Union Budget to Diversify Real Estate Demand, Boosting Tier 2 and 3 Cities
The Union Budget aims to reshape real estate demand patterns over the medium term by accelerating India’s urbanization drive, widening the economic influence of cities, and creating new property markets beyond the major metros.
By highlighting the economic strength of urban agglomerations, the budget positions cities as primary growth engines, with real estate poised to gain from better connectivity, job clustering, and sustained infrastructure development rather than direct fiscal incentives. As a result, experts believe this approach will gradually redirect housing and commercial demand toward a broader set of urban centres.
At the policy level, the budget marks a clear shift away from metro-centric development. “Breaking away from the traditional focus on metros, the budget propels a transformational shift towards regional economic development through the creation of City Economic Regions (CERs),” said Niranjan Hiranandani, chairman at industry body Naredco. “Each CER will integrate multiple urban centres, spanning Tier-2 and 3 cities, and temple towns and their surrounding hinterlands into unified economic ecosystems.”
Furthermore, the strategy places strong emphasis on Tier 2 and Tier 3 cities, including temple towns, supported by a ₹5,000 crore allocation for urban infrastructure development. Enhanced civic amenities, transportation networks, and public services in smaller cities will stimulate residential demand, boost retail activity, and encourage hospitality-led real estate growth in these locations.
In addition, investments in regional connectivity are set to play a critical role. “Investments in regional connectivity through high-speed rail corridors, freight networks, and improved waterways are expected to improve access to emerging cities, support local employment, and gradually deepen housing demand in these markets,” said real estate platform Magicbricks. “The parallel focus on tourism-led infrastructure, spanning heritage, eco, and adventure circuits, is also likely to create sustained demand for hospitality and lifestyle-linked real estate in several non-metro locations.”
Notably, the budget announced ‘Growth Connectors’ comprising seven high-speed passenger rail corridors linking major city clusters such as Mumbai, Pune, Hyderabad, Bengaluru, Chennai, Delhi, Varanasi, and Siliguri.
At the structural level, the government also plans to recycle public sector land and completed assets through special purpose REITs. This initiative aims to unlock value from underutilised assets while drawing long-term institutional capital into the market. “By positioning REITs as a key mechanism for asset monetisation, the budget reinforces their growing role in India’s infrastructure financing ecosystem,” the Indian REITs Association said in a statement.
Moreover, the association highlighted the broader benefits of this move. “Dedicated CPSE REITs can accelerate capital recycling, improve balance-sheet efficiency for public enterprises, and expand access to high-quality, income-generating assets for a wider investor base through transparent and regulated instruments,” it said.
