Shimoga is a small town around 300 k.m north of Bangalore and it is considered as Tier3 city (Mysore and Mangalore probably fits under Tier2 tag). There are many such towns and cities in different cities which are considered as potential Tier2 and tier3 destinations for IT/ITES. Infact Shimoga happens to be the home district of the current CM and there is lot of hope and aspirations of the local community for attracting many IT/ITES companies over there and infact there is already an ITES company operating for last couple of years.

There are lot of advantages – you are away from the hustle and bustle of big cities and being part of a quiet relatively unpolluted environment, lower living costs, no traffic jams for sure, better quality of family life etc but the biggest advantage will be the land/realty price and especially more attractive if government can provide (thru SEZ etc) very subsidized land. But then again lot of cons go with that – lack of availability of talent, even if local talent exists will be tougher to pull them from the lure of big cities, fewer schools to support the ecosystem, additional expenses (which is not an issue for BIG IT companies) of setting up of every infrastructure item that is required, the quality of life off-office hours, the schools, the shopping malls, the night life what most of the IT and the ITES crowd expect – all these will be missing, and more than finding talent, retaining the talent will be a bigger issue expect for those who are from that town and love to stay and work there. Then again the expenses of running a firm in big cities is becoming extremely tough and challenging with rising inflation, fuel costs, real estate costs, attrition rates, traffic chaos, ever reducing of the quality time spent with the family, and in general dissatisfaction towards the ever busy polluted city life. The issue has become a chicken-egg issue with waiting to see which one will happen first – the IT companies moving to Tier2/Tier3 or is it the ecosystem first and then IT companies more there. Still better big companies opening it up first on a big scale so that they can or have the potential to make others to create the needed ecosystem to start with them but the early advantage will be lost for SMEs and as the land/rental prices would have increased, stealing the lone big advantage one could have got.

Many companies are finding it very difficult to hire talent and still tougher to hold onto them. Today’s talent is in spite of all the deficiencies and cons, still sticking onto metro life style with shopping and entertainment in the weekend which is clearly lacking in the tier2/tier3 cities. A NASSCOM- Kearney assessment of 50 leading locations for IT-BPO sector has pointed out that a lack of recreational facilities was a handicap for the tier-II and III cities. But the study on `location road map for IT-BPO growth’, had predicted that the share of sectoral employment in the top seven locations will decline to around 60-75% over the next decade and that will subsequently result in the rise of tier II and tier III cities’. SM Doshi, partner A T Kearney India, said, “But that cannot be achieved by only installing physical infrastructure like power lines and mass-transport system in tier II and tier III cities. Efforts should also be made to create an ecosystem that comprises social infrastructure with the trappings of metropolitan life”.

The industry experts believe that the first mover advantage does no way help IT companies attract skilled employees to these locations. When an ITES employee was asked by his company to get ready for a stint in a Tier3 location he decided to hunt for a new job. There are currently over two million employment provided by India’s IT-BPO sector, and over 90 percent of which is captured by the seven leading cities of Bangalore, Mumbai, NCR, Hyderabad, Pune, Chennai and Kolkata. Less that 10% is relegated to tier2 and tier3 cities and a very low ratio indeed.
So do SMEs make the bold move and couple it with Government incentives and move also to Tier2 and Tier3 cities and to get that early mover advantage or wait until the Big ones move or there is a critical mass built and then move.

According to Pradeep Sureka“There’s no way we can absorb the entire burden of escalation in the cost of steel and cement, the two basic raw materials in real estate construction. We are in dialogue with our members and prices for new properties are set to be revised upwards soon,”.

Cement prices have gone up 20 %, while steel is dearer by 40 %, followed by the recent hike in petroleum products, to push builders into a corner since they are forced to absorb the 20-25 % rise in construction costs in pre-sold projects.

However, given the demand slowdown in an inflation-hit market, increased interest rates and the specter of dearer home loans, real estate developers could find it difficult to go for a one-shot rack rate hike.

“Yes, builders might be forced to spread the hike across installments, given the cautious consumer mindset,” felt Pradip Chopra of the PS Group, former secretary of Credai Bengal.

Members of Credai Bengal are scheduled to meet next week to discuss the sale price hike of upcoming properties. Builders in Bangalore and Pune have already announced a rack rate increase, while Mumbai is set to follow suit on 16th june.

Sureka feels the prices of new flats in city core areas would go up by five to seven per cent while in suburbs, where construction cost is often 80-90 % of the project cost, thanks to cheaper land, property prices could soar even 10-15 %.

“Prices are bound to go up, sooner than later, and the LIG and MIG segments would be the worst-hit,” agrees Chopra. He feels there would be a scramble for price correction in new projects and unsold stocks as developers rush to recover losses incurred on pre-sold products with no escalation clause.

Not just cement, steel and oil, but rising labour and contractor fees plus transportation cost have also contributed to the difficult situation, points out Piyush Bhagat of the Space Group. The city realty firm has already announced a 12 % rise in the sale price of a housing project in Belur.

“The quantum of hike has to be left to individual companies, because the profile of the product and the location all matter,” says the Credai Bengal president whose company, the Sureka Group, has announced an upward revision of Rs 100 per square foot in two of its Rajarhat projects.

Around 2,500 flats are being built in city core areas and 6,000-7,000 in the suburbs.