Housing sales in top tier-II cities are unlikely to be largely impacted by interest rate hikes due to increased demand and buyers' less reliance on bank credits for owning dwelling units, Crisil Research said on Wednesday.

"Buyers in tier-II cities depend less on bank credits. Compared to 80-90 per cent in the metros, use of bank finance for buying a dwelling unit in these cities would be around 30 per cent. Hence, the impact of rate hike will be less," Prasad Koparkar, head, customised research, Crisil Research, said.

The Reserve Bank has hiked key policy rates 10 times since March 2010 pushing mortgage rates upwards. The rate hike has impacted housing sales across the metros.

Koparkar said the demand for housing units in 10 tier-II cities -- Bhopal, Bhubneswar, Vadodara, Indore, Jaipur, Surat Lucknow, Nagpur, Coimbatore and Vizag -- was on the rise as a result of an overall commercial and economic development.

"Demand for housing units in these states are industry and commercial driven. People who are coming to these cities are opting for apartments rather than standalone buildings. Also, financial penetration is providing impetus," he said.

Koparkar expects residential housing unit sales worth Rs 18,000 crore in these top 10 tier-II cities of the country in the current fiscal, up from Rs 17,500 crore in 2010-11.

"Markets in these cities are largely dominated by local players. However, national-level players are also making slow but steady inroads," he said, adding that in the next two and a half years, a total of 350 million sq ft of area would be additionally available in these markets.

Buyers in these cities generally prefer 2-3 bhk flats and the current average price is hovering between Rs 2,200 and 2,500 per sq ft. Koparkar said housing rates are likely to remain stable in these cities with a slight moderate bias.


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  • Prices are so cheap in some of these Tier-II towns that rate hikes doesn't matter at all for affordable housing. In addition, organized housing is so less in these towns that new apartments, floors, townships are very well appreciated.
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