Sales and price growth in the property market in Tier-II cities across the country have been slow for a long time, but the past year has seen a significant turnaround in both housing sales and prices. Although the volume of property sales in these cities is much lower than tier-1 markets, the pace of growth here has picked up significantly. Here are highlights from Mint’s investigation into the future of small-town homes…
Small property markets perform better
It is absolutely true that tier-2 cities witnessed higher growth in residential property sales in FY 2024 due to higher demand for better quality homes. According to consultancy firm Liases Foras, sales in at least 52 smaller cities grew by 26% in the last financial year, while the top eight cities grew by 21%.
Property prices are also generally lower in these markets. With the increase in sales, property prices have increased. Even in many tier-2 cities, prices have increased in double digits. Comparatively, among the metros, only the National Capital Region has seen double-digit price growth. The unsold housing stock in smaller cities has also declined by 20% last year.
Special reason behind the surge
While the surge in housing demand has focused on metros, it has also helped smaller real estate markets. Key factors include affordable housing, better infrastructure including airports and metro rail, warehousing, retail investment along with increasing government spending on infrastructure. Property investors, who have recovered from the shock of Corona, are gradually betting on small cities.
Because of this there has been a rise in prices. A recent report by property consultant Savills India said the growth in rental income in Goa is higher than some other top cities due to increased investment by high net worth individuals.
Where and why are prices rising?
Ludhiana has seen the fastest growth due to interest from both non-resident Indians (NRIs) and high net worth investors. Both these investors are returning to some North Indian markets. The rise in prices in Kanpur, Lucknow, Dehradun and Jaipur is due to high demand and relatively low housing supply. The entry of some tier-1 builders with plotted projects in these cities has also helped these sectors.
Property prices may decrease in these cities
According to Liases Foras estimates, home sales in small cities and towns are expected to grow by 25% in FY 2025 compared to FY 2024. Sales growth in these markets will also be faster than in tier-1 markets, partly because growth here will be on a smaller base. As project launches increase, the overall housing stock in tier-2 markets will also expand. As a result, property prices may decline in these cities. A lot will also depend on what incentives the government gives to these markets.
Central expenditure will boost growth
Under the ‘Housing for All’ mission, the Pradhan Mantri Awas Yojana (PMAY) is set to be expanded, with the promise of three crore new houses. This will help in boosting housing supply and more so, help in reviving the affordable housing market in tier-II category cities.
Real estate analysts say more such incentives are needed to expand property markets beyond metros and help meet housing needs. The new plans could also inspire established developers to make bets in these markets.
