Location is one of the important considerations when buying a property. It is a crucial factor that determines the value of a property. A good location is characterised by the availability of social infrastructural facilities like top-rated schools, reputed hospitals, etc., connectivity to arterial roads and transport links, upcoming infrastructural developments and proximity to commercial hubs. Thus, real estate in such locations sees growth potential, resulting in high property prices.
The real estate landscape across top cities and several tier 2 cities in India has rapidly transformed in recent years, owing to the government’s focus on infrastructure and key initiatives like affordable housing. As major cities are becoming saturated and smaller cities are gaining importance due to emerging employment hubs, the demand for homes has significantly increased in tier 2 cities such as Bhopal, Jaipur, Lucknow, Nagpur, etc. Several real estate investors are often confused about whether they should purchase a property in the top metro cities or look for opportunities in tier 2 or tier 3 markets. In this article, we will delve deeper into the pros and cons of investment in these real estate markets.
Click to read about the classification of cities into tiers in India and latest property trends in tier 2 cities Â
Tier 1 vs Tier 2 vs Tier 3 cities in India
| Parameter | Tier 1 city | Tier 2 city | Tier 3 city |
| Definition | Cities in India are classified based on the population size of 1 lakh or above. | Cities in India are classified based on the population size of over 50,000 to 99,000. | Cities in India are classified based on the population size of 20,000 to 49,000. |
| Examples | These include the eight metro cities in India. | Prominent cities such as Jaipur, Chandigarh, Ahmedabad, Lucknow, etc. | Smaller towns such as Aligarh, Meerut, Trichy, etc. |
| Economic development | These cities are urban centres, witnessing high economic activities and comprise established business and commercial hubs. | These cities are witnessing growth in economic activities and comprise emerging business and commercial hubs. | These cities witness growth in economic activities, comprising smaller businesses. |
| Infrastructure | Tier 1 cities have well-developed infrastructure, including metro, airports, etc. | Tier 2 cities are witnessing rapid infrastructure development. | Infrastructure in tier 3 cities is in the development stage. |
| Cost of living | The cost of living in top cities, such as Mumbai and Bangalore, is very high. | The cost of living in tier 2 cities is relatively lower than in metro cities but gradually increasing due to the rapid development. | Owing to limited facilities, the cost of living is lower in tier 3 cities compared to the other cities. |
| Job opportunities | The top metro cities have thriving IT and finance sector, major industries, presence of global companies, which attract numerous working professionals every year. | Many tier 2 cities have been witnessing the growth of IT hubs, regional industries and startups, which draw a significant portion of the working population. | Job opportunities in tier 3 cities are lesser, mainly comprising smaller industries and local businesses. |
| Property rates | Property prices in the top eight cities are high owing to the high demand. | Property prices are relatively lower in tier 2 cities but steadily increasing due to the rapid development of infrastructure and increasing demand. | Property prices are relatively lower in tier 3 cities than other cities. |
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Buying property in Tier 1 cities in India
The top eight cities – Delhi, Mumbai, Pune, Ahmedabad, Bangalore, Chennai, Hyderabad and Kolkata – drive the economic activities, contributing significantly to the national GDP. These cities are known to have a robust infrastructure, quality healthcare facilities, educational institutions, thriving commercial centres and business hubs and good connectivity through airports, metro, etc. Owing to the ample job opportunities and high quality of living offered by these cities, the demand for residential properties is high. Besides, advancements in infrastructure such as expanding metro networks, new expressways and road projects, etc., drive property demand in these cities. Besides, owing to these factors and high demand for homes, the rentals are also significantly high. Thus, investment in these cities is likely to fetch higher returns for property seekers.
Pros of tier 1 city
These cities are equipped with advanced infrastructural facilities and present numerous job opportunities, ensuring a high standard of living. Property prices continue to rise in the top eight cities, which presents scope for higher returns.
Cons of tier 1 city
The burgeoning population, resulting in congestion and traffic and high cost of living, are key points to consider if one is planning to stay in a tier 1 city.
Latest property trends in tier 1 cities
According to the latest Housing.com report for June 2024, growth in the property markets across the top eight cities has remained robust, with a significant price appreciation and decline in unsold units. There has been a rise in the demand for luxury homes in tier 1 cities owing to the evolving lifestyle and increase in disposable income. Â Further, in cities such as Delhi-NCR, there is a higher supply of ready-to-move-in housing units, while new launches have been high in cities such as Ahmedabad.
