Residential demand across 10 major Tier-2 cities expanded at a 14% compound annual growth rate (CAGR) between FY21 and FY26, according to a report by Crisil Intelligence. Nagpur, Coimbatore and Lucknow recorded an even stronger 20% CAGR, driven by infrastructure development, urbanisation and rising employment opportunities. Industry executives say relatively lower market saturation, availability of larger land parcels, and sustained end-user demand are making these cities an attractive destination for investment, even as rising land and construction costs pose challenges to project economics. Abhinandan Lodha, chairperson of House of Abhinandan Lodha, noted that investments in expressways, airports, Metro rail, industrial corridors, and digital connectivity have transformed many Tier-II cities into attractive destinations for homebuyers.
Over the last five years, 2 BHK and 3 BHK homes accounted for more than 75% of new housing supply, while the average size of larger homes has increased, reflecting buyers' preference for spacious living. However, larger configurations and rising prices pushed average ticket sizes above ₹1 crore in Bhubaneswar, Indore and Lucknow, affecting affordability and shrinking the buyer pool. Indore, Lucknow and Surat emerged as premium pockets, with over 20% of active supply priced above ₹2 crore, driven by expansion of the information technology (IT) sector and entrepreneurial wealth. Manoj Dhanotiya, founder and CEO of MicroMitti, noted that some national developers have started entering these markets purely on cost arbitrage, as property in Tier-II cities still costs 40 to 60% less than equivalent homes in metropolitan cities.
Jaipur, Nagpur, Nashik and Vadodara remain mid-segment focused, with over 75% of supply priced below ₹75 lakh, making them attractive for first-time buyers. As manufacturing and industrial employment bases, these cities prioritise affordability, supporting volume-driven growth and steady retail home loan demand. Parveen Jain, president of National Real Estate Development Council, expects Lucknow, Indore, Jaipur, Coimbatore, Bhubaneswar, Nagpur, Surat, and Chandigarh to remain among the key growth markets over the next two to three years. The report notes that Tier-2 India is not monolithic, with understanding how local economic engines—IT services, traditional business or manufacturing—shape residential demand critical for developers.
Bhubaneswar, Coimbatore and Lucknow now have average residential prices exceeding ₹10,000 per sq ft, comparable with several micro-markets in Tier-1 cities. Anuj Puri, chairman of Anarock Group, noted that lower land costs and entry prices help developers protect margins in Tier-II markets, with developers often achieving higher gross margins by focusing on premium and mid-segment housing. Construction costs have risen by 35-40% over the past five years, while land prices in many Tier-II cities have also increased, squeezing sub-₹1 crore projects. Retail home loan disbursements grew more than 15% between 2020 and 2025, led by Indore, Nagpur and Jaipur, with borrowers increasingly taking loans for self-construction and secondary-market purchases.
Following a surge in launches between FY21 and FY24, developers moderated new project launches over the past two years, maintaining unsold inventory at 15-20 months of sales. According to Crisil, this reduces the likelihood of oversupply and sharp price corrections that have historically affected Tier-2 markets. Developers are increasingly looking at Tier-II locations because they offer long-term demand, relatively lower market saturation, and big opportunities for planned urban development. Amit Goenka, chairman of Nisus Finance, said the Tier-II residential story is increasingly about economic transformation, providing opportunities for larger land parcels and integrated communities. The report emphasizes that affordability should remain the key consideration as prices continue to climb, with infrastructure-led growth and expanding services-sector employment transforming Tier-2 cities into mainstream housing markets.
