The Rise of Tier 2 and Tier 3 Cities:

India's real estate market has for long been concentrated in metropolitan cities like Mumbai, Delhi, and Bangalore, which have been the growth hubs, corporate activities, and the heart of urban development. Over the years, Tier 1 cities have been prominent in real estate investments owing to strong infrastructure, better employment opportunities, and developed markets. However, that trend is slowly being shifted by Tier 2 and Tier 3 cities.

Recent trends indicate that these smaller cities are emerging as significant players in the real estate sector, driven by a combination of affordability, rapid infrastructure development, and an improving quality of life. Cities like Surat, Indore, Jaipur, Coimbatore, Lucknow, and others are increasingly becoming attractive investment destinations for both individual buyers and institutional investors. This is due to several strategic reasons, including saturation of Tier 1 markets, government initiatives toward regional growth, and growing aspirations from India's rising middle class.

Why Tier 2 and Tier 3 Cities Are the Future

Tier 2 and Tier 3 cities offer affordable property prices.

In Tier 2 and Tier 3 cities, the prices are affordable as compared to inflated prices in Tier 1 cities like Mumbai, Delhi, and Bengaluru. Properties in Tier 2 and Tier 3 cities are 20-30% cheaper than Tier 1 cities, which gives an entry opportunity to investors at a lower cost.

Example:

Surat's average residential property rate ranges from ?3,500 to ?4,500 per sq. ft. whereas in Mumbai, rates can go up to ?80,000 per sq. ft. in prime areas.        

Infrastructure Development

Government initiatives, such as the Smart Cities Mission and AMRUT, are accelerating infrastructure development across the country.

Example:

Surat's Metro Rail Project is expected to boost connectivity and real estate prices in its vicinity. 
Ring Road Project in Jaipur has also witnessed a huge increase in property demand surrounding its newly connected areas.        

Manufacturing hubs, IT parks, and industrial corridors in Tier 2 and Tier 3 cities are giving rise to job opportunities and a working population.

Examples:

Surat is the diamond and textile capital of India, accounting for over 90% of diamond cutting and polishing around the world.
Coimbatore is a high growth industrial city with textile and auto components as part of its industrial base and real estate market.        

Livability and Urban Expansion

These cities offer better quality of life as the level of pollution is lower, the congestion is less, and amenities are better. Now the urban sprawl spreads into adjacent rural and semi-urban regions and provides a scope for development in real estate.

Surat: Emerging Tier 2 City

Surat, in Gujarat, exemplifies the rise of Tier 2 cities in the Indian system. It presents an exemplary model of turning out as a prime place of investment, with a resilient industrial platform, strategic geolocation, and rapidly improving infrastructure structure towards being an abode to model urban development.

• Industrial Hub

Surat's economy prospers on its dual identity as the diamond and textile capital of India. The city processes over 90% of the world's diamonds and contributes significantly to India's textile exports. Players such as Shree Ramkrishna Exports Pvt. Ltd. and Laxmi Diamond Pvt. Ltd. in the diamond industry and many textile enterprises fuel steady employment and demand for residential and commercial spaces.

• Employment Opportunities

The skilled and semi-skilled workforce is constantly attracted to Surat for industrial prospects, thereby increasing the demand for housing in the vicinity of industrial estates.

• Economic Stability

The diversified industrial base in the city acts as a shield against economic fluctuations, making it more attractive for real estate investment.

Infrastructure Development

• Surat Metro Project

The Surat Metro Rail Project is one of the landmark infrastructure projects being undertaken to enhance connectivity within the city. It stretches over 40 kilometres. This network will drastically reduce travel time, ease traffic congestion, and provide a smooth travel experience across the city. The metro's interconnectivity with other modes of transport will enhance it further.

Property Prices

Properties ranging from 1 km along the metro corridors, which are at Vesu and Udhna, may see a rise of around 15-20% in the next five years as people will find commuting easy and convenient.

Commercial Development

The connectivity development will make businesses set up offices and retail spaces near metro corridors. This will push demand in areas like Pandesara and Katargam.

• Surat-Dumas Airport Expansion

Another significant development is the upgrade of Surat-Dumas Airport, which now offers both domestic and international connectivity. This has enabled Surat to become one of the most strategic locales for global trade and tourism, thus increasing interest amongst NRIs and institutional players in real estate.

Other Important Companies Involved with Metro Construction

Dilip Buildcon Ltd.: Would undertake elevated viaducts and metro corridors work.

SYSTRA India: Consultants in engineering to ensure excellent design and delivery.

Reputed Builders

Rajhans Group of Industries: The real estate landscape of Surat is being rewritten with reputed builders, like Rajhans Realty heading the list. Innovative yet committed to excellence is what defines their projects and makes them stand out. These developments reflect the changing needs of buyers and investors alike and benchmark quality and reliability.

Some other notable builders include

Roongta Developers?: Known for their ability to design affordable housing projects that combine modern amenities with innovative designs that cater to the changing needs of homebuyers.

