibilities, and better quality of life, these locations present attractive chances for NRIs wishing to invest in real estate while remaining connected to their roots.

As per a Real Estate report from NoBroker, a leading real estate portal, between 2019 and 2020, NRIs constituted 10% of total real estate investments in India, which surged to 15% in 2023 and are projected to reach 20% by 2025.

Conclusion:

The rise of Tier 2 and 3 cities in India represents a significant shift in the country's economic landscape. This transformation is fuelled by a combination of proactive state governments, enterprises in search of new talent pools, and a growing workforce equipped with the skills needed for the future. As the real estate sector flourishes in these regions, it not only contributes to economic growth but also enhances the overall quality of life for residents, making Tier 2 and 3 cities key players in India's economic narrative.