In recent years, there has been a major preference by home seekers, especially among working population, for tier 2 cities in India. The lower cost of living and affordability of housing in tier 2 cities compared to the mega cities is a major reason for this shift. However, there has been a significant rise in property values in these cities in the past one decade owing to factors such as steady infrastructure development and increased demand for properties. Further, the government has been steering efforts to boost infrastructural developments across tier 2 and tier 3 cities. This has inspired Indian real estate developers, as well as state governments, to focus more on these tier 2 cities in India which are high-potential and yet, neglected markets. Cities such as Jaipur, Nagpur Ahmedabad, Lucknow and Chandigarh are fast emerging as preferred real estate destinations.
For example, in a tourist state like Goa, the government has been working in partnership with Software Technology Parks of India (STPI) to create the infrastructure to facilitate software exports and promote tech entrepreneurship in the region. As tech companies become location agnostic, options like Goa could attract more investment. Many other states are working to incentivise manufacturing in their key tier 2 cities, as part of the Make in India programme. Analysts maintain that such tier 2 cities in India, which may also be part of industrial corridors, could be hotbeds for future growth of the economy and the real estate market in particular.
What are tier 1, tier 2, tier 3 and tier 4 cities in India?
Indian cities are classified as X (tier 1 cities in India), Y (tier 2 cities in India) and Z (tier 3 or 4 cities in India) categories by the government, based on the population density. Also, tier 1 cities in India are more developed cities, including the metropolitan cities, whereas tier 3 cities are the developing cities in India.
There are eight metropolitan tier 1 cities in India – Delhi, Mumbai, Bangalore, Chennai, Hyderabad, Kolkata, Ahmedabad and Pune. On the other hand, 104 cities are categorised as tier 2 cities in India, while the remaining cities fall under the tier 3 or tier 4 cities in India category.
Tier 1 cities in India are densely populated and have higher living expenses. There are major international airports, industries, top multi-specialty hospitals, education, and research institutes in the Tier 1 cities. Urban planners and economists believe that certain cities, officially classified as tier 2 cities in India, are so good that there is not much difference between tier 1 and tier 2 cities. The economic activities and lifestyle in the cities like Gurgaon, Noida, Vellore, Coimbatore, Kochi, Thiruvananthapuram, Patna, Rajkot, Goa, Lucknow and Jaipur could elevate these tier 2 cities in India to the next level in the coming years.
See also: Impact of Coronavirus on Indian real estate
Tier 2 cities in India: Comparison with metro cities
Several tier-2 cities across India, such as Jaipur, Lucknow and Ahmedabad are experiencing rapid economic growth with an influx of new businesses, especially start-ups. The low cost of doing business in tier-2 cities is a major plus point. This growth, along with fast-developing infrastructure, positively impacts the real estate sector. Compared to metro cities, tier-2 cities are known for their moderate cost of living and affordable property rates. When compared to smaller towns and tier-3 cities, tier-2 cities provide a better lifestyle and growth opportunities. Thus, buying a property in a tier-2 city is more profitable than buying in a tier-3 city.
On the other hand, property prices in tier-1 cities are higher owing to the high demand. Owing to limited land availability within the city, developments have shifted to the outskirts and neighbouring areas. Metropolitan cities score over tier-2 cities on certain aspects, such as the presence of ample job opportunities, especially due to the growth of MNCs. These cities have advanced infrastructural facilities and ensure a high standard of living for residents.
Real estate trends in Tier 2 and Tier 3 cities
- Land availability and affordability factor: With real estate markets in metro cities becoming saturated owing to limited land availability, real estate developers are exploring the potential of smaller towns and cities owing to better land availability. Compared to these larger cities, smaller cities have lower land prices and are thus seen as a favourable destination for affordable housing developments.
- Development of infrastructure: There are major infrastructure projects, such as the Delhi-Mumbai Expressway, that aim to boost connectivity in many smaller cities, especially Tier 2 cities, thereby pushing demand for real estate in the neighbouring regions.
