India's Tier 2 & 3 Cities: The New Real Estate Growth Frontier

India’s Tier 2 and 3 cities are emerging as the new real estate hubs, driven by rapid urbanization, logistics corridors, and policy reforms. This article explores the factors driving this growth and the challenges developers face.

Real EstateTier 2 CitiesTier 3 CitiesUrbanisationPolicy ReformsReal EstateAug 13, 2025

India's Tier 2 & 3 Cities: The New Real Estate Growth Frontier

Real Estate:India’s metropolitan cities have long dominated the real estate landscape, shaping both market trends and public discourse. However, the narrative is shifting towards India’s Tier 2 and 3 cities. Beyond the metro cities, Tier 2 and Tier 3 cities such as Indore, Ahmedabad, Chandigarh, Jaipur, Coimbatore, Lucknow, Bhubaneswar, Kochi, Surat, Guwahati, and many others are emerging as vibrant real estate hubs. This growth is driven by rapid urbanisation, logistics corridors like the Delhi Mumbai Industrial Corridor, IT/ITeS investment zones, the emergence of global capability centres, and robust residential and commercial rental markets. The multimodal heft of the PM Gati Shakti programme positions these smaller urban centres as the new engines of growth.

For developers seeking to undertake development of residential or commercial projects in any of India’s Tier 2 or 3 cities, securing necessary statutory approvals and permissions is crucial. These include land use conversion, building plan approvals, clearances from local fire, pollution, and airport authorities, as well as registration under the Real Estate (Regulation and Development) Act, 2016 (RERA), if applicable. These approvals are critical for facilitating financing and mitigating the risk of work stoppages, penalties, and legal complications that may arise from unauthorised development. Adherence to these legal mandates fosters trust and transparency among buyers and investors.

To enhance statutory compliance for smaller real estate projects not covered under RERA, local municipal bodies and development authorities can be empowered to enforce basic transparency and timely completion standards for such developments. 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.

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 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, DILRMP has achieved computerisation and 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, the Model Act provides much-needed clarity for both sides. States such as Uttar Pradesh, Andhra Pradesh, Tamil Nadu, and Assam have already issued notifications for their versions, aligning with the Model Act and reflecting its growing influence. 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 the government, and enhanced floor-space indices. Multiple states, including Gujarat, Andhra Pradesh, Karnataka, and Uttar Pradesh, 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 technological advancements, the expansion of e-commerce, and supply chain networks. The growth of these sectors in Tier 2 and 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.

Despite these 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 project implementation. 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 the 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.

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 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.

Ultimately, the success of India’s Tier 2 and 3 cities 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.

Frequently Asked Questions

What are the key drivers of real estate growth in Tier 2 and 3 cities?

Key drivers include rapid urbanisation, logistics corridors, IT/ITeS investment zones, global capability centres, and robust residential and commercial rental markets.

What statutory approvals are necessary for real estate projects in Tier 2 and 3 cities?

Necessary approvals include land use conversion, building plan approvals, clearances from local fire, pollution, and airport authorities, and registration under the Real Estate (Regulation and Development) Act, 2016 (RERA), if applicable.

How does the Digital India Land Records Modernisation Programme (DILRMP) impact real estate?

DILRMP has achieved computerisation and digitisation of over 99% of land records and over 97% of cadastral maps, significantly reducing the risk of hidden defects that could derail projects.

What is the Model Tenancy Act, 2021, and how does it affect the rental market?

The Model Tenancy Act, 2021, aims to formalise the rental market by providing clarity for both landlords and tenants. It has been adopted by several states, enhancing transparency and security in rental arrangements.

What challenges do developers face in Tier 2 and 3 cities?

Developers face challenges such as fragmented zoning norms, multiple approvals from different authorities, and delays in complaint redressal. These issues can impact project timelines and feasibility.