Crisil projects higher realty growth in smaller cities
Moneylife Digital Team 22 June 2011

Research suggests growing economic, commercial activities and price stability is attracting big developers to cities like Surat, Nagpur, Bhopal, Jaipur and Coimbatore. Estimates sales of Rs180 million in ten such cities in 2012

A recent report released by CRISIL Research, titled 'Real(i)ty Next: Beyond the Top 10 Cities of India', estimates the sales of new residential apartments in ten smaller cities at around Rs180 billion in 2012. Collectively, these cities will see a supply of 354 million sq ft of residential space in the next three years. Surat, Bhopal and Jaipur are going to profit the most, both in terms of growth and value appreciation.

In a teleconference on Wednesday, Prasad Koparkar, head-industry and customised research, CRISIL Research, said, "Price stability and growth prospects of smaller cities are attracting large real-estate developers. Developers are diversifying from metro cities with an eye on future growth." He said, as markets are more stable in these smaller cities, they have seen less appreciation in the last one and half years, and hence, the impact of RBI rate hikes will also be less.

The survey covered Bhopal, Bhubaneswar, Coimbatore, Indore, Jaipur, Lucknow, Nagpur, Surat, Vadodara and Visakhapatnam. While residential units saw a price appreciation of 25-30% in Delhi-NCR and Mumbai, the smaller cities saw a hike of only 10-12%. Among these cities, Bhubaneswar saw the maximum hike, whereas the least increase was in Coimbatore and Visakhapatnam. Most of this market is driven by purchases by end-users and not investors.

Vadodara and Lucknow, Mr Koparkar estimates, will see a maximum appreciation of 8-10% in two years, because of a higher demand-supply gap. On the other hand, Coimbatore and Visakhapatnam will see a moderate hike of 3%-4%. On the other hand, Surat and Bhopal will see more supply.

"The market in these cities is boosted by growing economic and commercial activities, and properties are very reasonably priced," Mr Koparkar said. "We are also seeing a growing demand for apartments, rather than standalone houses, with growing population in these areas boosting volumes growth." The demand is most for the mid-income segment, with 2-3 BHK apartments of 1,100-1,200 square feet area. On an average, these flats are priced at Rs2,000-2,500 per sq ft.

While big developers like Unitech, Ackruti and DLF are extending their presence to these markets, local builders still command the maximum space. As the cities grow, these local builders are also scaling up their operations. However, these cities face the same problems that the metros face—whether it is poor infrastructure or delay in getting approvals.

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