This coming Budget could be one for Tier-II and III cities. As employees work-from-home (WFH), housing demand in these cities on the rise. The Budget is expected to focus on better infrastructure in these areas.
WFH has brought a shift in consumer behaviour: Smaller towns have seen category spending increase, as consumers who previously went to Kirana stores shifted to online platforms.
Besides a push towards urbanisation in large cities, Tier-II and III cities are expected to see a greater thrust for urbanisation as employees make these places their base for a prolonged period.
“In 2021, we can expect the demand for affordable housing increasing due to government schemes and the trend of remote working. Most companies are opting for Work from Home (WFH) which gives rise to housing demand in Tier-II and III cities and there is a sense in shifting to locations within an affordable locality,” observes Farshid Cooper, MD, Spenta Corporation.
An increased focus on these cities could see them become centres of future growth and talent. The whole dynamics have changed and may continue for a long time. “We saw a 40 per cent increase in purchases in necessities like household supplies, groceries, non-food child products over the last few days. Consumer spending in Tier-II and Tier II is expected to increase even further in 2021,” says Vineet Rao, Founder and CEO, DealShare.
WFH and more flexibility at work had made Commercial Real Estate (CRE) unattractive in many cities. Though WFH has become a norm for most of the companies, the traditional office-based model will continue in some shape or form. There is a greater emphasis on safer and more spacious offices (which make it easier to observe social distancing); this will counter the lower demand brought about by remote working norms, to an extent.
“India, with an average rent of around $1 per sqft is still seen as a lucrative investment opportunity for MNCs. Several global IT majors who were looking for new office spaces in the range of 0.5 to 1 million square feet before the lockdown, have resumed their hunt now and some have even closed those deals. Notwithstanding this, a slowdown in the overall demand for CRE is very much on the cards. However, analysts predict that in the long term, the emerging trend of remote working will be a shot in the arm for residential real estate. The demand for larger houses with more rooms will go up eventually," observes Balasubramanian A., Business Head, Clients, TeamLease Services.
As per Anarock, WFH also resulted in changes in the average size of apartments in different cities. The average flat size in the top-seven cities increased by 10 per cent in 2020; from 1,050 square feet in 2019 to 1,150 square feet in 2020 Interestingly, over the past four years, the average apartment sizes were reducing y-o-y since 2016. 2017 saw the maximum yearly decline of 13 per cent in average apartment sizes in the top seven cities against the preceding year from 1,440 sq. ft. in 2016 to nearly 1,260 sqft. in 2017. A fairly sudden change in consumer preferences to the backdrop of COVID-19 exigencies in 2020 first halted, then reversed the trend.
“The two main reasons for apartment sizes reducing in previous years were affordability and millennials’ preference for low-maintenance homes. Keen to generate more buyer interest with smaller price-tags, developers whittled down their flat sizes. 2020 saw an almost immediate reversal of buyer preferences. With the accent suddenly being on accommodating the WFH and learn-from-home culture, flat sizes began increasing for the first time in four years.,” pointed out Anuj Puri, Chairman of ANAROCK Property Consultants.
This expert also feels that initially, reverse migration was visible largely among the migrant labourers, but soon the trend percolated to skilled professionals when companies began WFH for an extended period. Resultantly, many professionals from top cities returned to their hometowns located in various Tier II and III cities. Even today several IT companies continue to WFH.
“The reverse migration certainly puts pressure on the existing infrastructure of these smaller towns and cities. It calls for more fund allocation for further enhancement of infra facilities. That said, if we look back, some tier II and III cities already boasted of excellent infrastructure facilities unlike many of their metro counterparts. Infrastructure in top cities like Bengaluru was crippled and couldn’t withstand the growing population. All-round infrastructure development has always remained on top of the government’s agenda to propel economic growth. And year-on-year it has allocated funds towards it. The fact is that the government clearly understands that infra development has a major multiplier effect on the overall economy and the real estate market as well. Therefore, considering the present scenario and the migration trends, the government may look to announce funds for infra in smaller towns and cities,” added Puri.