(Photo: Bloomberg)
(Photo: Bloomberg)

Despite slowdown, housing sales see steady growth in tier-II cities

  • Government's push for affordable housing is ensuring tier-II cities are having a larger piece of the housing sales, says real estate advisory firm Liases Foras
  • Smaller towns and cities offer a 'more conducive land' to develop low cost housing, says Liases Foras MD

Mumbai: Amid the slump in residential sales across India, particularly in the metros, housing demand in smaller towns and cities have seen a steady growth in the last five years driven by the government's push for affordable housing.

Share of over 20 tier-II cities, including Jaipur, Vadodara, Nashik and Nagpur, in the total housing sales has increased to 25% till the end of last financial year 2018-2019 as compared to 16% five years ago, according to data compiled by real estate advisory firm Liases Foras. In the second quarter of this fiscal year, these smaller cities accounted 26% to the overall sales, a marginal jump from 25% recorded in the year-ago period.

However, overall housing sales across the country including major cities like Mumbai Metropolitan Region (MMR), Delhi-National Capital Region (NCR), Bengaluru, Chennai, Hyderabad and Pune declined by 2% to 91,115 units in the September quarter, as per Liases Foras.

"If you look from 2014, sales of tier-II cities have jumped by 112% while tier-I cities have grown by 28%. Contribution of these smaller cities to the overall housing market is increasing. The push for affordable housing is driving this growth," said Pankaj Kapoor, manager director, Liases Foras.

Apart from the government's initiatives like Pradhan Mantri Awas Yojana (PMAY), which has helped push demand in the affordable housing segment to certain extent, smaller towns and cities offer a "more conducive land" to develop low cost housing, Kapoor said.

While most of the cities in the country saw a decline in housing sales in the September quarter, few cities such as Jaipur, Nashik and Ahmedabad saw a jump of 22%, 25% and 4% respectively during the period.

Real estate developers and consultants said that while big cities and metros are seeing a huge supply overhang, smaller towns and cities have been less affected by any speculative activities or downturn in the past.

"While the growth in the smaller cities is nothing prominent as of now, these places were less affected by the bubble which were there in the market. Some of these cities have remained very stable and have not been affected by the downturn.Thats why these cities are showing a relatively healthier position," said Sourabh Mehrotra, national director, Knight FrankFrank, a property consultant firm.

According to him, lower land prices have helped developers execute low housing projects in smaller towns as they are able to bring down the capital cost by as much as 25-30%.

"The mega affordable projects like 7-10 lakh have come up in smaller towns. Reasonable land prices along with government's subsidies have helped local developers to build low cost housing projects such places," Mehrotra said.

However, developers feel that growth in last five years in tier-II cities is only "a green shoot" as job markets expand beyond the metros but would take few more years to similar demand in the major cities like Mumbai and NCR.

"Many smaller cities in India are likely to see incremental development because of the kind of thrust that the government is giving on creating smart cities. But it is a long term story. However, some of the smaller cities in south like Mangalore or Kochi have seen significant changes in the last few years. More jobs and development will lead to offtake of residential housing in these cities," said a spokesperson with property developer Puravankara Ltd. The Bengaluru-based has ongoing affordable housing projects under the brand Provident in cities like Kochi, Coimbatore and Mangalore apart from others.

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