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Tier 3 housing markets have taken centre stage, captivating banks and housing finance companies (HFCs) as the residential real estate segment thrives. Hybrid work models, seamless access to products through e-commerce platforms, improving social infrastructure, and affordability are the catalysts driving housing demand in these dynamic cities and towns. This shift has prompted lenders to shift gears and sharpen their focus on these burgeoning urban centres, as tier 1 and 2 cities experience saturation in the home loan markets. Bank of Baroda, a prominent public sector bank, has deployed agile sales teams in tier 3 locations, responding to the surge in housing demand.
Industry experts emphasize that tier 3 and 4 cities, towns, and rural areas account for over 60 percent of the country's housing market, representing a vast reservoir of untapped potential. However, these areas have largely remained underserved as lenders have predominantly focused on tier 1 and 2 cities. The housing portfolio in tier 3 markets primarily comprises housing plots and self-construction, with ticket sizes ranging from Rs 12 lakh to Rs 50 lakh.
Sundaram Home Finance (SHF) is seizing the opportunity by expanding its operations in tier 3 cities, unveiling plans to launch 15 new branches primarily in these markets this year. While SHF currently records around 35 percent of its disbursements from tier 1 cities, tier 3 cities and towns contribute 10 percent to the total disbursements. Nevertheless, the share from tier 3 cities is projected to surge to an impressive 25 percent within the next three years. In FY23, SHF reported a commendable total disbursement of Rs 3,978 crore.
Vastu Housing Finance, headquartered in Mumbai, echoes the sentiment, highlighting the persistent and robust demand for housing loans in tier 3 and 4 markets. Increasing affordability and the rise of nuclear families further fuel this demand. In FY23, Vastu Housing Finance disbursed over Rs 1,800 crore in housing loans, with a notable 55 percent allocated to tier 3 cities and towns. Girish Kousgi, MD and CEO of PNB Housing Finance, expresses the organization's strategic focus on strengthening its distribution network through an enhanced presence in tier 2 and 3 cities.
Meanwhile, G. Ram Reddy, CREDAI national secretary, points to the hybrid work model, access to commodities on par with metros and tier 1 cities, and soaring real estate prices in tier 1 and 2 cities as factors that have sparked keen interest in tier 3 housing markets. Moreover, the decentralization efforts witnessed in some states, resulting in the establishment of new districts, have paved the way for the development of social infrastructure such as hospitals and educational institutions centered around tier 3 cities. Consequently, these localities have emerged as thriving housing growth centres.
As tier 3 markets ascend, the financial industry embraces this paradigm shift, poised to capitalize on the untapped potential and contribute to the robust growth and transformation of these dynamic housing markets.
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