Housing sales in Tier-2 cities to remain robust
Favourable factors:Demand for houses is up in tier-2 cities and the buyers there rely less on bank credit.
The increase in interest rates on home loans is unlikely to have a large impact on housing sales in top Tier-2 cities with the rise in demand and the buyers there relying less on bank credit, CRISIL Research says.
“Buyers in Tier-2 cities depend less on bank credit,” Prasad Koparkar, who heads the customised research section of the business-research house, says.
If 80-90 per cent of the homebuyers in the metros take loans, only around 30 per cent do so in these cities. Hence, the impact of the rising interest rates will be less, Mr. Koparkar adds.
The Reserve Bank of India has increased key policy rates 10 times since March 2010, pushing mortgage rates upwards. The increase has had an impact on housing sales across the metros.
Mr. Koparkar says the demand for housing units in the Tier-2 cities of Bhopal, Bhubaneswar, Vadodara, Indore, Jaipur, Surat, Lucknow, Nagpur, Coimbatore, and Visakhapatnam has been on the rise as a result of commercial and economic development.
“Demand for housing units in these cities is industry- and commerce-driven. People who are coming to these cities are opting for apartments rather than standalone buildings. Also, financial penetration is providing an impetus,” he says.
Mr. Koparkar expects residential housing unit sales amounting to Rs.18,000 crore in these 10 cities in the financial year 2011-12, up from Rs.17,500 crore in 2010-11.
“Markets in these cities are largely dominated by local players. However, national-level players are making slow but steady inroads,” he says.
In two-and-a-half years, 350 million sq.ft of housing area will be added in these markets.
Buyers in these cities generally prefer 2-3 BHK flats (those with two or three bedrooms, a hall, and a kitchen) and the current average price is Rs.2,200-2,500 a sq.ft. Mr. Koparkar says housing prices are likely to remain stable in these cities with a slight moderate bias.
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