The ever escalating costs of real estate in the metropolitan cities have pushed commercial activities to the smaller towns and cities. Now, it is the regime of Tier-III cities. These are quite opposite in the property rates and comparable in the commercial viability. Tier III cities like Agra, Rudrapur, Jaipur and Chandigarh corrected sharply by around 20-25% following rise in the interest rates in the last six months. The primary reason to this cause is the disequilibrium between demand and supply. However, a last few months have witnessed ample increase in supply but a relatively low fresh demand. This was primarily due to the fact that there were barely any new constructions done in tier III cities.

At the onset of development in these cities, it was believed that there won’t be any substantial growth in these areas. Specifically because of the boom in real estate, investors made investment here, as the cost fund was low. But as inertest rate rose from 7% to 12% in the preceding two years, developers are facing tough time selling their projects in these cities.

What’s more worse were those property investors, who had already invested money in property in tier-III cities, wanted to flee. Particularly because there was lack of end users and consequently the prices begin to drop further.

But these are the bygones. Today, with the rise in rentals and cost of labor in Tier-I and Tier-II cities like Delhi, Pune, Bangalore and Mumbai, the tier-III cities like Jaipur, Chandigarh, Nagpur and Kochi have surfaced as alternate commercial hubs.       

The primary reason for the shifting focus is the increasing costs of doing business in Tier-I and Tier-II cities. It conferred the opportunity upon Tier-II and III cities that offered benefits in terms of lower cost of property and labor. As the returns are guaranteed, it is expected to pick up even more, with economic growth being steady at 8-9%. More because, Tier-I and Tier-II cities are already filled to capacity and brimming, investors are scouting for locations that are not too swarming. Also, the 4-times increase in the rentals in last four years is pushing investors to the edge.

Soothsayers of real estate say that, further economic growth in the country would come from Tier-III cities. Soon after the economic activities would gain momentum in these areas, the demand for residential property will also follow.