Tier 2-3 Cities Drive Land Rush For Residential Realty

The Tier 2-3 cities have seen a land acquisition spree for the development of residential projects, mostly plotted residential units.

In the 22-month period from January 2022 – October 2023, around 3,294 acres of land was acquired by real estate developers across the country. A substantial proportion (44.4%) of these land deals   was transacted in Tier 2 and 3 cities, with a total of 1,461 acres acquired across 17 separate land deals. This trend has been gaining momentum in northern and western India, in particular. Panipat, Ludhiana, Nagpur and Panchkula collectively contributed to around 75% of the total 1,461 acres of acquired land.

Established real estate developers are now targeting new markets, by entering Tier 2 and 3 cities in the country, to launch projects. Research data indicates that driven by the increasing demand and buying capacity of the customers, branded developers have successfully closed many land transactions in these cities. In the north, developers are venturing into cities like Panipat, Sonipat, Kurukshetra, Panchkula, Lucknow, Jaipur, and Ludhiana, and in the west, cities like Nagpur, Khalapur, Surat and Palghar have attracted national level players.

It is pertinent to note that 91.6% of the land acquired (1,339 acres) is for proposed residential developments, with a majority being planned as plotted residential developments/units. Developers are primarily focusing on low rise and plotted developments in these cities as the locals are accustomed to living in these types of formats. In fact, around 1,015 acres have been earmarked for plotted developments valued at over INR 3,163 crore.

Buyers too are looking to purchase quality homes in Tier 2 and 3 cities. Established real estate players entering these cities have enhanced the home buyer confidence, as these developers have a good track record and strong execution capabilities, along with access to institutional capital. These developments have proven successful and are very well received by the buyers. This can be seen with the recent success of developers in these cities. According to various market sources, DLF’s first project in Panipat got sold out within an hour of its launch; Godrej Properties was able to sell phase 1 of its plotted development project in Sonipat within 2 days of its launch. In south India, plotted residential projects were launched in cities such as Ambur, Mahabalipuram, Coimbatore, Trichy, and Mysuru.

Encouraged by the unprecedented levels of residential sales in emerging cities, developers are also acquiring land to build relevant supply pipelines for the future. Prominent developers like Godrej Properties, M3M, Eldeco Group and Omaxe Group have entered or expanded in these emerging markets with recent land acquisitions. Some developers are also planning to launch holiday homes as people in metros are looking for second homes in vacation destinations like Shimla, Rishikesh, Goa, etc. Samantak Das, Chief Economist and Head of Research and REIS , India, JLL says that strategic land acquisitions by real estate developers in Tier 2 and 3 cities to enter new markets and leverage the growing demand for quality projects is on the rise.   The launch of new residential projects is expected to strengthen further through new land acquisitions in strategic locations and growth corridors. Considering this, the residential market is expected to remain buoyant and achieve the next wave of growth and expansion with a good response from the buyers.