Industry
Mint Primer | Home sales: Why small towns are boomtowns now
Summary
- As many as 52 small cities grew 26% in sales last fiscal year compared with a 21% rise in the top 8 cities.
Property markets in tier-II cities, where sales and price growth have long been subdued, saw a turnaround in both home sales and prices last year. While the sales volume is much lower than in tier-I markets, the pace of growth is faster. What’s the future of small town homes?
Are smaller property markets doing well?
Yes they are. Residential property sales in tier-II cities witnessed higher growth in FY24, led by higher demand for better quality homes. As many as 52 small cities grew 26% in sales last fiscal year compared with a 21% rise in the top 8 cities, according to Liases Foras, a consultancy. With the growth in sales, property prices, which are typically lower in these markets, have also risen—many tier-2 cities saw double digit growth in prices. By comparison, only the national capital region among the metros has seen a double-digit price rise. Unsold housing stock also fell by 20% in smaller cities last year.
What’s behind this upturn?
Though the ongoing housing boom has put the focus on the metros, it has also helped smaller real estate markets. Key drivers include affordability, better infrastructure including airports and metro rail, warehousing, retail as well as growing discretionary spending. Property investors, who have made a comeback, are gradually taking bets on smaller cities, which has helped prices. A recent report by property advisory Savills India noted that rental yield growth in Goa, a popular second home destination, is higher than in some of the top cities due to rising investments from high-net-worth individuals.
Where and why are prices rising?
Ludhiana has seen the sharpest rise because of interest from both non-resident Indian (NRI) and high-net-worth investors, who have returned 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, has also helped.
Where are these markets headed?
Home sales in smaller cities and towns are expected to grow 25% in FY25 compared with FY24, as per Liases Foras’ estimates. The increase in sales in these markets will also be faster than the tier-I markets, partly because the growth is on a relatively smaller base. As project launches increase, the overall housing stock in tier-II markets will also expand. As a result, property prices in these cities could moderate. A lot would also depend on the incentives that the government provides for these markets.
Can Central spending push growth?
The Pradhan Mantri Awas Yojana (PMAY), under the ‘Housing for All’ mission, is set to be expanded, with the promise of 30 million new homes. This will help in boosting housing supply and, more so, in reviving the affordable housing segment in tier-II cities. More such incentives are needed to help expand the property markets beyond the metros, and address housing requirements, real estate analysts said. New schemes could also prompt more established developers to explore these markets.
