By Vipin Agnihotri
Increasing realty costs in the metropolitan cities of India has seen commercial activity move to the Tier-III cities. It has come into the notice of The India Street that property prices in cities like Agra, Jaipur and Lucknow corrected sharply by around 20 to 25 percent following increase in the interest rates in the last six months. All this has happened due to gap in demand and supply in these cities.
The pivotal factor here is that although supply increased in the last two or three years, no fresh demand generated as hardly any new commercial establishments came up in the Tier-III cities. In my opinion, at the first place due to boom in real estate market, investors invested in these products, as the cost of the fund was low. But with the rise in interest rate, investors are finding it real tough to invest in the realty assets. This in turn means that the developers are also finding it tough to sell their project in the Tier-III cities.
According to experts, those investors who had invested in real estate sector earlier want to exit. This is because of the simple reason that there not many end users in the Tier-III cities. But signs are that the hard days would soon be over in these cities. “With the increase in rentals and cost of labor in Tier-I and Tier-II cities, Tier-III cities have emerged as alternative commercial centres where off-shoring facilities could be shifted,” pointed out Rahul Mahajan of Rahul associates.
The recent survey has come to the conclusion that whilst all the Tier-III cities provide for prospective cost arbitrage opportunities for off-shoring facilities, the development and demographic profiles vary substantially across the locations, giving different business risks.
The only downfall with these cities being the non-availability of top-notch telecommunication infrastructure and big pool of suitable professionals. There is no doubt that infrastructure support, governance, cost of living, quality of life, operating cost, would determine the attractiveness of a location to emerge as an alternative commercial center. Plenty of small towns and cities builders are guaranteeing returns through rentals on the investment after completion of the projects. However, in my opinion if Indian economy continues to grow at 8 to 9 percent per annum, the commercial activities in the Tier-III cities are bound to pick up.
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