Rise of Tier 2 Cities: The New Frontier of Real Estate Investment in India
Tier 2 cities are emerging as major contributors to India's real estate growth
Tier 2 CitiesReal Estate InvestmentProperty PricesIndiaUrban DevelopmentReal Estate PuneMay 27, 2024
One of the most compelling indicators of this paradigm shift is the substantial increase in property prices within prime micro-markets of Tier 2 cities. Market analyses reveal a noteworthy double-digit growth ranging from 10 percent to 15 percent, narrowing the gap in property prices between Tier 2 cities and their metropolitan counterparts.
The robust demand for real estate in Tier 2 cities is vividly illustrated by the Property Buy Index (IRIS Index), which depicts a remarkable surge in these cities, outpacing the top-eight cities by a substantial margin of 88 points. This increase is propelled by the burgeoning service sector, which has witnessed accelerated growth post-pandemic, fuelled in part by reverse migration patterns as professionals seek opportunities closer to home.
Interestingly, the capital values in select localities of Tier 2 cities now rival those of the top metropolitan areas. For instance, the neighbourhood of Anjuna in North Goa boasts property prices ranging from INR 17,000/sqft to INR 19,000/sqft, placing it on par with key micro-markets such as Golf Course Extension in Gurugram and Thane West in Mumbai MMR.
The online property market reflects the growing appetite for real estate in Tier 2 cities, particularly in the INR 1–2 crore price bracket, where searches have increased by a substantial 61%. Remarkably, searches in the above INR 2 crore bracket have skyrocketed by an impressive 121%, signalling strong investor confidence and willingness to explore higher-value properties in these emerging markets.
Moreover, Tier 2 cities like Goa stand out for their robust rental market, offering significantly higher returns of up to 8%, which is in sharp contrast to the modest 2-3% returns observed in the more established metropolitan areas. This attractive rental yield further enhances the investment appeal of Tier 2 cities, drawing both domestic and international investors seeking stable income streams.
A notable trend among potential homebuyers in Tier 2 cities is the preference for high-rise apartments over traditional low-rise formats. This shift is accompanied by a growing emphasis on amenities that enhance the quality of life.
Buyers prioritize amenities such as well-appointed clubhouses, inviting swimming pools, expansive open spaces for relaxation and outdoor pursuits, and sports facilities. Recognizing these evolving preferences, developers are actively integrating such amenities into their projects, aligning with the changing lifestyle aspirations of residents.
The real estate industry in India has witnessed significant growth in recent years, driven by policy reforms, infrastructure development, and growing demand. Tier 2 cities, in particular, have emerged as major contributors to this growth, offering lucrative investment opportunities and attractive rental yields.
Housing News is a leading real estate news portal that provides in-depth analysis and insights on the Indian real estate industry. Our proprietary Property Buy Index (IRIS Index) is a reliable indicator of market trends and investor sentiment.
Frequently Asked Questions
What is driving the growth of Tier 2 cities in India? A: The growth of Tier 2 cities is driven by policy reforms enhanced transportation links and the influx of domestic and international businesses Q: How are property prices in Tier 2 cities changing? A: Property prices in Tier 2 cities are increasing at a significant rate narrowing the gap with metropolitan areas Q: What kind of returns can investors expect from Tier 2 cities? A: Tier 2 cities offer attractive rental yields ranging from 6% to 8% which is higher than the returns from metropolitan areas Q: What kind of amenities are homebuyers looking for in Tier 2 cities? A: Homebuyers in Tier 2 cities prioritize amenities such as clubhouses swimming pools open spaces and sports facilities Q: How is the real estate industry in India expected to grow in the future? A: The real estate industry in India is expected to continue growing driven by policy reforms infrastructure development and growing demand
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