- Growth of industrial hubs: Tier 2 cities in India and tier 3 cities in India are emerging as hubs for several industries, including logistics and warehousing sector. This has resulted in growing economic activities, attract several working professionals from different areas. As a result, the demand for housing has increased. Consequently, there has been a growth of real estate projects catering to this demand.
- Rise in employment opportunities: Many tier-2 cities, such as Jaipur, Lucknow, and Kochi, have become a favourite location for numerous start-ups, industries and IT companies. This has drawn numerous working professionals, generating demand for housing.
- Increasing demand for premium homes: The preference for leading a modern lifestyle with various amenities is increasingly seen in areas beyond metros. The growth of nuclear families and evolving lifestyle needs among people are fuelling the demand for modern gated communities. Moreover, many affluent buyers are now looking to buy a second home in smaller cities, bringing a significant shift in the buyer sentiment.
List of tier 1 cities and tier 2 cities in India
Tier 1 cities in India
| States | Tier 1 cities in India |
| Delhi | Delhi |
| Maharashtra | Mumbai, Pune |
| Karnataka | Bengaluru |
| Gujarat | Ahmedabad |
| Tamil Nadu | Chennai |
| West Bengal | Kolkata |
Tier 2 cities in India
| States and Union Territories | Tier 2 cities in India |
| Andhra Pradesh | Guntur, Kakinada, Kurnool, Nellore, Rajamahendravaram, Vijayawada, Visakhapatnam, Warangal |
| Assam | Guwahati |
| Bihar | Patna |
| Chandigarh | Chandigarh |
| Chhattisgarh | Durg-Bhilai, Bilaspur and Raipur |
| Gujarat | Ahmedabad, Bhavnagar, Jamnagar, Rajkot, Surat, and Vadodara |
| Haryana | Gurugram, Faridabad, Karnal |
| Himachal Pradesh | Hamirpur, Shimla |
| Jammu and Kashmir | Jammu and Srinagar |
| Jharkhand | Bokaro Steel City, Dhanbad, Jamshedpur, and Ranchi |
| Karnataka | Belgaum, Hubli-Dharbad, Mysore, and Mangalore |
| Kerala | Kannur, Kollam, Kozhikode, Kochi, Malappuram, Thrissur, Thiruvanathpuram, and Vijayapura |
| Madhya Pradesh | Bhopal, Gwalior, Indore, Ratlam, and Jabalpur |
| Maharashtra | Amravati, Bhiwandi, Jalgaon, Nagpur, Nanded, Aurangabad, Kolhapur, Nashik, Sangli, Solapur, Vasai-Virar and Ujjain |
| Odisha | Bhubaneswar, Rourkela and Cuttack |
| Punjab | Amritsar, Ludhiana and Jalandhar |
| Pondicherry (Puducherry) | Pondicherry (Puducherry) |
| Rajasthan | Ajmer, Bikaner, Kota, Jaipur, and Jodhpur |
| Tamil Nadu | Coimbatore, Erode, Madurai, Thanjavur, Tiruppur, Tirunelveli, Tiruvannamalai, Tiruchirappalli, Vellore, and Salem |
| Uttar Pradesh | Aligarh, Agra, Bareilly, Firozabad, Ghaziabad, Gorakhpur, Jhansi, Kanpur, Lucknow, Mathura, Moradabad, Meerut, Noida, Prayagraj (Allahabad), Gorakhpur, Varanasi |
| Uttarakhand | Dehradun |
| West Bengal | Asansol, Durgapur, Purulia, Siliguri |
Tier 3 cities in India
Cities with a population between 20,000 and 49,999 people are categorised as tier 3 cities.
| Aligarh |
| Baroda |
| Ludhiana |
| Madurai |
| Meerut |
| Nashik |
| Rajkot |
| Solapur |
| Trichy |
| Vijayawada |
Tier 4 cities in India
| Banswara |
| Bhadreswar |
| Chilakaluripet |
| Datia |
| Gangtok |
| Kalyani |
| Kapurthala |
| Kasganj |
| Nagda |
| Sujangarh |
Cities with a population between 10,000 and 19,999 people come under the category of tier 4 cities. These comprise smaller towns where the need for infrastructure development and investments is higher.
