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Is real estate booming in tier 2 and tier 3 cities compared to tier 1?

October 6, 2022

What Are Tiers In Real Estate?
Real estate is one of the best investment avenues there is. It is comparatively a safer and more secure investment. The location of the properties majorly determines the value of the real estate. The real estate market across cities is categorised according to ‘tiers’. Tier cities are classifications in the real estate market based on the stage of development they are in.
The main ‘tiers’ in real estate are Tier-I, Tier-II, and Tier-III. Let’s define these three tiers –

  • Tier-I city: Tier-I cities are the most developed cities with an already established real estate market that is performing well. These cities are home to highly developed areas, with good infrastructure in place with regard to schools, colleges, hospitals, transportation, and more. Chennai, for example, is a tier-I city, as it has seen good development and has all factors that a balanced and good standard of life requires.
  • Tier-II city: Tier-II cities are slightly less-developed than tier-I cities. But they are also cities that are going through rapid developments in terms of infrastructure and society. This paves the way for rapid real estate developments in these cities. Coimbatore is an example of a tier-II city as it is witnessing massive infrastructural development and, as a result, substantial growth in the real estate market.
  • Tier-III city: Cities that fall under the third tier are usually undeveloped, with no proper real estate market established. Real estate prices in these cities are extremely low, and growth opportunities are available here only if real estate companies decide to invest in these areas and develop them. Kallakurichi, a place in Tamil Nadu, is an example of a tier-III city.

In India, the population is also a detrimental factor in the classification of cities into their respective tiers. Tier-II cities are those having a population between 50,000 and 1,00,000, while tier-III cities are those that have a population of 20,0000 to 50,000. Tier-I cities are those that have a population of over 1,00,000

While real estate may be the priciest in tier-I cities, tier-II cities and a few tier-III cities are not too far behind in terms of real estate development. In fact, it is, for most parts of it, safe to say that real estate is booming in tier-II and tier-III cities compared to tier-I today. Let’s discuss more on that in the next section.

Is Real Estate Booming In Tier-II and Tier-III Cities Compared To Tier-I Cities?
While tier-I cities already have a solid and established real estate market, thanks to the developed infrastructure and transportation, the other tiers, especially tier-II cities, are also witnessing massive growth. Tier-III cities, at the same time, are also displaying immense potential for development. The main reason for this is that real estate is comparatively cheaper in these cities than in tier-I cities. Investors see this as good potential as these cities are also going through a phase of substantial development.

Compared to large cities, real estate prices are lower due to a lower level of development in these areas. This makes assets, especially land, much cheaper. In addition to lower land prices, construction and material prices are also cheaper than in larger cities. Therefore, the overall cost of developing residential (as well as commercial) projects in tier-II and tier-III cities are significantly lower than in tier-I cities.

Industrialisation in these areas is also growing, and this calls for more human settlements (thanks to more jobs generated) and community building. This has also increased the development opportunities in these areas. This has paved the way for growth in the real estate market in these cities. Moreover, more and more people are considering moving to tier-II and tier-III cities as they offer a better (and a quieter) quality of life. These cities are also not short of job opportunities and hence, make for a perfect place to live in.

With rapid development happening in tier-II and tier-III cities, these cities drive a major chunk of growth in the real estate market. If you are looking to invest in property at lower prices, then investing in tier-II and tier-III cities is not a bad idea after all!

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