For developers seeking to undertake development of residential or commercial project in any of India’s tier-2 or tier-3 cities, securing necessary statutory approvals and permissions, including land use conversion, building plan approvals, clearances from local fire, pollution, and airport authorities, as well as registering under Real Estate (Regulation and Development) Act, 2016 (“RERA”), if applicable, are a fundamental requirement.
Policy Reforms and Technological Advancements: Catalysing Growth
Over the past decade, the Central government in collaboration with state and local authorities has implemented a series of policy reforms and technological initiatives to stimulate growth in the real estate sector, particularly in tier-2 and tier-3 cities.
A key development has been the digitisation of land records under the Digital India Land Records Modernisation Programme (“DILRMP”). With a dedicated outlay of 875 crores over a period of five years, under the Union Budget of 2021-2022, together with technological support and administrative assistance to local governments, as per the data made available by the Department of Land Resources, DILRMP has achieved computerisation/digitisation of over 99% of land records and over 97% of cadastral maps nationwide. This significantly reduces the risk of hidden defects that could derail a project at critical stages.
Another significant reform is the introduction of the Model Tenancy Act, 2021 (“Model Act”), which aims to formalise the rental market. While rental arrangements are typically negotiated privately by the concerned parties, however the Model Act provides much required clarity for both sides. States such as Uttar Pradesh, Andhra Pradesh, Tamil Nadu and Assam have already issued notifications for their versions, on the lines of the Model Act reflecting its growing influence.
Similarly, recognizing the pivotal role that global capability centres (“GCCs”) can play in catalysing economic activity, several state governments have begun to adopt policy measures such as production-linked incentives, introduction of ‘plug-and-play’ infrastructure schemes, expedited single-window approvals, subsidised land leases from government, and enhanced floor-space indices, amongst others.
Multiple states including Gujarat, Andhra Pradesh, Karnataka, and Uttar Pradesh amongst others, have enacted tailored policies offering various statutory and fiscal incentives, thereby reducing the real and perceived operational risks of setting-up GCCs outside tier-1 geographies, and unlocking fresh demand for real estate in emerging urban centres in tier 2 and 3 cities.
In addition to the already growing real estate market for the residential and commercial segments, there is a marked surge in demand for data centres, logistics and warehousing facilities, driven by the technological advancement, expansion of e-commerce and supply chain networks.
The growth of these sectors in tier 2 and tier 3 cities creates employment opportunities locally and also reduces migration to larger cities. This, in turn, supports the growth and development of tier 2 and tier 3 cities while simultaneously decreasing the pressure on the infrastructure of tier 1 cities.
Persistent Challenges: Zoning, Approvals, and Adjudication
Despite advancements, several challenges persist. Zoning norms and municipal by-laws, remain highly fragmented, with variations in floor area ratio limits, parking requirements, and permissible land-use restrictions, which vary not only between states but between adjacent regions, leading to ambiguity and complications in implementation of the projects.
Developers often face the onerous task of securing multiple approvals, each of which is issued by different authorities with different timelines. This impacts project implementation timelines, affecting feasibility and returns.
Timely and effective redressal of complaints arising across the span of project lifecycle also remains a concern. Although the RERA Act aims to provide time-bound redressal of complaints, delays are common in jurisdictions where authorities lack dedicated administration or face frequent vacancies.
Legal Infrastructure as Catalyst for Sustainable Growth
While these challenges and obstacles impact the real estate sector, the macro-economic outlook for tier 2 and 3 cities remains highly positive. Policy makers, for their part, bear the responsibility of harmonising local development regulations and infrastructure in tier 2 and 3 cities with long-term growth objectives.
Streamlining approvals through digital platforms, ensuring efficient compliance procedures, and rationalising stamp duties can create a virtuous cycle: improved compliance reduces risk, which in turn fuels growth of larger, better-financed projects, generating higher revenues and employment.
The experience of states like Gujarat, where the GARVI portal integrates land records, property tax data, and other property related information and systems into a single interface, serves as a model for others to follow.
To enhance statutory compliance for smaller real estate projects not covered under the RERA, local municipal bodies and development authorities can be empowered to enforce basic transparency and timely completion standards for such developments.
In addition, consumer awareness campaigns and simplified dispute resolution mechanisms can provide buyers and investors with the confidence and recourse they need, without the administrative burden of full RERA compliance.
Ultimately the success of India’s tier 2 and tier 3 hinges on efficient statutory procedures and infrastructure growth. As the next avenue of growth unfolds, the cities that pair infrastructure with ease of doing business will outpace peers, and the developers who embrace this synergy will be at the forefront of the new chapter of India’s real-estate sector in tier 2 and 3 cities.