Know about: Guntur (Andra Pradesh)
Top tier 2 cities in India that are attracting property investments
There are a number of tier 2 cities in India offering excellent opportunities for investors. Owing to the rapid urbanisation of major cities and growing demand for real estate, the tier 2 cities are turning into coveted real estate destinations.
Jaipur
Jaipur is a popular tier 2 city in Rajasthan, which houses several micro, small, and medium enterprises, and also growing number of IT hubs. It provides ample options of residential properties, including affordable units for investment. You can find many real estate-related services on the websites of IGRS Rajasthan and epanjiyan Rajasthan
Vadodara
Vadodara is the third largest city in Gujarat and a major industrial hub. It offers plenty of housing options, including affordable units and luxury properties at attractive price range.
Dehradun
Dehradun is one of the top tier 2 cities in India located in the state of Uttarakhand. Considered among the most liveable cities in India, the city offers improved facilities and numerous property investment options.
Indore
Indore city has emerged as a corporate hub and a coveted real estate destination. It has seen increased demand for residential properties and offers a variety of housing options for home buyers.
Bhilai
Bhilai is an upcoming investment destination in Chhattisgarh and the second-largest urban area in the state after Raipur. An well-known industrial hub, Bhilai is also an educational hub with top educational institutions.
Top tier 2 cities in Uttar Pradesh
Noida
Noida is one of the top real estate investment destinations and a tier 2 city in India. It is well-planned and well-connected to central Delhi and other parts of the NCR through the Metro network. It offers many affordable options for renters and home buyers.
Ghaziabad
Ghaziabad is another favourable destination for investors. It provides excellent connectivity to Delhi. There are a variety of residential properties for home buyers, from affordable housing to luxurious homes.
Lucknow
Home seekers will find ample property options in Lucknow. The city has a robust infrastructure and provides good connectivity.
Kanpur
With the inauguration of Kanpur metro providing improved connectivity, the city offers numerous options for real estate investment. Homebuyers will also find ample 2BHK and 3BHK units.
Ayodhya
The temple town of Ayodhya is one of the top tier 2 cities in India. It is witnessing increasing real estate demand, also because of an upcoming international airport. Home buyers can find many properties in areas such as Naya Ghat and Theri Bazar in the city. The localities surrounding the Ram Janmabhoomi temple site are developing fast and increasing property prices.
Top tier 2 cities in Punjab
Chandigarh
Chandigarh is a prominent tier 2 city in Punjab. It is a well-planned city with well-developed infrastructure and road network, providing good investment options.
Zirakpur
Zirakpur is a satellite town of Mohali, Chandigarh. It offers plenty of residential and commercial properties for investments, that has attracts both domestic investors and NRIs. It is a 2 tier city in India that is well-developed with good connectivity.
Amritsar
Amritsar is a major tourist destination with the presence of the Golden Temple. With tourism contributing to the economy of the region, several small-scale and home businesses have also come up in the city. This has created a significant demand for properties.
Top tier 2 cities in Andhra Pradesh
Nellore
Nellore is famous for its thriving agricultural and export of prawns and shrimp, contributing to the region’s economy. Investment opportunities have also seen a growth in recent years.
Kurnool
Kurnool is rich in mineral resources and the city has great historical significance. Real estate investments have increased in the city across residential and commercial segments.
Visakhapatnam
Visakhapatnam is among upcoming tier 2 cities in India. The city has witnessed infrastructure growth and new real estate projects, providing plenty of property investments.