Further, as per the IRIS index report for September 2024, online property searches have witnessed a 10% increase on a month-on-month basis. The most searched localities include Noida Extension in Greater Noida, Andheri West and Mira Road East in Mumbai, Whitefield in Bangalore and New Town, Kolkata. The report mentioned that Delhi-NCR remained topped online searches in August owing to high investor confidence and end-user demand. The report further highlighted that there is a significant demand for properties in the affordable to mid-range properties priced between Rs 50 lakh to Rs 1 crore. In addition to this, the report stated that around 50% of prospective buyers sought ready-to-move-in homes.
Among the tier 2 cities, Indore secured the top position, given the infrastructure development and eco-friendly living options. It was closely followed by Jaipur, Lucknow and Vadodara. In these cities, people mostly searched for 3BHK homes, followed by residential plots and 2BHK homes priced Rs 50 lakh or below.
Price trends in top tier 1 cities in India
| City | Average price | Price appreciation (YOY) | Average monthly rentals |
| Delhi | Rs 13,300 | -8.48% | Rs 46,000 |
| Mumbai | Rs 21,800 | 7.6% | Rs 71,000 |
| Pune | Rs 7,700 | 9.69% | Rs 29,000 |
| Ahmedabad | Rs 6,300 | 0.35% | Rs 27,000 |
| Bangalore | Rs 9,200 | 7.63% | Rs 33,000 |
| Chennai | Rs 7,600 | 1.71% | Rs 33,000 |
| Hyderabad | Rs 7,300 | 3.46% | Rs 32,000 |
| Kolkata | Rs 5,500 | -2.98% | Rs 21,000 |
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Buying property in Tier 2 cities in India
Several tier 2 cities in India are emerging as real estate hotspots and witnessing a high demand for properties. The saturation and crowding of major cities have driven people towards the satellite cities and smaller cities in search of jobs and better quality of life.
Some of the key reasons for the emergence of tier 2 cities as real estate destinations include:
- Growth of employment hubs: Some of the tier 2 cities such as Bhopal, Kochi, Jaipur and Lucknow have been attracting IT companies, MNCs and start-ups, creating a sea of job opportunities.
- Fast-developing infrastructure: Infrastructure in these cities has been rapidly developing, whether it is metro network or upcoming airports and expressways.
- Good connectivity: Most of the tier 2 cities enjoy good connectivity to major economic hubs. For example, the Mumbai-Nagpur Expressway is expected to drastically reduce the travel time between the two cities, giving a boost to the economic activities in the region.
- Affordability: Compared to tier 1 cities, property prices in tier 2 cities are relatively lower, which attracts a lot of homebuyers. Thus, it is a crucial factor driving the demand for affordable homes in these cities.
Pros of tier 2 city
The affordability factor in tier 2 cities and the growth of employment opportunities are the major advantages for property buyers. Moreover, the infrastructure is rapidly developing.
Cons of tier 2 city
Despite these positive aspects, tier 2 cities face some challenges at present. When compared to the top cities in India, some tier 2 cities have limited facilities and opportunities. There is scope in terms of the development of amenities, which will ensure quality of life.
Latest property trends in tier 2 cities
Prominent tier 2 cities have witnessed a double-digit appreciation in property prices of about 10% to 15% year-on-year, bringing the prices almost at par with the top residential markets of Delhi-NCR and Mumbai. The growth of modern housing projects with high-rise apartments in these cities reflects the rising preferences of homebuyers. Owing to the development of infrastructure projects such as the upcoming metro, the property prices are expected to rise in the coming years, providing scope for higher returns on investment.
Price trends in top tier 2 cities in India
| City | Average price | Price appreciation (YOY) | Average monthly rentals |
| Bhopal | Rs 4,500 | 7.35% | Rs 15,958 |
| Chandigarh | Rs 8,000 | 10% | Rs 35,000 |
| Coimbatore | Rs 5,000 | 0.76% | Rs 10,750 |
| Jaipur | Rs 4,000 | 3.21% | Rs 20,000 |
| Kochi | Rs 5,500 | -6.63% | Rs 30,000 |
| Lucknow | Rs 5,000 | 8.17% | Rs 16,000 |
| Nagpur | Rs 4,800 | -2.01% | Rs 18,000 |
| Nashik | Rs 4,300 | 0.99% | Rs 16,000 |
Buying property in Tier 3 cities in India
Compared to tier 1 and tier 2 cities in India, tier 3 cities are still in the development stage. Many investors are confused about whether they should invest in tier 3 cities, given the skyrocketing property prices in the major cities. One should note that if one is looking for good returns, investment in top cities or prominent tier 2 cities will provide better returns. Besides, these markets are driven by a steady end-user demand. So, investment in the metro cities or top tier 2 cities will yield sound returns due to the potential for steady price appreciation.
