Tier II and III Cities to Lead India's Next Housing Market Surge: Square Yards

India's housing market is undergoing a significant shift as demand in major metropolitan areas has been impacted by a surge in home prices following the COVID-19 pandemic. According to real estate consultant Square Yards, the next cycle of growth in the housing market will be driven by tier II and III cities.

The report titled 'India's Next Real Estate Growth Cycle: The Rise of Tier-2 and Tier-3 Cities' highlights that affordability in major cities has been severely affected by the significant price increases during 2022-24. Limited new supply of affordable and mid-income homes in the seven major cities—Mumbai Metropolitan Region, Pune, Bengaluru, Delhi-NCR, Hyderabad, Chennai, and Kolkata—has exacerbated the issue.

"India's residential market is entering a structurally distinct phase. The post-pandemic premium cycle that powered accelerated price appreciation across metro markets is now showing signs of stabilisation," the report notes.

In several tier-1 corridors, the price growth has outpaced income expansion, leading to a visible affordability compression and a gradual tempering of incremental demand at higher ticket sizes. This has pushed many potential buyers out of the market, especially those looking for affordable housing options.

In contrast, emerging cities are exhibiting a more sustainable growth configuration. These markets offer lower entry ticket sizes and stronger price-to-income alignment, making homeownership more accessible. Employment expansion beyond the metros is broadening the residential demand base, and the housing demand in these smaller cities is largely end-user driven.

"The 2026-2028 residential cycle, therefore, is unlikely to mirror the speculative premium surge of the recent past. Instead, it is poised to be employment-backed, affordability-aligned, and geographically diversified, marking a decisive recalibration of India's housing growth trajectory," the report states.

Tanuj Shori, founder and CEO of Square Yards, emphasized that several major Tier-1 markets have entered the 'too-premium-to-afford' phase due to sustained price appreciation over the last few years. This has pushed affordability under visible strain. He also pointed out that the supply of new homes in the affordable segment has declined steadily, limiting small-ticket investment options for both end-users and investors.

"Considering Tier-1 cities are now largely saturated, with limited scope for future growth, unlocking new growth territories is of utmost importance to maintain large-scale activity in the country's second-largest employment-generating sector," Shori said.

The report identifies cities such as Bhubaneswar, Cuttack, Erode, Puri, Varanasi, and Visakhapatnam as key players in the next growth cycle. These cities are expected to drive the housing market forward with their more sustainable and accessible housing options, supported by a growing employment base.

This shift towards tier II and III cities is not just a temporary trend but a structural change in the Indian real estate market. It represents a move towards a more balanced and sustainable growth model, where affordability and employment play crucial roles in shaping the future of the housing sector.