Avadh Group: Aims to create luxury apartments and integrated townships that provide a holistic living experience.

Real Estate Trends

• Residential Demand

Areas like Vesu and Adajan are seeing increased demand as they are close to educational institutions, hospitals, and commercial centers. The rates in these areas range from ?4,000 to ?6,000 per sq. ft., both value for money and investing wise.

• Commercial Spaces

Locations such as Pandesara and Katargam are experiencing increased demand for office spaces due to industrial growth and connectivity. The rental value of commercial properties in these locations has increased by around 12% per annum.

Land vs. Apartments: Which is the Better Investment?

Boiling down to a critical decision, real estate investments always come down to land versus apartments. Both options bring with them different advantages and challenges, and the choice depends on an investor's financial goals, risk appetite, and timeline.

Land Investments

Advantages:

1. High Appreciation Potential: Land is a finite resource, making it highly valuable over time. The demand for land, particularly in growing urban areas, ensures significant long-term appreciation.
2. Flexibility in Use: Investors can build according to their preferences, whether it's a residential home, commercial space, or mixed-use development.
3. Minimal Maintenance Costs: Unlike apartments, vacant land does not require regular upkeep, reducing ongoing expenses.

Challenges:

1. High Initial Costs: Purchasing land often requires a substantial upfront investment, which can be a barrier for many.
2. Encroachment Risks: Without proper monitoring, land can be susceptible to unauthorized use or encroachment.
3. Regulatory Issues: Zoning laws and legal disputes can delay or complicate development plans.

Apartment Investments

Advantages:

1. Ready-to-Move Options: Apartments offer immediate usability, making them ideal for buyers looking to avoid the hassle of construction.
2. Easier Financing: Banks and financial institutions are more inclined to provide loans for apartments than for land purchases.
3. Rental Income: Apartments generate steady rental income, making them attractive for investors seeking regular cash flow.

Challenges:

1. Maintenance Expenses: In flats, maintenance costs arise recurrently and tend to deplete profits.
2. Notional Appreciation: The depreciation is not as intense for lands as for apartments in lesser locations because it has its appreciation potential.

Land Investment in Surat

A plot of 2,000 sq. ft. available in Vesu is estimated around ?1 crore. However, at a 10-12% annual rate of appreciation, in more than 5 years its value will reach around ?1.6 crores. However, no rental incomes are generated immediately, which tends to discourage short-term investment.

Apartment Investment in Surat: Apartment investment in the same local area is a 3 BHK apartment valued at ?75 lakh and which might give a rental yield of ?30,000/- per month. Such rents alone over 5 years amount to ?18 lakhs and along with probable appreciation of 15 to 20%.        

For long-term investors having a lot of capital, land still remains an excellent choice as it can be appreciated in value and has more flexibility. However, if one needs a balance of short-term returns with growth, apartments, especially in high-demand areas such as Vesu and Adajan, become a very safe alternative. A portfolio comprising both land and apartments may help an investor hedge the risks and maximize the return.

Other Hidden Costs of Real Estate: Stamp Duty and Registration Charges

Such incremental charges do exist, which needs to be understood better.

• Stamp Duty, which can go from 4% to 6%, varies as per the state.
• ?Registration Charges are at least 1%

Example

The Price for the Property=  ?50 lakh
Stamp Duty(4.9%)= ?2,45,000
Registration Charges?(1%)= ?50,000
In all Other Incremental Charge= ?2,95,000        

Notable other Tier 2 &Tier 3?cities in India

Indore

India's Cleanest City, Indore, is experiencing its own wave of real estate growth powered by The Super Corridor, which contains IT companies such as TCS and Infosys. The affordable residential ranges here between ?2,500/- and ?3,500/- per sq. ft.

Coimbatore

This city is titled "Manchester of South India." Coimbatore has a robust industrial sector, especially in fabrics and machinery, which increases its real estate. Best areas for residential properties: Avinashi Road and Saravanampatti

Jaipur

The Pink City offers the best of ancient heritage with modernity blended into one. Projects for this include Mahindra World City (SEZ), which is boosting commercial real estate. Average rates in the residential sector are between ?2,800 and ?3,800 per sq. ft.

Lucknow

The capital of Uttar Pradesh is witnessing rapid growth in the real estate sector due to the development of Gomti Nagar Extension as a premium residential and commercial hub. Prices between ?3,200 and ?4,500 per sq. ft.

Conclusion: Why Surat and Other Tier 2/3 Cities Matter

Tier 2 and 3 cities, led by Surat, are the future of Indian real estate. With competitive property prices, improving infrastructure, and economic opportunities, these cities offer immense potential for investors. The contributions of esteemed developers like the Rajhans Group of Industries and transformative projects like the Surat Metro highlight the city's growth trajectory. By aligning investments with market trends and leveraging insights from reputed builders, investors can unlock significant value in this evolving landscape.