The demand for residential properties is ever-increasing in tier 2 and 3 cities. One of the reasons is that most of these cities boast numerous infrastructural developmental works, including new highways, rapid transit systems, and better railways.
What are tier-I and tier-II cities?
The Reserve Bank of India has classified tier-I cities as those with a population of 100,000 or more, and cities ranging from 50,000 to 99,999 are tier-II. Besides population, other parameters are also set to classify cities. These include economic activities, infrastructure, administrative importance, and development indices.
Most of the urban development and opportunities are in tier-I cities. Such notable cities in India include Delhi, Mumbai, Bangalore, Chennai, Kolkata, Ahmedabad, and Pune. These are the cities with world-class educational institutions and infrastructure. Developers are undertaking major development projects here.
Tier II cities are emerging urban centers witnessing fast growth and developmental opportunities. These cities include Chandigarh, Faridabad, Ghaziabad, Amritsar, Jamshedpur, Jaipur, Kochi, Bhopal, Bhubaneswar, Lucknow, Nagpur, Patna, Raipur, Surat, Visakhapatnam, Srinagar, Agra, Ajmer, Kanpur, and Mysuru. Such cities are witnessing rapid industrial growth with all the modern educational and health facilities.
Key reasons why developers bet big on tier-I and tier-II cities.
Developers are keenly interested in building residential properties in tier-I and tier-II cities. Here are some key reasons developers build and invest in homes in these cities:
The rapid growth of metros
Metropolitan cities, also known as tier-I cities, have been growing for a long time. These cities are the places where people have migrated looking for modern amenities. They went to these cities in the hope of better job opportunities. Now, the rapid growth in Tier-2 and Tier-3 cities have started attracting migrants for better opportunities.
Affordable cost of living
When it comes to people attracting towards tier-II cities, it is more due to the lower cost of living than the costs in metros. Developers find these cities much cheaper in terms of labor costs. Moreover, tier-II cities are less costly in terms of healthcare, education, and other expenses. The house rents are also cheaper as compared to tier-I cities.
Lower housing cost
The overall cost of housing in tier- II and tier-III cities is much lower. Most buildings, apartments, and even commercial spaces are within the budgets of the middle class. Many home buyers find it sensible to have a home loan to own a house in tier-II cities as they take a smaller loan to reduce their interest burden. This results in affordable loans to buy homes.
Open spaces
Another big reason for people migrating to these cities is the open spaces, which also make attractive outdoors. These are less crowded places than metros. Many people associate it with a high quality of life.
Quick governmental help
Developers get government help quickly for real estate project developments. This is because governments want to provide decent residential colonies and societies so people can have better living standards. The governments already ensure better roads, green spaces, and reliable utilities for all.
Untapped market potential
Cities in Tiers 2 and 3 also drive the developers’ interest due to the untapped market potential. People aspiring to live in these cities have a good disposable income. Moreover, the demand for technological products and services is ever-increasing thanks to continued urbanization.
Skilled talent available
Tier-2 and tier-3 cities have skilled people coming from engineering and technical schools. Developers can take advantage of their skills and education. They can employ IT professionals and people from other backgrounds to develop residential projects. That also helps in hiring them at competitive costs.
Lead a balanced life in Tier 2 & Tier 3 city homes
One of the key characteristics of tier-2 and tier-3 cities is that people can lead a balanced life there. Most conventional cities are noisy, which disturbs people in many ways.
But the tier- II and tier-III cities are known for tranquility as no traffic jams, honking, and loudspeakers are involved. These are the ideal cities for those who look forward to leading a life with a balance of work and play.
Developers build modern homes in these cities with a blend of local culture for a sense of belonging. There are lush green spaces for a soothing effect experienced in everyday life.
The gated communities have lavish amenities. In addition to that, these cities are also known for their social functions in bringing residents together.
Key considerations when building homes in the cities
When developers want to invest their money in building residential properties in tier-2 and tier-3 cities, they must consider some crucial factors. Here is what should be considered:
Know the locality
First of all, know the locality where you want to build homes. It should be an attractive destination where people want to have their dream home. Talk to the people to learn about their ambitions and what residential properties they want to buy. That will help determine the right type of properties to develop in these cities.
Go through the regulations
Understand the local rules and regulations regarding residential properties. These can be tricky regulations as they vary greatly from city to city. Consider partnering with experts who understand local regulations and know how to tackle the barriers.
Build your team
As a developer, you must first have a team of experts who can suggest and actively make decisions regarding investment. If you need to access experienced people, find local experts with at least a good working real estate knowledge.
Such a team is a great asset in handling any unseen issue promptly. They can even advise you on developing some crucial projects.
Win banks’ trust
Developers get financial assistance in the form of big loans from banks. So, winning the trust of banks is crucial to the developers. Find out which banks approve loans for investing in tier-2 and tier-3 cities.
Then, present your credentials and, most importantly, your project plan. Discuss your project elaborately with the bank authorities to gain their trust so that they approve the loan.
Know the market
The city and locality where you intend to develop a housing project could differ in terms of investment and market. So, know the income level of those looking forward to buying homes there. Do some research regarding job markets and local lifestyles.
Home loan options for homeowners in Tier 2 & Tier 3 cities
Those who dream of buying a home in tier-two and three cities largely depend on bank home loans. They have multiple loan options to explore.
Loan options available:
Fixed-rate:
You get the loan at a fixed interest rate. That means your monthly installments will be the same for the rest of the repayment period.
Adjustable rate:
You can also opt for a home loan with adjustable interest rates. So, if the market interest rates are down, you benefit from lower installment payments.
Construction loans:
These loans are available for building your own home.
Home improvement loans:
You can get these loans to renovate your home.
A step-by-step approach to getting home loans:
Here are some steps you need to take when applying for home loans:
Step 1- Know your eligibility
First, know if you are eligible for home loans. A bank will judge your eligibility based on multiple parameters such as income level, repaying capacity, job stability, and credit score.
Step 2 – Compare lenders
Compare as many lenders as possible to find which offers home loans at lower interest rates. Find out their terms and conditions and settle for the best option.
Step 3 – Have the necessary documents
Make sure that you have all the necessary documents ready. Banks will first examine those documents to find if you are an eligible candidate for a home loan. Getting yourself pre-approved for a loan from the banks would be good.
Step 4- Make a down payment
When applying for loans, be prepared to make a good amount of money as a down payment. Banks ask for the down payment and you can repay the rest of the loan in easier installments.
So, these are the major factors that encourage developers to build homes in tier-2 and tier-3 cities. As a builder, you should consider all these cities before making a home-building decision. Also, as a home buyer, compare different cities to determine which one best suits your budget and other factors.
Wrapping Up
Tier- II and tier-III cities are equipped with modern amenities and lush green spaces. Such an environment makes these places a peaceful abode for homeowners. Developers, therefore, take extra interest in building residential gated societies. However, there are many aspects that developers need to consider.
