new delhi:
India’s Tier-2 cities have emerged as major engines of residential real estate growth over the past five years, recording strong demand supported by rapid urbanisation, expanding infrastructure and rising employment opportunities. However, while these emerging urban centres continue to attract homebuyers and investors, increasing property prices are beginning to affect affordability, prompting buyers to make more cautious purchasing decisions, according to a recent report by Crisil Intelligence.
The report revealed that residential demand across 10 leading Tier-2 cities registered a robust compound annual growth rate of 14 per cent between the financial years 2021 and 2026. Among the top performers, Nagpur, Coimbatore and Lucknow recorded particularly strong growth, with demand expanding at nearly 20 per cent annually during the period. These cities have benefited from improved connectivity, expanding industrial activity and the growth of service sectors, making them increasingly attractive destinations for both homebuyers and developers.
Despite the impressive growth, Crisil has cautioned that sustained increases in residential property prices are beginning to reduce affordability in several cities. As housing costs continue to rise, prospective buyers are becoming more selective, carefully evaluating property prices, available inventory, financing options and local economic conditions before making investment decisions.
The report observed that two-bedroom and three-bedroom apartments have dominated the residential market, accounting for more than 75 per cent of new housing supply over the last five years. Developers have also responded to changing consumer preferences by increasing the average size of larger homes, reflecting growing demand for spacious living environments, particularly after the pandemic changed homebuyers’ lifestyle priorities.
However, the combination of larger residential units and rising property prices has significantly increased the average cost of home ownership in several Tier-2 cities. In Bhubaneswar, Indore and Lucknow, the average value of residential units has now crossed Rs 1 crore. This increase has narrowed the pool of potential buyers and contributed to comparatively slower sales when compared with cities that continue to offer more affordable housing options.
The report highlights a growing difference in residential market trends across India’s Tier-2 cities.
While some cities are evolving into premium housing destinations, others continue to focus primarily on affordable and mid-income housing. Indore, Lucknow and Surat have witnessed rapid growth in the premium housing segment, with more than 20 per cent of active residential inventory priced above Rs 2 crore. According to Crisil, the expansion of the information technology sector, growth in professional employment and increasing entrepreneurial wealth have contributed to rising demand for luxury residential properties in these markets.
In contrast, cities such as Jaipur, Nagpur, Nashik and Vadodara continue to maintain a strong focus on affordable housing. More than three-fourths of available residential units in these cities are priced below Rs 75 lakh, making them attractive for middle-income families and first-time homebuyers. Stable employment opportunities generated by manufacturing industries and industrial development have continued to support steady housing demand and sustained growth in retail home loans across these markets.
Crisil emphasised that Tier-2 cities should not be viewed as a single, uniform market. Instead, each city possesses unique economic characteristics that directly influence housing demand. Factors such as the presence of information technology industries, manufacturing clusters, traditional businesses and local employment opportunities significantly shape consumer preferences and determine the success of new residential projects.
The report also noted that Bhubaneswar, Coimbatore and Lucknow now command average residential prices exceeding Rs 10,000 per square foot, bringing them closer to pricing levels seen in several established micro-markets within Tier-1 metropolitan cities.
While this reflects increasing investor confidence and stronger demand, Crisil warned that continued price escalation could further reduce affordability, particularly in Bhubaneswar, where unsold housing inventory remains comparatively high.
On the financing front, the residential sector has continued to receive strong support from financial institutions. Retail home loan disbursements increased by more than 15 per cent between 2020 and 2025, with Indore, Nagpur and Jaipur leading the growth. The steady expansion in home financing demonstrates that demand for residential real estate remains healthy despite rising affordability concerns.
The report concludes that India’s Tier-2 cities will continue to play an increasingly important role in the country’s housing market. However, maintaining a balance between price appreciation and affordability will be essential to ensuring sustained demand, healthy market growth and long-term stability in these emerging urban centres.
