Investment Opportunities in Tier 2 Vacation Destinations

By Aditya Kushwaha, CEO and Director Axis Ecorp 

In the aftermath of the global pandemic, a remarkable transformation is sweeping through India’s urban landscape, with  Tier 2 cities emerging as prime investment hubs, drawing capital from investors.

In recent developments, the real estate landscape in India is undergoing a notable change, with a shift away from tier 1 cities like Bengaluru and Hyderabad. The focus is increasingly moving towards tier 2 cities, including Goa, Kochi, Coimbatore, Vizag, and similar areas in southern India. It is anticipated that many more smaller cities in Telangana will be added into the milieu soon. Despite initial hiccups in developments in Amravati, these areas are emerging as hotspots for employment, particularly with the growing investments in storage and logistics. On the other hand, the decision of a foreign brokerage firm to enter the Ayodhya real estate market, as part of its Indian real estate expansion, has stirred considerable speculation. This region is now standing out as one of the most promising one in terms of property appreciation.

This shift is underpinned by a confluence of factors that include their untapped potential, lower cost of living, and the surging demand for unique travel experiences. This change reflects a broader trend in the real estate sector, with investors and developers increasingly turning their attention to tier 2 cities in search of promising opportunities and economic growth.

Untapped Potential  

Tier 2 cities in India have long been overshadowed by their metropolitan counterparts, but recent developments are changing the game. These cities offer a wealth of untapped potential. The cost of living is notably lower than in mega-cities, providing a significant advantage for businesses and residents alike. As these cities embrace remote work opportunities, professionals are finding better work-life balance, and housing remains affordable despite property values seeing a decade-long surge, largely driven by infrastructure development.

One such destination is Goa, which has long been cherished as India’s preferred holiday destination, renowned for its beautiful sandy beaches, pristine blue waters, and lush green landscapes. Influenced by Portuguese architecture, it offers delectable cuisine, a relaxed way of life, and vibrant nightlife, attracting tourists from around the world and all corners of India. In recent times, there has been a noticeable trend of individuals seeking change from hectic city life to finding more creative fulfilment and tranquillity in Goa. They are relocating their businesses, artistic pursuits, culinary ventures, and cultural endeavours to maximise the region’s appeal to tourists. This transformation is shaping Goa into an ideal destination for both vacations and permanent residence.

On average, investment in a property in Goa can fetch approximately 12-16 per cent in annual returns. This is because real estate prices in Goa are more competitive compared to big cities in India, making it a smart choice for a holiday home investment.

Rising Demand for Unique Travel Experiences 

In tandem with the shift towards tier 2 cities, there’s a growing appetite for unique travel experiences. The pace of urban life has accelerated, making escapes to tranquil destinations a priority for individuals and families. Tier 2 cities, with their natural beauty, cultural richness, and historical significance, have become the perfect setting for weekend retreats and rejuvenating getaways. This surge in demand for serene locales is compelling investors to explore the potential of vacation properties in these regions.

Market Trends Favouring Tier 2 Investments 

Investing in a second home is no longer thought of as a luxury; it’s now a strategic move laden with opportunities. Therefore, market trends are aligning favourably with tier 2 investments. Urban congestion and fast-paced lifestyles in metropolitan areas are driving individuals and families to seek second homes in tier 2 cities. These properties offer not only a tranquil escape but also the promise of financial gains as the real estate market in these areas continues to thrive. Importantly, entry costs into these markets are significantly lower compared to their tier 1 counterparts, making them accessible to a broader spectrum of investors. According to market projections, the real estate market in Tier 2-3 cities will grow by 15-18% in the coming years.

Government Support and Infrastructure Development 

The Indian government has shown commitment to boosting infrastructure in tier 2 and tier 3 cities. During the  Union Budget announcement for 2023-24, Finance Minister Nirmala Sitharaman announced plans for an Urban Infrastructure Development Fund (UIDF) funded through the priority sector lending shortfall. The UIDF will be managed by the National Housing Bank and directed towards the creation of urban infrastructure in tier 2 and tier 3 cities across the country. This government support is bolstering the appeal of these cities for investors and residents alike.

The completion of the MOPA (Mopa Greenfield) airport in Goa has sparked significant infrastructure development, profoundly increasing the real estate potential in the region. This new transportation hub not only enhances connectivity but also fuels tourism, making Goa an attractive destination for both investors and homebuyers. As a result, the real estate market in Goa is witnessing a surge in demand, with a growing number of individuals and businesses seeking to capitalize on the expanding opportunities that this airport brings to the coastal state.

Unlocking the Potential 

Tier 2 cities in India are experiencing a renaissance, as they transition from overlooked locales to prime investment destinations. Their untapped potential, lower living costs, and the rising demand for unique travel experiences are driving this transformation. Market trends, coupled with low entry costs, are encouraging investors to explore these cities’ real estate opportunities. With government backing for infrastructure development, tier 2 cities are poised to play a pivotal role in India’s economic landscape, offering both lifestyle enhancements and the prospect of financial gains. As urban life evolves, these cities are set to leave an indelible mark on India’s real estate sector.