Reviving Real Estate in Tier-2 Cities: Union Budget’s ₹5000 Crore Plan

The real estate market in India has traditionally been dominated by major metros like Mumbai and Delhi. However, the Union Budget 2026 introduces a significant shift by focusing on the development of tier-2 and tier-3 cities, along with temple towns. This transformation is fueled by the allocation of ₹5000 crore to each City Economic Region (CER) over a period of five years.

The core proposal of the Budget is to allocate ₹5000 crore to each CER, with the aim of reaching and developing tier-2 and tier-3 cities and temple towns. The funds are released through a challenge mode, where states and urban local governments must compete and meet stringent eligibility criteria to secure the funding.

The main criteria and characteristics for securing these funds include:

- Selection by Challenge Mode: Cities must present detailed proposals on how they can economically prosper in areas such as manufacturing, logistics, tourism, or education. Only the most promising CERs will receive funding after a thorough evaluation. - Reform-cum-Results-Based Disbursements: Funds are released in tranches, linked to achievements such as the completion of 25 percent of infrastructure projects (roads, public transport, water, sanitation) to receive the next installment. - Performance Accountability: City authorities must demonstrate governance reforms, such as efficient property tax collection and project implementation, to unlock the full ₹5000 crore over five years. - Alignment with Local Growth Drivers: CERs need to align with local growth drivers to promote job clusters and urban agglomerations.

Finance Minister Sitharaman emphasized that these criteria would ensure that funds are used to spur quantifiable development in non-metro areas, making cities engines of growth.

Improved infrastructure will significantly boost real estate demand in these areas, particularly in housing, retail, hospitality, and commercial sectors. Enhanced accessibility through roads, rail, and utility improvements will make these cities more attractive to consumers and investors who are looking to escape the congestion and high costs of metros.

Demand Drivers by Sector:

- Housing: There will be an influx of affordable homes and rentals around industrial areas. Premium residences in temple towns like Varanasi and Madurai will attract more families and professionals. - Retail: Local consumption in emerging urban pockets will increase, driven by tourism and rising incomes, leading to the development of more malls and shopping centers. - Hospitality: The number of hotels and guesthouses will rise to accommodate pilgrims and business travelers, facilitated by improved access routes. - Commercial: The expansion of manufacturing and service sectors will lead to an increase in office parks and warehouses along commercial logistics routes.

According to Pradeep Aggarwal of Signature Global, this initiative contributes to planned urbanization. Gurpal Singh Chawla of TREVOC predicts slow but consistent demand surges in these regions.

Properties in tier-2 and tier-3 cities, being 30-50% cheaper than metros, will attract homebuyers with high-quality services such as clean water supply and green areas. Developers will benefit from reduced land costs, guaranteed financing, and the potential for large-scale projects.

Attraction Factors:

- To Homebuyers: Cheaper prices, proximity to jobs, and shorter commute distances will be particularly attractive to millennials and remote workers. - To Developers: Reform-linked funds reduce risks, and the abundance of land allows for the development of integrated townships and mixed-use projects. - Professional Recommendations: Niranjan Hiranandani of Naredco views CERs as unified ecosystems of transit-oriented growth, while Manik Malik of BPTP envisions orderly urban growth.

While there are risks associated with execution, such as delays, the milestone-based criteria will help maintain momentum.

The ₹5000 crore CER strategy has the potential to reorganize the real estate market in India. By enabling tier-2, tier-3 cities, and temple towns to become economic hubs, it can attract homeowners and property developers, relieve congestion in metros, and promote inclusive prosperity. Provided that states address the challenge-mode requirements and reforms, this initiative could open up billions of investments and transform urban India.