Tier II & III Cities - Growth Engines for the Future

Ar Apurva Bose Dutta

Immense Potential

As one witnesses a saturation in the economic growth and construction opportunities of the major cities of India, concurrently a number of tier II and III cities have been found to deliver a successful economic growth in the past decade. Tier II cities like Ahmadabad, Kanpur, Chandigarh, Patna, Dehradun, Pondicherry, Pune etc have a population of around one million, whereas minor cities with population less than one million like Madurai, Baroda, Nashik and Trichy are termed as Tier III cities.

Hiranandani-Gardens

Inspite of low public investments, these cities are promising a great potential. With a success story in all the fields, they have some inherent advantages like possessing basic amenities, ample availability of land and skilled labour.

In the new emerging India, the growth opportunities in these sectors (that have remained an untapped asset of the country for long) is primarily due to the gigantic gap between availability and demand. The growth of these two tiers gestures towards a positive sign for the nation with their efforts to deviate the pressure on the metros which are dwindling under the burden of space, time and infrastructure. This offset of pressure will also facilitate an improved distribution of wealth, in due course increasing the status of rural India. A number of cities in these two tiers having benefitted from the Jawaharlal Nehru National Urban Renewal Mission (JNNURM) - a scheme that was launched in 2005 undertaking a massive city modernisation, have shown marked opportunity for growth.

Tier-II III Cities

Real estate firms and IT companies are observing a shift to these cities for cheaper real estate and manpower. Evidently, there are many factors driving the growth of real estate in these two tiers - walk-to-work concept, quality lifestyle, media exposure, the emergence of software companies and an increased affinity to retail. One has been noticing significant improved real estate options in cities like Chandigarh, Patna, Mohali, Nagpur, Lucknow, Agra, Udaipur. In such places, the concept of low-cost housing or affordable houses also works well.

Whether it's banks, BPO's, cinemas, FM stations, electronic companies like Lenovo, Nikon India, and Sony India; everyone is looking towards these smaller cities for more profit. Even in case of design, cities like Ahmedabad and Pune with their multitude design centres and institutes point towards the availability of skilled design talent in these cities. In smaller cities like Mysore and Mangalore where less rentals are complimented with good infrastructure, even pre-schools have been growing at an incredible 120% per annum. Chandigarh, Coimbatore, Vadodara, Jamshedpur have become the hub of e-commerce and feature as the top four small cities for online shopping. Towns of Gujarat like Ahmedabad, Surat and Vadodara have made huge progress industrially. An encouragement is being showered for air travel between these tier cities and efforts are in progress on getting them on the aviation map.

India's hospitality sector is also envisaged to witness a steep growth in these cities.

Factors Reponsible for the Growth of these Cities

A number of factors co-exist that make these cities as an attractive investment destination for all.

In a recent study of Top 10 emerging business destinations in India, conducted by Cushman & Wakefield, global real estate solution providers, the growth in Tier II and Tier III cities is aided by 'the increasing disposable income of the people that has created immense opportunities for companies looking out for new markets to grow'. The study also mentions that companies being drawn to these cities are being enticed due to the 'availability of talent pool at a lower cost, reasonable real estate prices and a 'conducive business environment' created by State and local governments. Further, Tier II and III cities because of 'outstanding performance' in skill-based manufacturing industries such as automotive, consumer and capital goods, engineering, textiles, pharmaceuticals and sectors such as biotechnology and IT/ITeS, have witnessed industrial growth, paving the way for rapid urbanisation. The study identifies the cities of Ahmedabad, Bhubaneswar, Chandigarh, Coimbatore, Jaipur, Kochi, Indore, Nagpur, Vadodara and Visakhapatnam as the top 10 emerging cities of India. Whereas Coimbatore has more than 25,000 small and medium enterprises (SMEs), Vishakhapatnam has been found to be suitable for industries such as mining, heavy manufacturing etc. Jaipur has been counted as a significant service sector investment while Ahmedabad has been hailed as an attractive investment in the manufacturing sector.

Real estate trends - whether residential or commercial are noticing a shift and have seen a major growth in these sectors. These cities pose cost advantages, lesser salary expectations and lesser price fluctuations to many businesses which are initiating a shift to these smaller cities. A comparative cheaper labour cost and low operation cost add to these advantages. In smaller towns, the proximity of various companies with each other gives rise to clusters, which results in the development of a specific location, aiding smaller companies in marketing and in finding the right customer. For developers, the return on investment is higher and much more stable as compared to in the metros. Neither of these smaller cities has been hit and affected by global factors as felt in the metros.

