The great Indian realty story outside the metros
A recent Crisil Research report says the size of the realty market in 10 tier-II cities — Bhopal, Bhubaneswar, Coimbatore, Indore, Jaipur, Lucknow, Nagpur, Surat, Vadodara and Visakhapatnam — adds to Rs 18,000 crore.
Leading the pack is the country’s diamond enclave, Surat, with average yearly sales of 7,400 units and realisation of Rs 4,000 crore. Next is Jaipur, with sales realisation of close to Rs 1,900 crore and sales of 7,500 units.
The real estate sector and financial institutions alike are now eyeing tier-II cities for diversification, as these offer much in both growth and potential. Biggies such as DLF, Unitech, Indiabulls Real Estate, Parsvnath, Puravankara, Tata Realty, Reliance Urban Infra, Emaar MGF and Sobha Developers are among those flocking to these cities and launching projects with an average price band of Rs 2,000-2,700 per sq ft.
DLF, the largest realtor according to market capitalisation, has been actively entering the smaller cities. It has a presence in Bhopal, Indore, Lucknow and Bhubaneswar. Unitech has guided residential project launches in the emerging markets of Kochi and Ambala this year. It launched 10.8 million sq ft in 2010-11, of which 1.8 msft was in the smaller cities and it managed to it sell 0.8 msft.
According to Prasad Koparkar, head–industry and customised research at Crisil Research, “About 350 million square feet (msft) of residential construction will happen in FY2011-2012 in these 10 cities and it is driven by small-scale developers, who are contributing 90 per cent of the investment. The demand is local and not investor-driven.”
But the significant change in this new landscape is that large-scale national developers are showing renewed interest. They’re buying small land parcels or reworking on those lots bought during the boom time with their Initial Public Offering money.
The diversification of national developers to tier-II cities has been led by a slowing in places such as the National Capital Region and Mumbai. Even Chennai and Bangalore have started to show the peel effect. In contrast, these tier-II cities are less susceptible to market shocks and interest rate rises, as only 30 per cent of the population in these cities are availing loans to buy real estate vis-à-vis almost 70 per cent in tier-I cities, says Koparkar.