Realty a better buy in smaller towns

Last Updated: Mon, Jan 27, 2014 04:08 hrs

Smaller towns and cities closer to metros and industrial hubs are seeing significant housing demand, on the back of lower land cost and increased prosperity. This is in sync with the earnings of HDFC, which cited growth in retail loans across smaller towns, for posting good numbers for the third quarter.

According to the National Housing Bank (NHB) data, there is price appreciation in cities such as Lucknow, Surat, Guwahati, Chandigarh, Raipur, Faridabad, Patna and Ahmedabad in July-September quarter 2013, while in Delhi and Bangalore, prices had gone down.

While prices remained flat in Pune, they were marginally up in Mumbai during the same period compared to April-June 2013 quarter.

  • Housing demand coming from small towns and cities closer to metros and industrial hubs
  • Cheaper land & increased prosperity contributing to the growth in such areas
  • NHB data also show price increase in cities such as Surat, Guwahati, Chandigarh, Raipur, Faridabad in Jul-Sep 2013
  • There is an overall slowdown in the realty market as inventory is high and launches are down

Harinder Singh, Realistic Realtors, says, "Land, as well as construction cost is high in metros and Gurgaon and Noida. Even the number of approvals which a developer has to take for launching a project is high in such areas, which explains the rush of developers to small cities and towns."

In big cities, affordability is very difficult because of various factors. Hence the growth is also filtering down to smaller areas, he adds.

Places such as Kochi, Whitefield (near Bangalore), Rajarhat, Greater Noida and Yamuna Expressway (bordering Noida) are among such destinations, where the housing demand is coming from, an expert tracking the sector said.  

"The growth has gone down in metros because of economic slowdown coupled with negative sentiments in the market, which has led to declining investors' interest."

Cement companies are not so enthusiastic about real estate in smaller towns as their results have shown.

That is because action on the corporate side has reduced a great deal in spite of small town residential showing growth.

"The orders from big developers used to form bulk of their sales. Growth from small-town residential segment is coming, but the numbers are not significant," says another expert from the sector.

Keki Mistry, CEO and vice-chairman, HDFC, says, "We have seen strong demand for housing loans from Delhi-NCR, Chennai, Mumbai, Bangalore and Pune. But many of the loans in these centres are actually originating from peripheral regions. For instance, in Mumbai, we are seeing a good demand for home loans from areas like Virar, Boisar and Nalasopara. But, the loan demand is not as high in areas like Bandra. Similarly, the demand is also strong in small towns like Sangli and Satara."

A senior executive with a developer based in north India said the sales were mainly coming from mid-premium segment and from areas surrounding metros where units were priced within the reach of people and those areas were not impacted by slowdown. "Not many can afford to buy a home for Rs 2-4 crore in a metro or a big city. Good connectivity and proximity to job locations make peripheral regions around metros the most sought after in terms of real estate."

Samantak Das, chief economist and director (research and advisory services), Knight Frank, had earlier said satellite towns such as Greater Noida were defying the slowdown.

"We have seen an uptick in sales in Greater Noida, as well as in Bangalore in the last two-three quarters. If any suburb is seeing high growth and absorption, housing finance companies would definitely focus on capturing that growth."

New property launches in the residential segment across major cities declined by 12 per cent in 2013, with Chennai recording the sharpest drop at 39 per cent followed by NCR at 33 per cent and Pune at 20 per cent, according to a report by Cushman & Wakefield. Mumbai recorded just six per cent growth in the total launches.

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