On the other hand, real estate activities in some tier 3 cities are picking up, resulting in rise in prices. Availability of undeveloped land increases the scope for real estate growth in future. Owing to government’s efforts, investments are expected to rise in these cities in future.
Pros of tier 2 city
The lower cost of land and government programs such as PMAY (Pradhan Mantri Awas Yojana) have led to an increase in real estate developments in the city. The opportunities for affordable housing in these cities are high.
Cons of tier 2 city
Lack of quality infrastructural facilities is one of the key concerns for homebuyers looking to buy a residential property in a tier 3 city.
Latest property trends in tier 2 cities
Tier 3 cities have been witnessing increased economic activities owing to the expansion of industries – manufacturing, IT, healthcare, education and tourism. So, the demand for homes among working professionals has been increasing. This has steered the development of housing projects in tier 3 cities. Further, owing to growth of infrastructure, the demand for real estate is expected to rise in the coming years.
Price trends in top tier 3 cities in India
| City | Average price | Price appreciation (YOY) | Average monthly rentals |
| Amritsar | Rs 6,800 | – | Rs 16,000 |
| Bhubaneswar | Rs 6,700 | 13.42% | Rs 18,000 |
| Surat | Rs 4,100 | -7.22% | Rs 26,300 |
| Mangalore | Rs 5,700 | 9.95% | Rs 16,000 |
| Vijayawada | Rs 6,400 | 14.38% | Rs 13,000 |
| Madurai | Rs 6,000 | 14.97% | Rs 17,000 |
| Meerut | Rs 5,200 | 0.27% | Rs 13,600 |
| Rajahmundry | Rs 4,100 | -17.59% | Rs 15,000 |
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Factors to consider when deciding to buy property in a city
- Property prices: Before buying a property in a city, it is crucial to understand the price trends. Further, while doing your research, you may also need to look at the micro-markets since prices vary for different localities within the same city. Make sure to check whether the city will suit your budget needs by taking into account the cost of living, home loans EMIs, etc.
- Employment opportunities: When choosing to buy a house in a city for end use, a home buyer should consider whether the location offers employment opportunities. You may need to research the job markets in these cities and find out there are commercial centres and business hubs in the city.
- Lifestyle needs: Take into account your lifestyle requirements before buying a property in a city. Assess the neighbourhood of a locality to find if there are reputed schools, colleges, hospitals, malls, markets, parks, recreational facilities, etc.
- Connectivity: This is a key aspect when finalising a location for real estate investment. The proximity of a property to arterial roads – flyovers, expressways, metro network and airports influences the investment prospects. Typically, properties close to these facilities see scope for higher returns on investment.
- Future prospects: Similarly, if you are planning to invest in a particular city, assess factors such as upcoming infrastructure projects and economic prospects, especially if you are planning for long-term investment. Upcoming projects and the growth of economic activities will impact the real estate demand and prices.
Housing.com News Viewpoint
When deciding to buy a property in a city, it is necessary to analyse the factors explained above to make an informed decision. The choice will depend on what a buyer is seeking. If one is looking for a lower property cost and lower cost of living, it is better to consider tier 2 or tier 3 cities. However, if one is looking for a high quality of life with access to premium facilities and better job opportunities, it is recommended to consider investing in a metro city.
FAQs
Which Tier 2 cities are best for investment in India?
Bhopal, Chandigarh, Coimbatore, Jaipur, Kochi, Lucknow, Nagpur and Nashik are among the top tier 2 cities for rwal estate investment.
Which is the fastest growing tier 2 cities in India?
Chandigarh, Coimbatore, Jaipur and Kochi are among the fastest growing tier 2 cities in India.
Which is fastest growing city in India?
Bangalore is considered the fastest growing city in India.
Why are people moving to Tier 2 cities?
The growth of employment opportunities due to emergence of IT companies, MNCs and startups, the tier 2 cities are attracting a lot of working professionals.
Which is better for buying property in tier 2 or tier 3 cities?
Tier 2 cities are witnessing rapid development in infrastructure and growth of job opportunities. Besides, property prices are quite affordable compared to the top metro cities. Thus, tier 2 cities are a better choice if you are looking for properties for end user.
| Got any questions or point of view on our article? We would love to hear from you. Write to our Editor-in-Chief Jhumur Ghosh at jhumur.ghosh1@housing.com |
