By Dr Suvrokamal dutta
Increasing realty costs in the metropolitan cities has seen commercial activities move to the Tier-III cities in India. It is worth mentioning in this regard that property prices in the Tier-III cities such as Agra, Jaipur, Lucknow and Chandigarh corrected sharply by around 20 to 25 percent following rise in the interest rates in the last few months.
In my opinion, this is mainly because of gap in demand and supply in these cities. No doubt, supply has increased in the last couple of years but no fresh demand is generated as hardly any new commercial establishments came up in the Tier-III cities.
If experts are to be believed, at the starting stage due to boom in the real estate market, investors invested in these products, as the cost of the fund was low. But with the passage of time as interest rate almost doubled from 6 percent to around 12 percent in the last few years, investors are finding it real tough to invest in the realty assets, which implies that the developer are finding it hard to sell their project in the Tier-III cities.
Furthermore, it has come into the notice of The India Street that those investors who had invested in real estate sector, want to exit. Point to be noted here is that as there are not many end users in Tier-III cities, prices have started dipping. But, looks like, the hard days would soon be over in these cities.
With the increase in rentals and labour cost in Tier-I and Tier-II cities such as Delhi, Mumbai, Bangalore and Pune, the Tier-III cities such as Chandigarh, Jaipur and Lucknow have emerged as alternative commercial centres where off-shoring facilities could be shifted.
Few of the prominent players that have moved to Tier-III cities are Dell and Infosys to Chandigarh, Wipro and US Software to Kochi, Genpact to Jaipur and TCS and Tata Technologies to Lucknow.
“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,” pointed out Anirudh Yadav, business journalist based at Lucknow. In theory, the Tier-I and Tier-II cities are already overcrowded. What’s more, rentals in these areas have increased around four times in the last four years. Taking this into consideration, in medium to long term, growth in the country would come from Tier-III cities. That’s why, the investors, who enter the market early, are likely to reap benefit the most.
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