India’s tier 2 cities have emerged as growth centers driven by massive physical, social, and digital infrastructure development and efforts towards urban rejuvenation. As a result, domestic and global companies have been setting up manufacturing units and tech parks, leading to employment opportunities and demand for residential, commercial, retail and warehousing spaces.
The proposals in the budget, like the development of new airports, promotion of Global Capability Centers (GCCs), tourism, relaxation on second homes, and more importantly tax exemption on income up to Rs 12 lakhs will further give a fillip to real estate demand. State governments continued focus on AMRUT and the Smart City Mission has vastly changed the civic infrastructure, enhanced the liveability quotient, and eased commuting across these cities through vast networks of metro rail, expressways, and others.
While sales rose by 4% in CY 2024 in the top 15 tier 2 cities, a temporary blip was seen in the first quarter of 2025 due to lesser supply. State capitals, however, performed relatively better.
According to PropEquity, housing sales in India’s top 15 tier 2 cities fell by 8% to 43,781 units in Q1 2025 as compared to 47,378 units in the same period last year with sales value, however, rising by 6% to Rs 40,443 crore in Q1 2025 as against Rs 38,102 crore in the same period last year.
The demand remains robust as people have shown greater preference for organized living. Demand has further been driven by people who have migrated to metro cities and are preferring to purchase property in their hometowns.
Tier 2 cities have also seen a shift towards premiumization as the share of new launches priced between Rs 50L-1crore has risen from 36% in Q1 2024 to 48% in Q1 2025. Similarly, the share of new launches priced between Rs 1-2 crore also rose from 18% to 23% in Q1 2025.
The demand for homes in tier 2 cities is majorly end-user driven. The cause of concern, however, is that the supply of homes priced under Rs 50 lakh is witnessing a declining trend in tier 2 cities reflecting the trend seen in the top 9 cities. This could pose a threat as limited living options for the vast populace migrating for jobs could derail the growth story.
