Tier II-III Cities to Lead the Next Growth Cycle in India's Housing Market
India's tier II-III cities are expected to drive the next cycle of growth in the housing market as demand in big cities has been affected due to a surge in home prices post-Covid pandemic, according to Square Yards.
Real estate consultant Square Yards has released a report titled 'India's Next Real Estate Growth Cycle: The Rise of Tier-2 and Tier-3 Cities'. The report highlights that affordability to buy homes across major cities has been significantly impacted because of a substantial price rally 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. The report states, '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.'
In several tier-1 corridors, the price growth has outpaced income expansion, leading to visible affordability compression and a gradual tempering of incremental demand at higher ticket sizes. The consultant mentioned that the next phase of growth in India's housing market would come from tier II and tier III cities.
'In contrast, emerging cities are exhibiting a more sustainable growth configuration. These markets offer lower entry ticket sizes and stronger price-to-income alignment, creating a more accessible ownership landscape,' the report notes. Employment expansion beyond metros is broadening the residential demand base, with the housing demand in these smaller cities being 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 further elaborates.
Tanuj Shori, founder and CEO of Square Yards, highlighted that several major Tier-1 markets have entered the 'too-premium-to-afford' phase. 'Sustained price appreciation over the last few years has pushed affordability under visible strain. New home supply in the affordable segment has declined steadily, limiting small-ticket investment options for end-users and investors alike,' Shori noted.
Considering that 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. The report identifies cities such as Bhubaneswar, Cuttack, Erode, Puri, Varanasi, and Visakhapatnam as key players in this next growth cycle.
Square Yards, a leading real estate consultant, provides comprehensive insights into the Indian real estate market, helping stakeholders make informed decisions. The company's report underscores the importance of focusing on tier II-III cities to ensure sustainable growth in the housing sector.
