First-Time Homebuyers: Invest in Tier 2 Cities and Rent in Metros?
As metros like Mumbai, Gurugram, and Bengaluru become increasingly unaffordable, first-time homebuyers are considering renting in these cities while investing in Tier 2 cities for potential capital appreciation and rental income.
Firsttime HomebuyerTier 2 CityProperty InvestmentHome LoanRental IncomeReal Estate MumbaiJul 19, 2025
For those looking to buy their first home, Tier 2 cities nearby like Nagpur, Greater Noida, or Mysuru may offer a better option. They may continue to stay in the city on rent, yet own a property which has the potential to appreciate in price and also earn them a rental income.
Also, in a Tier 2 city, lenders tend to be slightly more flexible on account of lower property costs. In these cities, eligibility can go up to 4 to 5 times annual income, that is in the range of ₹1.2 crore to ₹1.44 crore. This is assuming the individual keeps EMIs capped at 40% of post-tax income.
Let us say someone earns ₹24 lakh in Mumbai. He can afford a very small property in the city. However, it is a different story in a Tier 2 city. Home loan eligibility in metros such as Mumbai, Delhi-NCR, and Bengaluru typically ranges from 5 to 6 times a buyer’s annual income. For someone earning ₹24 lakh annually, this would translate to an approximate loan eligibility of ₹96 lakh to ₹1.2 crore.
In a Tier 2 city, lenders tend to be slightly more flexible on account of lower property costs. In these cities, eligibility can go up to 4 to 5 times annual income, that is in the range of ₹1.2 crore to ₹1.44 crore. This is assuming the individual keeps EMIs capped at 40% of post-tax income. Affordability will also depend on prevailing interest rates and the borrower's credit score. “As a general practice, homes in Tier 2 cities offer better value per square foot and so make it possible to have spacious or premium properties within the same budget bracket,” says Sanjay Daga, CEO and Managing Director of Anex Advisory.
Total cost of homeownership is another significant factor. Not just the EMIs, homeownership in Tier 2 cities costs significantly lower. Besides the monthly EMIs, maintenance charges, property taxes, and utility bills are also on the lower side. For instance, maintenance charges in a mid-tier society in Nagpur or Mysuru could be half or even a third of what one might be paying in Mumbai or Bengaluru. This cost differential can result in huge monthly savings and strengthen long-term wealth creation.
“These savings can be turned into creating SIPs, investing in mutual funds, or making equity investments. So, for a ₹24 lakh per annum earner, even saving ₹15,000– ₹20,000 monthly can have a meaningful compounding impact over the long-term,” says Daga.
Does it make sense to invest in Tier 2 cities next to big metros? “Tier 2 cities like Nagpur, Greater Noida, and Mysuru are increasingly becoming not just affordable alternatives, but also compelling long-term bets for homeownership, provided you approach the investment strategically,” says Deepak Mishra, Director and Head, North India, Residential Services, Colliers India.
With government increasing focus on infrastructure development of Tier 2 cities and their proximity to major employment hubs like Greater Noida to Noida, Mysuru to Bengaluru, and Nagpur to Pune, these cities strike a practical balance. Projects like Metro rail, expressways, and IT parks are making these cities more connected and livable. They offer the comfort of being near metros while benefiting from lower living costs, more spacious homes, and a better quality of life.
For those looking beyond the lifestyle and fast pace of metros, these emerging cities present a smart and liveable alternative with long-term potential. However, buyers should keep in mind certain points while buying a home in tier 2 cities. While capital appreciation may come with time, rental demand, yield, and resale liquidity might be slower than metros.
How to plan financially for buying a home in a Tier 2 city? The answer lies in early planning. Anyone with a ₹24 lakh annual income will be eligible for a monthly EMI of around ₹60,000– ₹80,000. “For Tier 2 cities where property prices range between ₹3,500 to ₹6,500 per sq ft, this offers significant leverage. The buyer should aim for at least 20–25% of the property value as downpayment, keeping the loan-to-value ratio healthy,” says Daga.
It is advisable to apportion funds to reduce the principle by 5%-7% every year apart from the usual EMI payments. “This will help to reduce the tenure of the mortgage and lower the interest outflow of the property,” says Kumar.
Frequently Asked Questions
What are the benefits of investing in a Tier 2 city for a first-time homebuyer?
Investing in a Tier 2 city offers potential capital appreciation, lower property costs, and the possibility of earning rental income. Lenders are often more flexible, and the total cost of homeownership is significantly lower compared to metros.
How does the home loan eligibility differ between Tier 2 cities and metros?
In Tier 2 cities, home loan eligibility can go up to 4 to 5 times the annual income, while in metros, it typically ranges from 5 to 6 times the annual income. This higher eligibility in Tier 2 cities makes it easier to afford a property.
What are the long-term financial benefits of owning a property in a Tier 2 city?
Owning a property in a Tier 2 city can result in significant monthly savings due to lower maintenance charges, property taxes, and utility bills. These savings can be reinvested in SIPs, mutual funds, or equity investments, leading to long-term wealth creation.
What should first-time homebuyers consider before investing in a Tier 2 city?
First-time homebuyers should consider the potential for capital appreciation, rental demand, and resale liquidity. While capital appreciation and rental income are promising, these factors might be slower in Tier 2 cities compared to metros.
What financial strategies can help in buying a home in a Tier 2 city?
Early planning is key. Aim for a downpayment of at least 20-25% of the property value. Additionally, allocate funds to reduce the principal by 5-7% annually, which can help reduce the mortgage tenure and lower interest outflow.
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