With established metros reaching saturation point, Tier-II and Tier-III cities could hold the promise of a better quality of life. CW PROPERTY TODAY gives you a realty check.
With India actively working to recast its urban landscape, there is huge potential for transformation in the country´s Tier-II and Tier-III cities. Last month, the Ministry of Urban Development announced a list of 98 cities and towns selected for the development of smart cities (view infographic on page 136-137). While four nominated cities - Chennai, Greater Hyderabad, Ahmedabad and Greater Mumbai - have a population of above 50 lakh, 94 cities are from the country´s Tier-II and Tier-III bracket. Add to this the Central Government´s ´Housing for All´ initiative and the opportunity speaks for itself.
¨We are limited only by our imaginations and the words we use,¨ says Tanushree Gulati, Principal Planner, Manifestation of Fluid Architecture (M:OFA). ¨The potential of these cities lies in not calling them Tier-II and Tier-III or as some lesser form of metros, but seeing the uniqueness of character and quality of life that they bring.¨ While the idea of these cities being attractive markets is not new and has been around for at least a decade if not more, from the investment point of view, Pankaj Kapoor, Managing Director, Liases Foras, says, ¨As these cities have a small urban sprawl, the developer market is not actually available on a large scale here.¨ In his view, the developer market may originate and property may become costly only in select regions, which are denser - but this is limited. ¨Unless a city attains a 4-million population base with an urban sprawl radius beyond 10 km from the city centre, it is not prepared for a developer market,¨ he adds.
The promising lot
Earlier, people changed cities depending on employment. Now, the trigger may become quality of life.
¨Smart cities are a precursor,¨ says Tanushree Gulati. ¨Technology and infrastructure need to remain layers. The soul is the unique character of the city itself.¨ Along these lines, she lists Pondicherry, Manali, Benaras, Lucknow, Nalanda, Darjeeling, Bhopal, Vijayawada, Kochi, Goa, Pune, Nagpur, Baroda, Diu, Bhuj and Jodhpur as promising cities. To this, Manish Gulati, Principal Architect, M:OFA, adds, ¨It is a movement between metros to Tier-II and Tier-III and vice versa, because there is something these cities offer and the big cities might not. So, one chooses as per one´s situation.¨
Kapoor´s list comprises cities with a population of close to 1 million. In Tier II, he includes Bhopal, Jaipur, Indore and Nagpur. In his opinion, Kochi, which had Middle East NRI support, hasn´t really recovered after the global meltdown. In the NCR region, he lists Ghaziabad and Noida as two emerging destinations. ¨Vadodara has been good and Chandigarh is showing potential to some extent,¨ he says.
The developers have been eyeing their own list of opportunities. Jogy P Thomas, CEO, ATS Infrastructure, says, ¨Tricity Chandigarh has huge growth potential.¨ He also points to NCR cities like Bhiwadi, Bawal and Neemrana and the Mumbai Industrial Development Corridor (MIDC) as having the potential to develop as industrial townships.
Meanwhile, Sahil Paranjape, Department Head-Purchase, Paranjape Schemes Construction, says, ¨The government has planned metro and BRT, which is helping growth in Pune and Nashik.¨ And Sunil Jha, Director, Bengal Shristi Infrastructure Development Ltd, says, ¨Guwahati and Asansol are two important cities for us.¨
It may not be easy to generalise popular segments, industries and activities in these cities, as each of them has diverse economic drivers depending on demographic profile and infrastructure. But there is a common thread, as Kapoor puts it: ¨Internal growth.¨ He points out that IT, a big driver of growth, has not really picked up across all cities. But the services and manufacturing sectors have been driving growth in these pockets.
Going forward, projects like MIDC can catalyse the growth of industrial townships and real estate. Also, depending on what the city offers, there is also the potential to grow as manufacturing, industrial, IT, tourist or even wedding hubs. ¨It is important that smaller cities are developed on a par with metro cities as far as amenities are concerned,¨ underlines Jha. ¨Only then will people prefer staying there.¨
Government steps up
So what is the Government doing to create new investment destinations for real-estate developers?
