Guide To Buying Property In Tier II, III Cities

By BankBazaar | October 23, 2018

Affordable housing is actually ‘affordable’ only in tier II and III cities. If you are looking to invest in a property in these cities, here’s some help.

Guide To Buying Property In Tier II, III Cities

It would definitely not be an exaggeration to say that the metro cities in India have become concrete jungles. With the skyline of the cities changing faster than the clothes on hypermarket mannequins, people can’t wait to get a breath of fresh air. Maybe that’s why a large section of the population is buying property in tier II and tier III cities. Even though the rates for these properties might be a steal when compared to metros, a Home Loan might still be essential.

Now, the big question is where to invest. Haven’t got a clue? Relax! This article will tell you all about prime cities that are sought after by property buyers, which areas are getting snapped up and by how much all this could set you back.

The reasons

First you have to be clear about why you are buying this property. Are you planning to move to this city? Or are you planning to rent the property out to make some quick bucks? You could even buy a house in these cities and use it as your holiday retreat. The property you should buy will differ based on your reasons.

Looking to occupy

If you are moving to a smaller city, it is best to look at properties in prime locations. And in that case, note that the prices may not be that easy on the pocket.  Consider this: properties in Siddhartha Layout in Mysuru are selling at Rs. 6,000 per square feet, which is almost the same as some of the areas in Bengaluru. So, if you are looking at good localities close to the city centre in tier II cities, you might have to stretch your budget or opt for a smaller component size.

Additional Reading: Real Estate Investing 101

All I want is appreciation

If you are looking for capital appreciation for your property, look at the suburbs. The suburbs that are a bit away from the city centre are the best places to invest for capital appreciation. Why? This is because growth within the city tends to get restricted and prices start going up. Suburbs are more affordable and property options are usually aplenty.

Growth, in terms of capital appreciation for the land is much quicker in the suburbs. Although social infrastructure might be a problem initially, if companies and industries are close by, growth is bound to happen. Peelamedu in Coimbatore, Kadri in Mangaluru, and Mohanlalganj in Lucknow are good examples. Now, these places are considered a part of the city.

Making some money

If you are planning to let-out your property, try to choose areas close to city limits or those that are close to tech parks and industrial belts. This will ensure that you get good rentals and over time your property will also appreciate. But it’s good to research on the rentals that your property will yield. A number of property portals are available exclusively for this purpose. Doing this will give you an idea of what percentage of your Home Loan EMI can be covered using the rental income.

My own resort

Tired of searching for the ‘best hotel rates’ when all you want is to have fun on your vacation? Consider getting a property at your favourite vacation spot. This could be Goa, Lonavala, Ooty or Shimla! Why not choose areas that are within a day’s driving distance from your city? It is best to buy vacation homes in destinations that are within 4-7 hours driving distance from cities. This will help you maintain the home and use it more often.

Location is the key

This is part of every real estate veteran’s rule book. But this can’t be emphasised enough because the location that you choose will ultimately decide the amount of capital appreciation or rental appreciation you will get. It’s wise to choose properties that are close to popular schools, reputed hospitals, and big malls. Tech parks, well established companies and factories within driving distance will ensure development around the surrounding areas and ultimately lead to appreciation in the value of the property.

Additional Reading: Avoid Real Estate Scams To Reap Rich Returns

Now, coming to the most interesting part of this article. Here are the most happening areas when it comes to real estate investing. We have divided this section into three based on why you may want to buy property in these places.

How much will this cost?

Capital appreciation

Here are the areas in tier II cities that witnessed a steep rise in capital values.

City Potential Areas Capital value 5 years back (Rs./sq.ft.) Capital value now (Rs./sq.ft.)
Coimbatore Saravanampatty, Vadavalli, Vedapatti, Saibaba Colony 1,500 – 2,200 3,300 – 6,300
Vijayawada Telaprolu, Sri Ramachandra Nagar, Kankipadu, Nunna, Ibrahimpatnam, Vijayawada road 2,000 – 3,100 3,300 – 4,600
Mangaluru Surathkal, Kottara, Nanthoor, Bajpe, Kavoor, Konchady, Kulashekara 2,500 – 4,000 4,300 – 7,800
Lucknow Kursi road, Sitapur road, Chinhat, Telibagh, Dubagga, Raibareilly, Gomti Nagar 1,500 – 6,000 2,500 – 7,500
Goa Verla Canca, Penha De Franca,Parra, Santa Cruz, Ponda, Colva 1,800 – 3,600 3,100 – 7,800
Gurgaon Sector 95A, Sector 7, Sector 55, Sector 99A, Sector 36 Sohna, Sector 80 2,500 – 8,000 3,800 – 12,000

*For a 2 BHK apartment. Source: BankBazaar Research

Note: Prices pertain to 2018

Additional Reading: 5 Localities In Mumbai That Will Make Your Real Estate Investment Boom

Rental appreciation

Listed below are areas in tier II cities that saw a rise in rental values.

City Potential Areas Rentals 5 years back (Rs./month) Rental now (Rs./month)
Kochi Aluva, Kakkanad, Vazhakkala, Fortkochi, Gandhi Nagar, 6,000 – 15,000 8,000 – 22,000
Kanpur Kalyanpur, Shyam Nagar, Indra Nagar, Swaroop Nagar 12,000 – 25,000 20,000 – 40,000
Ludhiana BRS Nagar, Dugri, SBS Nagar, Model town, Gurudev Nagar 12,000 – 20,000 14,000 – 45,000
Mysuru J P Nagar, Hebbal 2nd stage, Udayagiri, Alanahalli, Kuvempunagar 8,000 – 20,000 9,000 – 28,000

*For a 2 BHK apartment. Source: BankBazaar Research

Note: Rental appreciation is usually more in developed localities that are closer to social infrastructures like schools, shopping malls, and hospitals

Additional Reading: Does It Make Sense To Opt For A Joint Home Loan?

Vacation homes

Here are areas in tier II cities where you might find vacation homes.

City Potential Areas
Jaipur Gandhi Path West, Bani Park, Sanganer
Guntur Amaravathi, Mangalagiri, Vidya Nagar
Varanasi Rohaniya, Varanasi road, Shivpur
Others Kodaikanal, Hrishikesh, Tirupati, Nasik

*Source: BankBazaar Research

Ready to purchase that property in a tier II or III city? Got enough money? No? Then go for a Home Loan after comparing rates across lenders.

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Category: Real Estate UCN Your dream home

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