Real estate in emerging markets sees shift towards second-tier cities

Capital cities no longer the sole focus for property investors

Saudi Arabia, 21 JUNE, 2015: Changing perceptions of the emerging markets are attracting an increasing number of foreign investors to second and third tier cities in emerging urban areas, as they begin to challenge their developed counterparts.

Economic growth, infrastructure development and demographic changes are affecting smaller cities across Asia, Africa, the Middle East and Latin America, enabling less developed areas to emerge as competitive players.

Rapid urbanization is affecting many smaller cities in the emerging markets, in particular across Africa. The majority of the young population in many African countries, with increasing disposable income, live in cities. This migration to cities is increasing demand for housing, infrastructure, retail and commercial spaces.

By investing in smaller cities, real estate developers and industry professionals benefit from: lower operating costs, greater space for construction, lower costs for resources and building materials, and less supply. Moving away from capital cities, property is significantly cheaper, as developers have access to more land for development and lower building costs. 

According to Kian Moini, Co-Founder and Managing Director of global real estate portal Lamudi. which operates exclusively in emerging markets: “These lesser-known cities have large, young working populations, not only contributing more to the economy through their employment, but spending more on consumer goods, and which are more enthusiastic to spend time and money on technology.

Investing in smaller cities gives investors the chance to get more for their money - land and operating costs are much lower, as there is more space for construction, lower costs for resources and building materials, and less supply. As a result, less developed areas are becoming more attractive to investors. These cities now need to invest in themselves, to develop their infrastructure, and position themselves as competitors to the bigger markets,” he said.

While bigger economic capitals have the advantage over smaller, lesser known cities, due to greater recognition around the world, cheaper rental prices, less competition, and a higher growth potential is enabling these cities to rise to the challenge.