Real estate boom in tier-II and tier-III cities a myth, says Liases Foras founder

Pankaj Kapoor explains that new townships spring up because of their proximity to major urban centres, but they lack infrastructure to expand consistently

"A lot of people say that the tier-II or tier-III cities are going to be the next big thing in realty. It is not possible because realty prices can only appreciate where land is scarce," said Pankaj Kapoor, managing director of realty research firm Liases Foras. Speaking at a workshop hosted by Moneylife Foundation on Saturday, Mr Kapoor pointed to areas like the National Capital Region (NCR), Gurgaon and even Navi Mumbai as example that had failed to realise the housing dream.

Most of the tier-II cities are seen as having potential only because of their proximity to major urban centres. However, once development starts, speculation comes into play and the prices go up. When one part becomes inefficient, development shifts to another area, where prices are lower. Automatically, the other expensive areas correct. And when development in the city spreads, overall, there is little appreciation of prices.

"When people say that places like Nanded or Aurangabad are 'emerging', I would like to remind them that once the same hype surrounded Nagpur. Prices shot up there, a lot of money poured in, but where is Nagpur now?" Mr Kapoor asked.

Nashik, Mr Kapoor said, is another such example. There is much hype around the 'wine tourism'. However, Mr Kapoor said, Nashik lacks many facilities. "Nashik's importance comes from the religious point of view, because of Shirdi and Trimbakeshwari. However, it is so far away from Mumbai that it's not possible to travel back and forth on a regular basis. Besides, the economic activities there, does not warrant such hype. The same is the case with Jaipur," he said.

Giving the example of Gurgaon, the realty research boss explained why the satellite towns or extended suburbs failed to satisfy either developers or customers. In Gurgaon, which took 16 years to develop, the centre is considered to be Signature Tower and development is spread within a 6.5km diameter. But builders are launching and selling projects that are some 13-26 km away from the centre.  

"Development has to happen close to the city's commercial centre," he said, "but developers bet on places which are far away, like remote locations that are near to the upcoming metro. Even municipal bodies don't have plans for such locations. So what you get is a luxury villa with a jacuzzi, but no water. How can one live there?" Mr Kapoor wondered.

He said that except for Pune, all metros had expanded further away from the city centre and investors have suffered. He also pointed to Panvel, near Mumbai, where vacant properties are vacant as infrastructural and social facilities are lacking. It's a similar situation in many parts of Navi Mumbai that are still uninhabited.

 Read related reports: ‘Residential property prices in Mumbai may correct by 33%’

Will realty fall? Mumbai properties costliest, but sales lowest among all metros in the country

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