The planning of 100 smart cities is certainly a step in the right direction. ¨The idea of smart cities endorsed by the government is primarily an understanding of making sustainable, infrastructure-supported cities with distinct identities and facilities,¨ says Tanushree Gulati. ¨JNNURM city reports have been identifying gaps in infrastructure economically and socially and have already implemented many such projects looking into the needs of the city.¨
Kapoor agrees that the government is trying to bring efficiency into the system. ¨In India, on the one side, we have a housing shortage and need 8 crore homes; on the other, we have rising inventory,¨ he points out. ¨There is a supply-and-demand gap and, somewhere, this setting has to be changed.¨ To eradicate exuberance, the government has introduced a bill to curtail black money. ¨The focus should shift from investment-focused realty to user-driven realty,¨ adds Kapoor. ¨Even income tax is more beneficial to investors than first-time home buyers.¨
Owing to lower real-estate costs and thus project costs, investments are lower in Tier-II and Tier-III cities. As Tanushree Gulati says, ¨Real estate is thus affordable and the market non-fluctuating as the requirement is need-based.¨
With reference to his company´s projects, Jha shares, ¨Typically, the building construction cost would be around Rs 1,500 to Rs 1,700 per sq ft and our selling cost between Rs 2,400 and Rs 2,600 per sq ft. IT companies setting up operations in these cities prefer space on rent at a running cost of Rs 25-30 rent per sq ft. Return on investment (RoI) for developers is lower in Tier-II and Tier-III cities as these continue to remain price-sensitive areas. But while high-end projects will not do well here, middle income, higher middle income and affordable housing will be in demand.¨
Challenge zone So what are the challenges ahead?
¨Single-window sanctions and labour continue to be the challenges in these regions,¨ responds Paranjape. For Kapoor, the biggest challenge is land cost across India. ¨With the Land Acquisition Bill, land has become unproductive,¨ he says. Meanwhile, Tanushree Gulati tells us, ¨Lack of infrastructure to support growth or even existing growth is the main factor. There is also a lack of narrative as these cities though transitioning rapidly are unable to place themselves as anything else other than mini-metros. They need to understand themselves from inside out.¨ To this, Manish Gulati adds, ¨One needs to understand the complex grid of a city. Instead of erasing the existing grid and overlaying a newer grid, without superimposing an external model over them, we need to allow them to grow organically. So, will that be functional? One needs to question that constantly.¨ Unfortunately, many cities in India are being developed without vision and without questioning the developer.
All considered, Tier-II and Tier-III cities can significantly contribute to the country´s overall economic growth. As Thomas highlights, ¨In general, all these cities have huge potential as quality housing is near zero in most locations.¨
A collective push from the government, industrial bodies and developers in terms of attracting investments may be the prescription to elevate these cities to the next level of growth. ¨Today, there are housing projects with 2.5 crore houses,¨ says Jha. ¨If converted into an average size house of, say, 800-1,000 sq ft, it is 2,000 crore sq ft. Hence, there needs to be a balance on what kind of housing is required and what kind of housing is built so the gap is bridged.¨ The message is clear: collectively, cities can be developed in a holistic manner.
On a concluding note, Tanushree Gulati suggests, ¨Most important, stop calling them Tier-II and Tier-III cities. Relook at the parameters that contribute to quality of life of a human being. That will draw both people as well as investments.¨ There are reference points. The Nalanda district looked back at its history and reinvented itself; today, it is emerging as one of the most exciting cities of our time. Also, Auroville has developed as a global city within a span of 50 years; people go and settle there for the way of life it offers them. Thus, while the current market for real-estate developers in our emerging urban centres may not be optimal, government support, appropriate planning and execution could make the difference - guided by a clear vision.
¨The rate of urbanisation in Ludhiana is much higher than the rate of development. There is immense pressure on the urban local body to provide approach roads, water supply, sewerage, street lights and sanitation facilities to the newly carved out colonies by the colonisers. The cost of development is much more than what is deposited by the colonisers. In real estate, there is steep growth, especially in the residential colony segments. The market has been successful in attracting real-estate investors because of the flourishing economy. Big names like DLF and OMAXE have been setting up residential townships in the city. Ludhiana´s strategic location and reputation as being one of the main educational and industrial centres of northern India are the main reasons for the growth of the property market.¨
- GK Singh, Commissioner, Ludhiana Municipal Corporation
¨We have the benefit of being in the know of mistakes committed by larger cities; we can bypass those mistakes. So basically, the Tier-II and Tier-III cities are well-placed when it comes to development. We also have access to the latest of technologies. The requirement is the right vision and direction. The pressure on corporations is there but we have to think for the future. For example, Bhopal operates a 23-km BRTS and we ensured this was planned well in advance. Also, we have a vision document in place for the next 30 years. Witnessing healthy growth in real estate, the idea is to make the city liveable.¨
- Tejaswi S Naik, Municipal Commissioner, Bhopal Municipal Corporation
- SHRIYAL SETHUMADHAVAN