Big builders attracted to smaller cities: CRISIL

Price stability and growth prospects of smaller cities are attracting large real-estate developers.

The developers are diversifying from metro cities with an eye on future growth. A recent report released by CRISIL Research, titled Real(i)ty Next: Beyond the Top 10 Cities of India, estimates the sales of new residential apartments in 10 such smaller cities at around Rs18,000 crore in 2012.

The study details the planned supply, the expected demand and the outlook for prices in 65 sub markets across the 10 cities: Bhopal, Bhubaneswar, Coimbatore, Indore, Jaipur, Lucknow, Nagpur, Surat, Vadodara and Visakhapatnam. Almost 354 million sq ft of supply has been planned in these cities over the next three years.

The study finds that the smaller cities offer better price stability and demand growth. It foresees prices rising in seven of the smaller cities. In contrast, prices are likely to increase only in four of 10 large cities–Ahmedabad, Bengaluru, Chandigarh, Chennai, Hyderabad, Kochi, Kolkata, Mumbai, National Capital Region and Pune.

Affordability in smaller cities is greater, as prices have not risen as much as in the large cities. Prices increased only by 10-12 per cent in the smaller cities over the two years up to April 2011. In contrast, prices rose by 25-30 per cent in the large cities.

''The proportion of buyers taking home loans is relatively lesser in these smaller cities. A gradual increase in penetration of home loans would boost demand. Moreover, a shift in preference from independent houses to apartments will also support volumes,'' said Prasad Koparkar, head, industry and customised research, at Crisil Research.

The growth prospects in the smaller cities are attracting large developers with multi-city presence. A few large developers already have a presence in Bhopal, Lucknow, Indore, Jaipur, Nagpur and Coimbatore.

Many of the developers are building land banks in these cities.