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Urban oasis or smaller city charm: What will decide your ideal home?

Bloomberg
Bloomberg

Summary

Size matters, but location is one of the important factors that influence the decision of most homebuyers

There is no place like home. Period. And that’s the reason buying a home remains one of the biggest aspirations of most people. How that aspiration turns into reality, though, is largely dependent on your earnings and your eligibility for a home loan, should you need one.

And when it is time to make a decision on buying that dream house, there are a multitude of factors to consider: its size, access to local amenities, facilities and features offered, infrastructure and logistics, reputation of the builder and much more. Yet, a key deciding factor for many homebuyers has been the location: Which city would you choose to settle down?

The covid-19 pandemic induced lockdowns gave working professionals an opportunity to move away from the hustle and bustle of metros to the relative quietness of non-metros. That resulted in a surge in demand for real estate in smaller cities and towns, where many of them found the quality of life to be superior. The trend was short-lived, though. The work-from-home chapter is almost ending, with most companies calling their employees back to the workplace. While work-from-office is the norm now, many employees would still like to settle down in non-metros, mostly as retirees. Some have already bought houses in these non-metros or are building one.

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There have been other reasons why people move to smaller towns. For instance, much before covid, there was a noticeable trend of residents of Delhi-NCR shifting to the suburbs, in view of the deteriorating air quality in the capital city. This move helped many people buy bigger and affordable homes in the tier II cities that had sprung up in the suburbs, but that came at a cost: longer commutes to their offices.

Good infrastructure, easy access to health facilities, and cost of living are some of the factors that homebuyers deliberate on before deciding on the city of their choice. Mint speaks to four homeowners about the factors that influenced their home buying decisions.

Prakash Bajpai, 63, Kolkata

Prakash Bajpai faced a rather peculiar choice closer to his retirement–whether to settle in Dehradun or Kolkata. In Dehradun, he had inherited a 400 sq yards plot of land, which was bought by his father in the 1970s. That plot housed a small two-storey building. Whereas in Kolkata, he already owned a flat, which he had bought in 2004 for 20 lakh.

The Dehradun property was more valuable in terms of its market valuation, but it was a joint inheritance—shared by Bajpai and his brother. “The plan was to renovate and extend the building at an approximate cost of 30 lakh per person so that each of us would get a floor of about 1,700 sq. ft," said the 63-year-old.

For Bajpai, a bigger space and higher market value were not reasons enough to settle down in Dehradun. The priority was for infrastructure, proximity to the airport, connectivity to other countries via flights and better healthcare facilities. And so , the choice was Kolkata.

“Kolkata has better water supply, wider roads and no major power cuts, while Dehradun’s prime area lacks these amenities. Besides, Kolkata is a better-connected city as the airport is just 13km away, whereas the Dehradun airport is 35km away. Because Kolkata is a metro, it also offers better facilites for children," Bajpai said.

Nikhil Deshpande, 35, Pune

In 2017, Nikhil evaluated several options for his real estate investment, including cities such as Pune, Latur, Mumbai, Nashik, and Hyderabad. After careful consideration, he chose Pune over the other options.

“One of the primary reasons was the guaranteed possession and quality of construction/amenities offered by Pune’s real estate market. I valued these factors above other considerations, which smaller tier 11 and tier III cities like Latur and Nashik lacked at the time. Furthermore, Pune’s real estate market had adopted RERA, and it had a greater number of projects approved by banks and financial institutions for a home loan," said Nikhil.

Compared to Mumbai and Hyderabad, Pune offered a bigger house with similar amenities, and the rate of growth in Hyderabad was not as promising in 2017 as it is today.

The process of securing Nikhil’s investment in Pune was smooth, with the project being pre-approved by leading banks, and he was able to negotiate a 5% discount. He also hired the services of an advocate to review all property documents, which helped him secure a good deal. Now, five years later, the area around his property, located on DP Road near Amanora Park Town in Pune, has developed significantly, and the investment has proven to be profitable, with high rental demand and the option of a good ROI (return on investment) if he ever chooses to sell.

