Should You Bet On These Tier 2 and Tier 3 Cities For Real Estate Investments?

India is a nation of maximum cities, brimming to its full. People are moving in and out, buying and selling homes, and dreaming big. In the middle of all this commotion, the biggest noise made is for building homes that not just fulfill millions of dreams but also yield fortunes for those who have money to invest.

The prices of real estate assets in the metros and state capitals have either reached the skies or have already grown to their maximum potential. The rate of appreciation in some metros is as low as two to three percent. Some are even showing signs of stagnation or even depreciation.

That leaves two options for those who want to invest in real estate in India solely for investment purposes — Tier 2 and Tier 3 cities. There are good reasons, such as lower costs and better quality of life, for companies and individuals moving to places beyond the metros.

The real estate investments in such cities show promise, with increased economic activity, multiplier effect of growth, lower real estate costs, and cheaper cost of living and better quality of life. Growth in sectors such as IT and IT-enabled services, manufacturing, financial services and consumer goods has led to increasing demand for commercial and residential real estate. Physical and social infrastructure are also steadily improving. 

Land in these cities, labor and operating costs tend to be cheaper, apart from better quality of life, affordable apartments, climate and more green space. With interest from real estate developers, the cities are brimming with new apartments and high-rises ripe for investment. Most of these are in the affordable range of 19 to 35 lakh for 2BHKs.

Here is PropGuide's list of top 10 cities, beyond the metros, to guide you in deciding on the one that best suits your investment needs:

Ahmedabad: The capital city of Gujarat, arguably one of India's most prosperous states, has multiple projects like India's first smart or GIFT city project coming up in Dholera, South Bopal, which is right at the edge of the upcoming Delhi-Mumbai Industrial Corridor. With such possibilities of growth, the city looks far from stagnation. In the new upcoming areas, one-bedroom apartments cost under Rs 20 lakh. New-age luxury apartments with three bedrooms or more cost upwards of Rs 1.5 crore. Property rates start at Rs 2,500/sq. ft. and can go as high as Rs 12,500/sq. ft. for luxury projects in prime locations.

Bhopal: The capital city of Madhya Pradesh is in the midst of a realty boom, as more manufacturing and service industry firms rush to set up shop here. Many builders have zeroed in on the city, as 70 new projects are under construction in the city. Real estate observers expect the city's floating population to go up substantially, making it a prominent rental market in the near future.

Bhopal boasts of a host of new developments with a range of projects from high-end to affordable apartments. Depending on the building, builder and the society, a 2BHK can cost anywhere between Rs 25 and 65 lakh.

Property prices here are Rs 2,500-9,000/sq. ft., depending on project and location.

Indore: Positioning itself as the startup hub of the country, Indore too is a fast-developing city with support from the state government. The government is encouraging data companies to set up operations in the city. Though the realty market is growing fast, the apartments are still in the affordable range with a decent 2BHK costing around Rs 20-22 lakh.

Lucknow: The city that once belonged to the nawabs, is now being claimed by the kings of new-age India: IT companies. With a new IT hub announced on the outskirts of the city, real estate development around areas like Gomti Nagar, Gomti Nagar Extension and Sultanpur Road have picked up speed. The homes being built in these areas now cost around Rs 36-45 lakh for 2BHKs. Flats in the high-rises may cost as much as Rs 65 lakh.

Chandigarh: Thanks to the increasing IT and BPO population, Chandigarh has shown immense growth potential. Also, with more corporate interest in the area, Zirakpur, Panchkula and Mohali have also emerged as real estate destinations in and around Chandigarh. Panchkula, for instance, has generated a lot of interest among investors looking for holiday homes due to its scenic beauty. It is also being touted as a preferred retirement destination.

A 2BHK apartment in these areas now costs around Rs 35 to 40 lakh. Prices stand at Rs 2,500-3,400/sq. ft. in the mid-segments to Rs 4,000-6,700/sq. ft. in the high-end ones.

Jaipur: The Rajasthan government is all set to make this city a Smart City along with Ajmer. Powered by Cisco, the city will become a wi-fi zone with digital and social infrastructure being built around it. Once that is in place, the city will have access to real time traffic and weather updates, making it a realty and tourist hub. A regular 2BHK currently costs around Rs 20 lakh or less in the city.

Kochi: Kerala has always been a good destination for real estate, thanks to NRIs who pump in money. Increased interest from the IT sector has aided the rise of the industry here, attracting the interest from investors. Development of new-age, urban-style apartments have also created demand for quality real estate in the city. Affordable housing projects now account for about 60 per cent of the total housing development in the city. A 2BHK costs around Rs 35-40 lakh depending on the amenities it comes with.

Coimbatore: Real estate in the city has been labeled as a safe bet for investors. The city, which has been concentrating only on small-scale textile industry for years, has now been graduating to other industries, making the real estate more valuable. It is attracting a variety of investors from IT professionals to retirement officials looking to settle down. There are a number of homes on offer, costing anywhere between Rs 50 to 60 lakh and apartments priced between Rs 30 and 40 lakh. Prices for a multi-storey apartment in Avinashi Road could cost anything between Rs 4,000-5,500/sq. ft.

Vijawayada: The new capital city of Seemandhra is already bracing for large scale development including building a state assembly building. Industry watchers are already comparing real estate in the city to the sector in Hyderabad in the early 2000s, when ordinary landowners became millionaires overnight as the real estate in the city developed phenomenally.

The prices of land parcels in areas in and around Vijaywada, on the banks of river Krishna, have already appreciated by 25 percent in the last 12 months. The appreciation is expected to scale up further in the near future.

Visakhapatnam: Though it is not the designated capital of newly divided Seemandhra, Vizag or Visakhapatnam is already the focus of the new government. With the government planning the city as an IT hub, real estate is expected to pick up soon. Currently, the city's real estate sector has few high-rises and a regular two-bedroom apartment costs around Rs 30 lakh. It is advisable to invest in land in promising areas.   

(Katya Naidu has been working as a business journalist for the last nine years, and has covered beats across banking, pharma, healthcare, telecom, technology, power, infrastructure, shipping and commodities)