Thus with an increase in employment opportunities (with a major change perceived in the manufacturing and service sector), home buyers are increasingly becoming more interested in the properties. Viewed as excellent investment options, these places come to be more cost-effective than metros which have escalating property prices. Many people have been investing in these cities for their second homes for aged parents for whom the fast paced life of metros is a deterrent. The improvement in connectivity has made these cities more accessible and hassle free. International airports are a part of cities like Chandigarh and Amritsar. These cities also provide great opportunities for investors like NRI's who want to avoid going vertical and prefer a bungalow spread over large acres of land. Also tier II and III cities mitigate the disadvantages that are associated with metros - of a reduced quality of life, high cost of living, expensive transportation, huge traffic and travel time, expensive house rent and education. Whereas metros are suffering various drawbacks in projects like delay in execution, overall slowdown in demand and a dip in the supply, smaller cities like Pune are experiencing increased demands for mid-segment housing.

Sahara-Infratsructure-Housing

Also with developers offering lifestyle facilities, security and comforts in their projects in these tiers, the customers find many reasons to get attracted here. Tier II and tier III cities come with less risk factors as the appreciation in real estate prices is gradual unlike metro cities which experience a steep escalation.

Studies also validate that the sustainability rates are higher in these towns and coupled with intrinsic thinking these cities are coming up with innovative ideas in terms of design.

Current Development Activities

Metros are on the way for Jaipur, Kochi, Pune, Chandigarh, Ahmedabad, Kanpur, Ludhiana, Bhopal, Indore, and Faridabad.

The overcrowding in Tier I cities have compelled people to move out to open spaces with wider infrastructure, and nature-friendly ways. A change in real estate trends is noticed in cities like Jaipur, Chandigarh, Indore, Nasik etc. Many like Mohali and Agra are being considered as a favourite destination for global investors. Developers like Tata Housing, Lodha Builders, Raheja, Ansal Housing and DLF have launched projects in these smaller towns.

Sahara Infrastructure and Housing have recently launched a number of integrated township projects across Tier II and Tier III cities in India in Pune, Aurangabad, Jodhpur, Gwalior, Bareilly, Solapur, Porbandar, Katni, and Kashipur spread over 900 acres. Seven more integrated projects are already under construction in Lucknow, Jaipur, Indore, Nagpur, Ahmedabad, Satna, and Coimbatore.

Rajeeb-Dash
Tata Housing Development Company Ltd has entered into long- term plans with Tier II and Tier III cities. Focussing presently on Pune and Bhubaneswar, their premium development, Ariana in Bhubaneswar, a housing project catering to different segments of the society commenced its construction recently. Phase 1 of the project will be completed in another three years. Rajeeb Dash, Head - Marketing of the firm confirms that Tata is looking to sustain growth over a long time in these tier cities since these are growing faster with infrastructure much better than in Tier I cities. "The cities are lucrative and have lots of captive consumption - a lot of people outside the city are investing in properties in the city where they would like to go back after their careers". Ariana, designed by an international architect from Hong Kong is going to have gold certified green homes with all modern amenities intact.

Ansal's hi-tech residential township - the 3500 acres Sushant Golf City in Lucknow once completed is going to have an international standard 18-hole golf course, luxury villas and designer landscaping.

Bijay-Agarwal
Sattva Group has already forayed into Tier II cities with two housing projects in Coimbatore and Jaipur, the construction of which are supposed to commence by April 2013. With plans to foray into Nagpur and Vizag too, Mr Bijay Agarwal, Chairman of the Sattva Group and Managing Director of Salarpuria Sattva Group maintains that their reason to venture into tier II has been because of the immense scope that it provides. "If we have to talk about Vizag and Coimbatore their infrastructure is no less than Tier I cities. With good hotels, good roads, good water, people are now moving to these places where they can get everything", he adds. It will be a while though before the Sattva group ventures into Tier III cities which according to Mr Agarwal 'are still lacking in infrastructure'.

Best Western International Inc, the world's largest hotel chain from USA has planned to open 66 new hotels in India in the next 4-5 years and with a special emphasis on tier II and tier III cities where according to the company's president 'quality hospitality is just emerging'. Amritsar, Baddi, Gurgaon, Jaipur, Katra, Manesar, Aurangabad, Bhubaneswar are some of the cities that have been found apt for these.

