Choosing The Right City For Your Home Purchase

It is not uncommon to move out of your hometown for college to another city. Most people I know usually move to bigger cities either for better education or job opportunities. This generally shapes the thinking of people to get accustomed to a particular city. Have you ever moved out of your hometown? Have you ever considered purchasing your home in one of the cities? Did you ever consider the varying home loan rates in India?

If yes, you’re reading the right article! The purchase of a home depends on multiple factors. It varies according to need. People tend to purchase homes in the city if they’ve migrated for jobs and intend to settle down there. 

Recently, trends show the rise of home purchases in tier-2 and tier-3 cities. This raises the question, does location matter when purchasing a home? Do prices differ? If yes, why? 

Don’t worry, we are going to dig deeper into each of these topics and explain everything. Nothing will be left to your interpretation, unlike a Christopher Nolan movie. 

Rising Trend of Home Purchase in Tier 2 & 3 Cities

Before diving into the why, let’s understand how cities are segregated in India. Cities in India are categorized based on their population and economic activity. 

For Example, Tier 1 cities include highly populated and developed cities such as Mumbai, Delhi, Bangalore, Chennai, and Kolkata. 

Meanwhile, Tier 2 cities include emerging economies such as Amritsar, Bhopal, Bhubaneswar, Chandigarh, Mysore, etc. 

Finally, examples of Tier 3 cities are Roorkee, Hosur, Gandhinagar, Udaipur, Salem, and Madurai, etc.

Why a Tier 2 or 3 city? Advantages to investing in property here

To cut right to the chase, Tier 2 & 3 cities show more potential for growth and development in comparison to Tier 1. Obviously, you can counter my statement by highlighting that established Tier 1 cities can give you higher rental yield and more rental demand as well.

This again depends on the locality within the city itself, but the bigger issue is the high cost entry to purchase a property in a Tier 1 city. Skyscrapers aren’t the only things sky-high in these cities, the prices are too, literally. So are home loans in India.

This summarises two major advantages of investing in these cities: low-cost entry and higher potential for growth and development. Lucknow for example has increased investments in property due to rising connectivity and infrastructure development. This coupled with new businesses setting up shop has boosted employment and the local economy. 

Apart from this, there’s capital appreciation and rental yield to be considered as well. Since these economies are booming with new companies setting up operations, commercial property yields are promising. 

Not just that, unlike a developed tier 1 city, where the property purchase price point is already high, these properties’ costs are low, implying you can buy small and sell big! 

We all know cities like Bengaluru and Mumbai have a higher cost of living. Imagine paying Rs Rs 30K as rent for a 300 sqft home. Yes, a 300 sqft home in Mumbai costs that much on average.

I personally would need to do GTA-level heists to afford so much rent. Tier 2 & 3 cities are advantageous in that sense. What about home loans in India? From rent to living expenses, everything is lower, which makes it perfect for one to lead a comfortable lifestyle without splurging much. 

How to Evaluate A City for You to Live In

Choosing a city to live in is a big move. Home loans in India have varying rates. Unlike renting, which can be reversed quickly if it doesn’t work out for you, purchasing a home and moving cities is a big decision. 

The repercussions can be quite big if you don’t plan it out well. Don’t worry, that’s why we are here to help. Here’s a guide/checklist of things you need to consider while choosing a city you want to live in. 

1. Research the Locality: This is a place you are going to live in. Make sure to check accessibility to resources such as groceries, shops, supermarkets, petrol bunks, salons, etc. Essentials to sustain yourselves need to be accessible easily and ideally should be closeby. 

2. Ample Opportunities (Jobs/Schools/Colleges): This is an important factor to consider. You need to make sure there are ample good job opportunities for you and education options for your kids as well. 

3. Lifestyle and Security: What type of lifestyle do you lead? Fancy, boujee or simple and practical? This will impact the place you choose. Make sure to research if activities you enjoy are available in the city you plan to live in. 

Secondly, neighborhood security. This is equally important. Understand the crime rates in the locality and look at safer options. The last thing you want is to risk the safety of your spouse and kids. 

4. Growth Potential & Development Plans: Analyze current property prices, rental yield, costs, etc. Check if there are any infrastructure development plans going on such as better roads, water facilities, upcoming commercial areas such as malls, etc. You’d also need to understand property appreciation rates as well. 

5. Visit the City & Explore: Purchasing a house is not like placing an order on Amazon, that can be instantly returned in 2 days. This is why it is crucial to go in person and check everything out. Don’t rely on just the internet, be physically present, explore the city, the properties, etc. 
   
6. Consult Local Real Estate Agents: Local real estate agents have more insider information than you think. This can aid in your purchase. They will also help you with other things related to a purchase by providing contacts. But be wary about their commissions, etc to ensure you get a fair deal.

Risks and Challenges of Investing in Tier 2 and 3 Cities

There are always 2 sides to a coin. Just like all the advantages mentioned above, there are quite a few disadvantages as well. Let’s analyze them together.

1. Slower Pace of Development: Unlike Mumbai, the city that never sleeps, or the start-up hub of Bengaluru, expect things to be a tad bit slow here. Tier 1 cities have more employment opportunities which push the economy to grow faster. But that’s not the case in Tier 2 & 3 cities. This is something important to be factored in. 

2. Limited Job Opportunities: Certain sectors are more prominent in Tier 1 cities. Therefore this is subject to what kind of jobs you’re looking for. Although the landscape is definitely shifting with the rise of remote jobs. A remote job will work in your favor to choose a city where you can reduce expenses by a great margin. 

3. Lack of Infrastructure: Not all Tier 2 & 3 cities have great infrastructure, and it’s vital for you to check that out. There can be hassles such as bad roads (subtly smirks at Tier 1 city Bengaluru), poor connectivity to other localities, public transportation issues, etc.

4. Liquidity Crisis When Reselling: With limited buyers, there may be a decline in demand, hence leading to issues with no buyers if you plan to sell. Besides, due to this decline in demand, people may try to low-ball you as well. 

Frequently Asked Questions [FAQs]