Overall, Nikhil is happy with his decision to invest in Pune. He ended up paying the same price for the house as the one offered in Hyderabad but 60% less than that in any western Mumbai suburb for a similar property.

Anmol Jaju, 25, Mumbai

Anmol Jaju, a 25-year-old chartered accountant, faced a similar dilemma that most young professionals in Mumbai do—find affordable housing in a good location. After searching for months, he found the ideal location in the suburbs of Mumbai-Mira Road.

“Compared to other societies with luxury amenities, Shanti Park offered basic amenities at a lower maintenance charge of only 4,000 per month. The society also has a rainwater harvesting facility that ensured uninterrupted water supply, a crucial factor in a water-scarce city like Mumbai", said Anmol.

But for Anmol, it wasn’t just about the cost and amenities of the housing society. He wanted a social life outside of his office circle. Mira Road offered a larger apartment (3 BHK) with all basic amenities at a cost of 1.40 crore. This is just one-third the price of a property in locations like Borivali and Andheri for similar-sized flats.

With its affordable housing options and adequate amenities, Mira Road proved to be the perfect location for Anmol, allowing him to buy a home without breaking the bank.

Akash Manohar, 33, Bengaluru

Akash Manohar and his wife recently purchased a residential plot in a BDA-approved layout in Bangalore. They had set several criteria for themselves while looking for the perfect plot of land. The first criterion was that the plot had to be in a layout approved or created by the Bengaluru Development Authority (BDA) to avoid any future legal issues. Also, bank loans can be easily availed where it concerns a BDA-approved layout.

“Investment value was another important criterion. Since we had no immediate plans to build a house, we also wanted to invest in a plot that would appreciate in value over time. We decided not to consider buying an apartment due to prior bad experiences and bad maintenance issues faced by some of our relatives," said Akash.

When it came to finding the perfect plot, they had two options—either find one themselves or go through a broker they knew. Given their prior experiences with brokers, they were cautious about using the latter. They also found that gated communities were overpriced compared to residential land in certain BDA layouts. The prices of plots they checked elsewhere also varied by about 30%.

However, they opted out of many of the gated community plots because these came with a plethora of rules and were also extremely expensive considering the location. Some of the available plots were not in BDA-approved layouts. The gated community plots, apart from being located far away from the city, did not offer much facilities despite their premium prices. The plots were still in the early stages of being developed despite the layout being officially launched 3-4 years earlier.

Trends in tier-2 markets

Some of the tier-II cities such as Bhopal, Chandigarh, Indore, Jaipur, Mysore, etc, are fast catching up with metros in terms of work opportunities and infrastructure. These cities offer an ideal location for prospective homebuyers.

As far as price trends in the top seven cities are concerned, ANAROCK Research indicates that average property prices in the top 7 cities remained more or less the same in the pre-covid period between 2018 and 2019. In 2018, the average prices stood at 5,551 per sq. ft. and in 2019, prices increased by just 1% to an average of 5,588 per sq. ft. There was no change between 2019 and 2020. “Eventually in 2022, we saw average prices increase by 5% on yearly basis; and in just the first quarter of 2023, we have already seen a 5% rise in residential property prices," said Anuj Puri, chairman, ANAROCK Group.

From an investment perspective, smaller towns offer a relatively stable property market, which is expected to hold up even during economic uncertainties. However, it’s important to note that smaller cities are marked by the absence of tier-I developers, making it difficult to find trusted brands for properties.

Both metro and smaller cities have their pros and cons, and the decision to buy a property should depend on the purpose of buying one. Those who work in metros and have long-term job prospects in such cities would fare well in buying a home for their personal use there itself. If they want to purchase a property purely for investment, they can also consider their home towns provided the city is developing in terms of physical and social infrastructure. Many tier II and tier III cities are developing rapidly, and, as such, property prices have seen good appreciation, sometimes more than that compared to metros.

For salaried individuals, buying a home in a tier-II city makes sense only if their work doesn’t tie them down to a metro. It is better if the office is based in a metro but offers remote work flexibility.

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