HomeBlogKNOWLEDGEWhy real estate investors are investing in India’s emerging tier-2 cities?

Why real estate investors are investing in India’s emerging tier-2 cities?

Over the years, there has been a significant drift in Indian real estate. Earlier it was just the metro centres like Bengaluru, Delhi and Mumbai that were centres of focus but now there is a shift moving towards newer tier-2 cities. Because of their strong growth value and returns, cities like Jaipur, Lucknow, Coimbatore, and Indore appear to be promising for real estate investors.

Several factors are contributing to these trends, such as better infrastructure and government incentives. Find out why there is an increasing interest among real estate investors in tier-2 regions.

Affordability 

One of the most compelling reasons that investors are moving toward tier-2 cities is because these areas typically offer lower costs. However, ROI is also going to be a lot lower than in urban areas because property prices have shot through the roof. Since then, investors are exploring other markets and tier-2 cities have the right balance of cost along with opportunities for growth.

This is why property costs in places like Pune and Kochi are substantially lesser than major cities such as Delhi or Mumbai. Investors can buy much larger parcels of land or more spacious homes for a fraction of the cost. This low entrance barrier is very attractive to first-time users that are afraid of the risks in big city real estate projects.

Government Support 

Government measures to encourage economic growth, particularly in non-metropolitan areas, have led to a significant increase in real estate investment. Consider tier-2 cities, where initiatives like the Smart Cities Mission and AMRUT (Atal Mission for Rejuvenation and Urban Transformation) have placed a strong emphasis on infrastructural development. It’s quite amazing! These initiatives are improving the livability and attraction of communities for both businesses and homebuyers. Everyday living is being significantly impacted by advancements in areas like water supply, sanitation, and transportation.

Policies like PMAY (Pradhan Mantri Awas Yojana) and RERA (Real Estate Regulatory Authority) have also increased affordability and transparency in these markets, guaranteeing improved governance and lowering investor risks.

Infrastructure Development 

In terms of infrastructural development, Tier-2 cities are catching up, and many of them now provide amenities that were previously only found in larger metro areas. Cities like Lucknow and Surat are changing due to improved road networks, connections provided by new airports, metro rail projects, and improvements in public transportation systems.

Consider Indore, which has become a significant real estate centre as a result of its increased economic growth, better connectivity, and superior cleanliness. Investors are finding it simpler to justify their choices to invest in smart city infrastructure and metro rail services as a result of the government’s active efforts to develop these areas.

Growing IT Sector

Metro areas are no longer the only places where industries operate, it’s pretty interesting how tier-2 towns are becoming the new hotspots for businesses these days. With lower costs, some government incentives, and a growing pool of talent, it’s no wonder that IT companies, manufacturing firms, and even startups are all flocking there. Just look at places like Coimbatore, Bhubaneswar, and Vadodara. The job opportunities are really booming, which is leading to a surge in demand for both homes and commercial spaces. 

For instance, Pune. It began as a tier-2 city with substantial industrial and IT expansion, but today it’s frequently regarded as a tier-1 metropolis. Its development shows how comparable cities today might eventually develop into important centres. Office space and residential projects are in greater demand as a result of the growth of business parks and SEZs (Special Economic Zones) in these smaller cities.

Rise in Rental Yields

Rental yield is an important metric for any real estate investor, and tier-2 cities have proven the ability to offer competitive returns in this area. Due to lower acquisition costs, tier-2 cities provide higher rental returns than metro areas, where high property prices frequently translate into poor rental yields.

For example, rental yields are said to be greater in Chandigarh and Jaipur than in Bengaluru or Mumbai, providing investors with a reliable source of income. These cities have merit to those wishing to invest in residential and commercial rental properties because of this as well as the reduced maintenance expenses.

Expansion of E-Commerce

The demand for real estate in tier-2 cities has really shifted lately, especially with the boom in retail and e-commerce. Take Nagpur and Guwahati, for instance. These towns are actually in a great spot to cater to larger areas, and that’s really catching the attention of big online retailers like Amazon and Flipkart. They’re ramping up their logistics and warehousing operations there, which is driving the growth of commercial real estate.

And let’s not forget about the shopping centres and business complexes popping up in these developing cities. It’s all about organised retail on the rise. Because of their lower costs and expanding customer base, tier-2 cities are becoming more and more attractive to investors as sites for retail establishments, warehouses, and mixed-use projects.

Changing Lifestyle

The idea of Tier-2 cities as rural or destitute has changed. Many of these cities now offer an excellent quality of life that is comparable to metro areas but without the high cost of living, traffic, or pollution thanks to increased infrastructure and economic growth.

For instance, Jaipur. The city provides a mixture of contemporary living standards and cultural history. It is the perfect place for people looking for a balanced lifestyle because of its first-rate healthcare facilities, educational opportunities, and entertainment venues. Well-off people and the increasing middle class are driving the need for eco-friendly townships, gated communities, and luxury apartments in these cities, which real estate investors are taking notice of.

Case Study: Coimbatore 

Coimbatore presents an intriguing example of the expanding trend of investments in tier-2 cities if we examine it more closely. It is frequently referred to as the “Manchester of South India,” and throughout the past 10 years, the local real estate market has flourished, especially in the residential and commercial districts.

What, therefore, is causing Coimbatore to expand so rapidly?

Industrial development comes first. The city has developed into a centre for textiles, engineering, and manufacturing, drawing numerous domestic and foreign companies. As a result, there is a great need for housing to house all of the newly arrived workers.

Connectivity comes next. Coimbatore is quite attractive to businesses and investors because of its excellent air, train, and road connections to other important South Indian towns. Furthermore, things will only get better with the upcoming Coimbatore metro rail project!

The cost of real estate is another factor that draws people to Coimbatore. A major lure for investors is the fact that you can purchase a good property here for a lot less money than in cities like Bengaluru or Chennai.

Not to mention the expanding IT industry! Demand for both residential and commercial real estate has increased in recent years as more companies have chosen to locate in the city. It’s a remarkable change. 

Conclusion

Tier-2 cities in India are rapidly gaining popularity as places to invest in real estate. These cities have excellent chances for investors seeking high returns with minimal risks because of their rising industry, improved infrastructure, government assistance, and reasonably priced real estate. The tendency is anticipated to increase as more individuals and companies recognize this potential. Investors that take early action can benefit the most from the expansion of these growing metropolitan areas because the gap between Tier-1 and Tier-2 cities is closing.

Disclaimer: The content provided on this blog/Website is for general informational purposes only. We do not offer any specific advice or recommendations. The information presented here should not be considered as professional advice or a substitute for professional consultation. Always seek the guidance of a qualified expert with any questions you may have regarding your specific situation. The opinions and views expressed in the blog/ Website are those of the authors and do not necessarily reflect the official policy or position of Property Souk


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