Tier-II and Tier-III Cities Poised to Lead the Next Housing Market Surge in India

New Delhi: India’s Tier-II and Tier-III cities are expected to drive the next growth cycle in the housing market as rising property prices in major metros have dented affordability, according to a report by Square Yards.

The report, titled ‘India’s Next Real Estate Growth Cycle: The Rise of Tier-2 and Tier-3 Cities’, noted that the sharp price rally during 2022–24 has significantly impacted home affordability in major metropolitan markets. This trend has been particularly pronounced in cities such as the Mumbai Metropolitan Region, Pune, Bengaluru, Delhi-NCR, Hyderabad, Chennai, and Kolkata.

Limited supply of affordable and mid-income homes across these key cities has further aggravated the situation. According to the consultant, housing prices in several Tier-I markets have risen faster than income growth, leading to reduced affordability and a moderation in demand, particularly for higher-ticket homes.

In contrast, emerging cities offer lower entry prices and better alignment between property values and household incomes, making home ownership more accessible. The report noted that employment growth beyond metropolitan centres is expanding the residential demand base, with housing demand in smaller cities largely driven by end-users.

Tanuj Shori, a prominent real estate analyst, said many Tier-I markets have entered a “too-premium-to-afford” phase as sustained price increases have strained affordability. He added that declining supply in the affordable housing segment has also limited options for buyers.

The report identified cities such as Bhubaneswar, Cuttack, Erode, Puri, Varanasi, and Visakhapatnam as key markets likely to lead the next housing growth cycle. These cities are experiencing robust economic growth, improved infrastructure, and a growing population, which are all positive indicators for the real estate sector.

The shift towards Tier-II and Tier-III cities is also supported by government initiatives aimed at promoting affordable housing and infrastructure development. These policies are expected to further boost the real estate market in smaller towns, making them attractive destinations for both investors and homebuyers.

As the real estate market in Tier-I cities becomes increasingly saturated and expensive, the focus is likely to shift towards these emerging markets. This trend is expected to bring about a balanced growth in the housing sector, ensuring that more people across the country have access to affordable homes.

The real estate sector in India has been witnessing significant changes over the past few years, with a growing emphasis on sustainable and smart city development. The rise of Tier-II and Tier-III cities is a natural progression in this journey, as they offer a more balanced and sustainable model for growth.

In conclusion, the next phase of the Indian housing market is expected to be driven by the growth and development of Tier-II and Tier-III cities. With their lower property prices, better affordability, and growing economic opportunities, these cities are poised to become the new hotspots for real estate investment and home ownership.