V-Gopal
For Prestige Group, the cities of Mysore and Mangalore are the ones in these tiers that are soon going to see some projects. Their brand is coming up with its famous Forum mall in both the cities, which are going to be completed by Dec 2014. While an apartment building by the group will be ready in Mangalore by mid 2015, the group is presently negotiating for land for high quality homes in Mysore. Mr V Gopal, Executive Director – Projects & Planning of the firm admits that Mangalore is a little richer city than Mysore and through the Forum mall, the group is aiming to bring in some form of leisure and entertainment to both the cities. "With enough of potential and with infrastructure much better than what it was before, Mangalore can take good quality housing. The business is improving there, there are lots of offices, and factories to support these housing. The roads have started improving and are better than what they were before and the power situation presently will be able to support the kind of infrastructure we are giving. Rest, we will need to wait and see for 2-3 years," opines Mr Gopal.

Govt Support and Initiatives

Tier II and Tier III cities can also face many constraints like easy approval of FDI for projects in these cities. This can be made easier by the Government through policies and tax level initiatives and benefits that could entice people to stay back in the city.

30474-SEZ-Dehradoon.jpg

The government has shown strong support to these cities by trying to upgrade the urban infrastructure by upgrading the MRTS, airports; introducing SEZs etc. Also proactive government policies for residential developments in towns like Baddi in Himachal Pradesh and Pantnagar and Rudrapur in Uttaranchal, have led to immense development of these places.

Recently, on the inauguration of the 20th National Quality Summit 2012, Chief Minister of Karnataka Mr Jagadish Shettar elaborated on the State Government's plan to improve tier II and tier III cities to promote them as 'innovation centres'.

Mr Dash maintains that it is with the help of Government that they are entering the markets since Ariana is a project that Tata Housing has ventured into, in the PPP mode with the Local government.

Accepting that it is majorly due to the State Government's efforts that these cities are growing so well, Mr Agarwal adds, "After Hyderabad, Vizag is the city where the state government has put in a lot of efforts. The roads, the new airport, good hospitals - all this could have not been possible without the Government's initiative. Whenever builders like us are stuck anywhere in the projects, the state government has offered total cooperation and made ample efforts to get a solution immediately to avoid any delays. They might not have made any policies which have directly affected these cities but have helped in their own ways."
NBM&CW July 2013
Women At Work : Breaking Barriers

Women At Work : Breaking Barriers

This feature highlights the important role women employees are playing in male dominated industries like civil engineering, and the contributions they are making towards their company’s progress with their professional approach and skill

Read more ...

Minimol Korulla - Head - Strategic Projects and Initiatives, Maccaferri ISEAP

Minimol Korulla - Head - Strategic Projects and Initiatives, Maccaferri ISEAP

I was born in a village in Kerala which was surrounded by a river and every monsoon the roads would become flooded. Better bridges began to be built from the 1970s, connecting us to the outside world. My encounter with the subject

Read more ...

Dola Roychowdhury - Founding Director, G-Cube Consulting Engineers

Dola Roychowdhury - Founding Director, G-Cube Consulting Engineers

The Construction Industry is one of the most male-dominated amongst all the STEM fields, though women have contributed significantly to it by continuing to crash barriers, break ceilings, and sometimes shifting their goal

Read more ...

Rubee Kongbrailatpam - Superintending Engineer, PWD, Manipur

Rubee Kongbrailatpam - Superintending Engineer, PWD, Manipur

After completing my B.Tech, I joined as a lecturer in an Engineering College, but after a year into it, I joined the State Engineering Services as an Assistant Engineer. After subsequent promotions, I’m currently serving as a Superintending

Read more ...

Sujatha Manoj - Technical Director & Geotechnical Services Leader, Australia, Beca

Sujatha Manoj - Technical Director & Geotechnical Services Leader, Australia, Beca

After graduating as a Civil Engineer from TKM Engineering College, my first challenge was to find a good job. In a city like Mumbai this was tough especially considering the fact that I had no previous work experience and had no one

Read more ...

Annapoorni Iyer - Chartered Engineer, Founder of Engosym Consultants for Infrastructure development projects

Annapoorni Iyer - Chartered Engineer, Founder of Engosym Consultants for Infrastructure development projects

I have done my B.E.(Civil) from DMCOE (2001 batch) and MBA (Infra and Contracts) from MIT, Pune. DMCOE gave me a clear vision about my career choice and I began to study each subject of civil engineering in depth. I found that my

Read more ...

Dr Barnali Ghosh - FICE, Mott MacDonald, London, UK

Dr Barnali Ghosh - FICE, Mott MacDonald, London, UK

I was first introduced to Geotechnical Engineering during my undergraduate days. What fascinated me most about this field of engineering was that soil was so unpredictable! Unlike concrete, you could not assign a set strength to it, and

Read more ...

