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Saturation of malls in metros; Prospects in tier II, III cities

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Tier II cities of India will continue to be the hot spot for real estate investors despite the slump. Tier II and III cities would emerge as most sought-after real estate destinations in the coming year. Factors leading to growth of these areas are the saturation of metros cities. However, the primary drivers in Indian real estate market do not rely on central business locations. It is very much possible for IT/ITeS companies to operate from anywhere in India, as long as the availability of skilled man power and necessary resources is accessible easily. Moreover, the liberalised FDI policies of the government have also helped in initiated investments in the realty sector.

Another reason which has led to the growth of tier-II cities is the coming of MNCs. MNCs’ take full advantage of the cheaper real estate prices in tier-II and III cities, which in turn leads to pushing up of retail, residential property and infrastructure sectors wherever they go. Emerging areas like these tier-II and tier III cities offer excellent real estate investment opportunities because of the low entry level costs compared to the saturated big city markets where getting space is very difficult.

Most of the companies, have had very successful experience in tier II & tier III cities. Purchasing power of the customer, his/her awareness of the service, the products offered and the aspiration are the factors which determine the success of any business. Media plays a crucial role in enhancing the aspiration as well as the awareness of the customers. In recent past media, be it electronic or print, has grown by leaps and bounds and made the small town customers aware of the changing lifestyle and consumerist culture.

Its not that people living in metros are only aware of a better lifestyle, products, services, etc. Most small towns have an equally evolved consuming audience. The only difference is that so far marketers have focused only on metros creating a huge aspiration gap in these small towns. Most of the companies have already established their footprints in these towns. Restaurants are experiencing an overwhelming response from the people of smaller towns and cities.

Infrastructure, which has been a problem area in small towns and has stood in the way of retail, is improving with the wave of real estate development transcending metros. One of the major problems in most part of the country is lack of town planning, due to which there is very limited world-class retailing space available – a problem which gets magnified in the smaller towns. But now with many malls set to come up in small towns in near future, the opportunity for brands to establish market is bound to get a fillip.

Entrepreneurship has also flourished in small towns where service sector is not much developed. But unlike the metro counterparts, entrepreneurs of small towns avoid taking risks. This risk taking trait needs to be inculcated among them and it is just a matter of time when they will take the plunge. The mindset will change with exposure. They also need to maintain the standard of products and services. Small town entrepreneurs have the capital but lack the know-how.

The most important factor which gives an edge to the small town entrepreneur over their metropolitan counterparts is the close relation with their customer base. Usually in small communities, people share a close relation with each other. In some businesses, word of mouth plays a crucial role, which small town entrepreneurs enjoy. A wave of consumerism is sweeping the country. Brand consciousness is very high, especially among the baby boomers. Moreover, Indian consumers are coming out of the mindset of saving and indulging themselves in consumerist culture. People in small towns are getting brand conscious. Higher disposable income and higher aspirations of small town inhabitants have created a huge market for major brands. Today they are ready to experiment and indulge themselves.

The malls in metros have not saturated its periodic rationalisations which has taken place. The demand has gone down but the supply too has come down drastically. This periodic correction will make sure that only the serious and long-term players are going to be a part of the great India retail story.

Pramod Ranjan Dwivedi is the head – marketing, Ambuja Realty Development. Views expressed are personal. Detailed Profile

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