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India's Tier II and Tier III cities are expected to lead the next phase of growth in the residential property market as affordability pressures in major metropolitan regions begin to affect housing demand, according to a report by real estate consultancy Square Yards. The report noted that a sharp rise in property prices between 2022 and 2024 has reduced home affordability in large urban centres such as the Mumbai Metropolitan Region, Pune, Bengaluru, Delhi-NCR, Hyderabad, Chennai and Kolkata. Limited supply of affordable and mid-income housing in these markets has further constrained buyer participation. In contrast, smaller cities are witnessing stronger price-to-income alignment and lower entry ticket sizes, creating a more accessible homeownership environment. The consultancy expects housing demand in the coming years to be more geographically diversified and driven largely by end-user demand linked to employment growth beyond metropolitan areas.
India's Tier II and Tier III cities are expected to drive the next phase of growth in the country's residential real estate market as housing affordability challenges begin to moderate demand in major metropolitan regions, according to a report released by property consultancy Square Yards. Advertisement
The report, titled India's Next Real Estate Growth Cycle: The Rise of Tier-2 and Tier-3 Cities, stated that rapid price appreciation in large urban markets during the post-pandemic period has significantly affected housing affordability. Property prices in several major metropolitan regions rose sharply between 2022 and 2024, placing increased financial pressure on homebuyers.
The consultancy noted that the affordability challenge has been particularly visible across the country's seven major housing markets, which include the Mumbai Metropolitan Region, Pune, Bengaluru, Delhi-NCR, Hyderabad, Chennai and Kolkata. The report indicated that limited new supply in the affordable and mid-income housing segments in these cities has further constrained access to homeownership for a large section of potential buyers.
According to the report, India's residential property market is now entering a new phase following the strong price growth recorded in recent years. The consultancy observed that the post-pandemic premium cycle, which drove accelerated price increases in metropolitan markets, has started to stabilise.
In several Tier I city corridors, Square Yards indicated that property price growth has outpaced income expansion. This trend has resulted in affordability pressures and a gradual moderation in incremental demand for higher-ticket residential properties.
By contrast, the report suggested that emerging urban markets are demonstrating a more balanced growth pattern. Tier II and Tier III cities typically offer lower property entry prices and a more favourable price-to-income ratio, making homeownership more accessible for a wider segment of buyers.
Square Yards also noted that employment expansion beyond the traditional metropolitan centres is contributing to housing demand in these cities. Residential demand in smaller urban centres is largely driven by end-users rather than speculative investment activity, which the consultancy described as a more stable demand base.
Tanuj Shori, Founder and Chief Executive Officer of Square Yards, indicated that several Tier I markets have entered what he described as a phase where housing prices have become too premium for many potential buyers. Sustained price growth in recent years has placed visible strain on affordability levels in these cities.
He further noted that new supply in the affordable housing segment has declined steadily in major metropolitan markets. This has reduced the availability of lower-ticket housing options for both homebuyers and investors.
The report also emphasised the importance of expanding real estate development activity beyond saturated metropolitan regions. According to the consultancy, opening up new markets will be essential for maintaining growth momentum in the real estate sector, which remains one of the country's largest employment-generating industries after agriculture.
Among the emerging urban centres expected to contribute to the next housing growth cycle, the report identified Bhubaneswar, Cuttack, Erode, Puri, Varanasi and Visakhapatnam as key cities likely to witness increased residential development and housing demand in the coming years.
Source - PTI
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