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sushma group: Smaller cities next destination for real estate development: Prateek Mittal, director, Sushma group

Tier 2 & 3 cities have emerged as the big development hub giving the opportunity to developer of these cities to expand at a large scale. With corporates looking for a grade A office space and retailers eyeing quality retail area, developers have planned large scale development in smaller cities.

In a chat with ET, Prateek Mittal, who heads Sushma Group, real estate company in Punjab talks about the future of real estate development in the Tier 2 and Tier 3 cities. Edited excerpts:

Real estate sector is on a growth path post Covid. Do you think Tier 2 and Tier 3 cities are ready for this growth?
Tier 2 and tier 3 cities are witnessing huge traction. In the first phase, the process started with the rising expectations of a better lifestyle in consonance with the tier 1 cities. However, post-pandemic there has been a significant surge. Work from home, growth of entrepreneurship and start-ups have provided a major boost to real estate in tier 2 and 3 cities. Improvements in infrastructure and connectivity have also helped a lot.

Residential real estate prices have also increased due to rise in raw material prices. Do you think it will impact sale?
By and large, the prices have remained stagnant in the last decade. However, the income level rose considerably in the same period resulting in a rise in the affordability factor of homes by approximately four times. The Covid period further affected the demand and dramatically impacted the pricing front.

Therefore, when things turned towards normalcy post-pandemic, the increase in demand led to a price rise after a certain period. But this component was much less compared to the rise in input cost.

According to our estimates, the rise in input cost increased the construction cost by Rs 700-1000 sq ft. Post-pandemic has also witnessed a rise in demand for luxury and bigger apartments. Buyers today are looking at projects which are part of the integrated township and, what is most important, preferring developers with a good track record.

Funds are not hesitant to invest in Tier 2 cities anymore. Do you think this will help in accelerating the growth?
It shows growing confidence of international investors in the real estate potential of the tier 2 cities. As the Indian economy grows and the with the kind of industrial policy, infrastructural development and the rising entrepreneurial spirit, any investment in tier 2 cities is sure to provide good returns in the long term.

Covid has also pushed the demand for luxury holiday homes. Do you think that demand is sustainable in long term?
The two most important factors would be that people have money and look forward to leading a better lifestyle. Besides, the growing incidences of working from home, which has made working from remote locations accessible and acceptable, has also boosted the popularity of holiday homes. The desire for leisure which is now within easy reach, is another factor providing the push. Besides providing a better and healthier lifestyle, holiday residences also make for excellent investment propositions. And most of all, branded holiday residences offer buyers peace of mind.Rise in interest rates and its overall impact

Will there be any impact on sales of RBI hiking the rates?
The current increase in interest rates has taken it higher than the pre-pandemic levels. This has increased not only the home loan rates for buyers, but borrowing percentages for developers, too have increased. Still, going by the present scenario, momentum in housing demand has been minimally affected and will continue to be robust. We feel the interest rate has peaked because inflation numbers are cooling down. Therefore, the affordability index will continue to remain high.

Many multinational companies have moved to tier 2 cities as employees moved back to these towns. Will we see more grade A office space in smaller towns?
Like residential, the commercial segment as well has a flourishing future. The possibilities for India’s economic growth are immense. Therefore, the commercial segment, both in retail and office spaces, will have a considerable demand nationally. The profusion of start-up culture and new businesses will further aid its growth. Besides, the increasing trend towards work from home to work from hometown has led the companies to open satellite offices across tier 2 cities. Now employees can have the comfort of living at home and still meet the professional requirement by working in the office environment. Further, improvements in roads, the introduction of faster trains, and the opening of new airports boosting international air connectivity of the tier 2 cities are also revolutionizing the office infrastructure in tier 2 cities.

What about the growth of retail spaces in tier 2 cities?
Retail consumption has massively increased in tier 2 cities. With the rise in income and work popularity from the hometown concept, salaries in tier 2 cities are now almost at par with salaries in metro cities. Since disposable income has increased, their spending power has also gone up. Many leading national and international retail brands are currently targeting tier 2 cities.

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