Tier-II cities propel residential real estate market’s growth
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Tier-II cities propel residential real estate market’s growth

By Akash Kotak

Last updated - Nov 30th, 2022

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The top five Tier-II cities in terms of residential real estate market growth are Ahmedabad, Vadodara, Nashik, Gandhi Nagar, and Jaipur, according to the latest report by PropEquity.

Factors such as rapid urbanisation, industrialisation, and the expansion of the IT sector are driving the growth of the real estate market in Tier II cities, the report titled 'Tier-II: Residential Overview' noted.

According to the report, the overall sales value of Tier-I cities during the past five years, from FY18 to FY22, was Rs 12.21 lakh crore, while that of Tier-II cities was Rs 3.14 lakh crore.

Commenting on the growth of Tier-II cities' residential real estate market, Samir Jasuja, founder and managing director at PropEquity, said, "It is interesting to observe that the market share of Tier-I cities is about 4x times the share of Tier-II cities in the last five fiscal years."

One of the major reasons behind the growth of residential real estate markets in Tier-II cities is employees' return to their hometowns post-pandemic. Companies are letting employees continue their work from home, and instead of paying rent in Tier-I cities, many are investing in the Tier-II residential real estate market.

Meanwhile, several companies are now expanding their bases to Tier-II cities. As a result, real estate markets in some Tier-II cities are inching closer to the market sizes of top-tier cities.

Attractive pricing and the potential for higher returns make investments in Tier-II city housing projects more attractive.

Rise of Ahmedabad's real estate market

The rise of real estate markets in Tier-II cities gives realty markets in Tier-I cities a run for their money. For instance, Ahmedabad's residential real estate market outpaced some Tier-I cities, including Chennai and Kolkata.

In the financial year 2021-22, Ahmedabad's residential real estate market size stood at Rs 83,390 crores. In comparison, in the previous fiscal, Chennai and Kolkata's market size stood at Rs 52,554 crore and Rs 38,440 crore.

Also, in FY22, Ahmedabad recorded home sales of 39,046 units, an increase of 26% year-on-year. The city saw an overall increase of 32% if one takes FY18 as the base year.

The report showed that Ahmedabad's housing supply also increased by 14% to 39,195 units in FY22 from the previous fiscal year.

At the end of FY22, 62,047 housing units remained unsold, similar to FY21. The inventory overhang will take around 24 months to remove at the current rate of absorption of dwellings, the report said.

Author avatar
Akash KotakInvestment Associate

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