Dr. Yogini Deshpande - Renuka Consultants

Dr. Yogini Deshpande - Renuka Consultants

I hold a PhD in Civil Engineering from Purdue University, USA (2006), a Bachelor’s Degree in Civil Engineering, and a Master’s in Geotechnical Engineering from Mumbai University. Prior to pursuing a PhD, I worked as a Senior

Read more ...

Dr. Ambika Behl - Senior Principal Scientist at CSIR-CRRI, New Delhi

Dr. Ambika Behl - Senior Principal Scientist at CSIR-CRRI, New Delhi

My journey in the construction sector started in 2005 as a technical executive in a private construction chemical company and then as a scientist in the Central Road Research Institute in the year 2007. It has been an experiential journey

Read more ...

Dr. Naveet Kaur - Senior Scientist, Indian Structural Health Monitoring Society (ISHMS)

Dr. Naveet Kaur - Senior Scientist, Indian Structural Health Monitoring Society (ISHMS)

I completed B.Tech. in Civil Engineering from Thapar University, Punjab in 2007 and M.Tech. in Structural Engineering from IIT Delhi in 2011, where I topped the 2011 batch and was awarded the NBCC Award of Excellence. I later completed

Read more ...

Atasi Das - GR Infraprojects Limited

Atasi Das - GR Infraprojects Limited

After completing my post-graduate studies in the US, I went on to have a successful career in the country, where my child was born as well. I resumed my duties at the private consultancy in the US within 6 weeks leaving my child under

Read more ...

Dr. Madhavi Latha Gali - Geotechnical Engineer, Indian Institute of Science, Bangalore

Dr. Madhavi Latha Gali - Geotechnical Engineer, Indian Institute of Science, Bangalore

My major interest lies in developing resilient geotechnical systems through various innovative reinforcing techniques. I did my Ph.D. at IIT Madras and joined IISc after working for a year at IIT Guwahati. My 20-year tenure at IISc

Read more ...

Natalia Rucinska - Environmental Director, Menard Group

Natalia Rucinska - Environmental Director, Menard Group

At the age of 24, as a young graduate with the title of MSc in Geotechnical Engineering, I dreamt big. I wanted to see what the world had to offer, and I was open to exploring the adventures that came my way. I had the itch to live a full

Read more ...

Ishita Manjrekar - Director, Sunanda Global and Board of American Concrete Institute

Ishita Manjrekar - Director, Sunanda Global and Board of American Concrete Institute

I am a Chemical Engineer with a bachelor’s degree from Institute of Chemical Technology, Mumbai (erstwhile UDCT) and I hold a post-graduate degree from RPI, New York. My professional career began in the USA where I worked as Vertical

Read more ...

Sangeen Desai - Keller Ground Engineering India

Sangeen Desai - Keller Ground Engineering India

My initial years of learning were very crucial, and though challenging, they provided me with opportunities to learn and develop new skills. With strong determination and a positive attitude, I learned to work through all the challenges

Read more ...

Saranya Subramanian - Merlin Automation Solutions

Saranya Subramanian - Merlin Automation Solutions

Hailing from a humble village background, I pursued my B.E. in Mechanical Engineering at Trichy, Tamil Nadu. Driven by my career aspirations, I enrolled in an Advanced Manufacturing course at PSG College. This course, conducted on

Read more ...

Building a New India - By Fortifying the Construction Industry

Building a New India - By Fortifying the Construction Industry

In the backdrop of India's current dynamism and ambitious goals in infrastructure development, the book sheds light on the nation's journey. The construction industry's share, constituting 13% of the global GDP, is a crucial aspect

Read more ...

Robust Realty & Infra Growth to Boost Construction Sector

Robust Realty & Infra Growth to Boost Construction Sector

Spurred by the supporting economy and favourable policy initiatives by the current government, the rejuvenated real estate and infrastructure sector bodes well for the construction business, especially as the government will provide an extra

Read more ...

Realty Year-Ender: A Year of Residential & Retail Resurgence

Realty Year-Ender: A Year of Residential & Retail Resurgence

Riding high on the positive policies, and notwithstanding global headwinds, India’s resilient real estate made a mark with its impressive performance. While the residential segment saw robust demand, supply, and sales, and was on

Read more ...

Colliers leads AI revolution in construction with remote monitoring tool CoGence

Colliers leads AI revolution in construction with remote monitoring tool CoGence

Real estate advisor, Colliers, has been carving a niche in the tech space with its AI-enabled platform CoGence. Designed to detect anomalies at construction sites and generate a high precision quality report, the tool is widely being applied at several of the

Read more ...

To get latest updates on whatsapp, Save +91 93545 87773 and send us a 'Saved' message
Click Here to Subscribe to Our eNewsletter.