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Top tier 2 cities in Maharashtra
With properties in the top tier 1 cities like Mumbai and Pune in Maharashtra getting expensive, tier 2 and tier 3 cities are emerging as promising markets by offering attractive real estate investment options.
Nagpur
Nagpur is the third largest city in Maharashtra and among the best tier 2 cities in India. With an international airport, excellent road network, and metro rail services, the city is turning into an attractive investment destination.
Nashik
Nashik is among the largest cities in Maharashtra, situated on the banks of the river Godavari. With the growing industrial and IT hubs, including tech parks and SEZs, the investment opportunities in the city have increased in the recent years.
Kolhapur
Kolhapur is another emerging tier 2 city, which is situated in southern Maharashtra. The city has a great cultural and historical significance, and it is famous for its handcrafted products and Marathi film industry. The city fast developing and offers plenty of affordable properties for investments.
Top tier 2 cities in Karnataka
Bellary
Bellary is the second-faster growing city in Karnataka, located in northwest part of the state. It offers good investment options, especially urban housing projects.
Hubli-Dharwad
The twin cities of Hubli and Dharwad are among the fast-developing cities in Karnataka. The presence of land available has driven real estate growth, while promoting employment and new housing opportunities.
Mangalore
Mangalore is among the prominent tier 2 cities in India. The city is among the ‘emerging clusters’, witnessing growth of tech hubs. Thus, the city is generating employment, creating demand for housing.
Mysore
Mysore or Mysuru is a 2 tier city that has a rich history. The property market is witnessing growth due to improved connectivity and infrastructure development. Homebuyers will find a variety of housing options in the city.
Top tier 2 and tier 3 cities in Tamil Nādu
Besides the metropolitan city of Chennai that is densely populated and expensive, people are looking to smaller cities offering quality living.
Coimbatore
Coimbatore is a popular tier 2 city along with other cities in Tamil Nadu such as Chennai and Madurai. One of the biggest industrial and educational hubs, the city provides increased employment opportunities and affordable housing options.
Madurai
One of the most populous cities in Tamil Nadu, Madurai is a historical city that is seen rapid development nowadays. The city offers an excellent transportation system and government infrastructural facilities for its citizens.
Ambur
Ambur is a 2 tier city and municipality in newly formed Tirupattur district. It has numerous business hubs and offers ample investment avenues.
Vellore
Vellore is a city in Tamil Nadu, situated on the banks of river Palar. The city is known for having quality medical and technological institutes. It also offers plenty of opportunities in the property market.
Puducherry
Puducherry is a Union Territory located in Tamil Nadu and emerging as one of the popular tier 2 cities in India.
Top tier 2 and tier 3 cities in Kerala
Kochi
Kochi or Cochin is known as the commercial capital of Kerala and known for its cosmopolitan culture. Considered among the best tier 2 cities in India, it is emerging as a favourable investment destination by offering plenty of commercial and residential properties.
Thiruvananthapuram
Thiruvananthapuram or Trivandrum city, situated in Kerala, is among the top tier 2 cities in India. With numerous IT hubs, the city offers good connectivity and variety of residential units for homebuyers.
Kozhikode
Kozhikode is a coastal city with a rich history. The demand for properties is increasing owing to rapid urbanisation.
Top tier 2 city in West Bengal
Asansol
Asansol is the second largest and among the most populated cities in West Bengal. The tier 2 city has witnessed strong economic growth in recent years. Those looking for investment in residential real estate will find ample affordable housing options in the city.
Top tier 2 city in Jharkhand
Bokaro Steel City
Bokaro, also known as Bokaro Steel City, is a tier 2 city in Jharkhand. A major industrial and commercial hub, Bokaro Steel City, is emerging as one of the preferred investment destinations.
Purulia
Purulia is a neighbouring city of Bokaro situated in the Purulia district, known for its thriving industrial and agricultural activities and tourism. The tier 2 city also offers ample investment options.
Check out Stamp duty rates in tier-2 cities in India
Tier 2 cities in India and tier 3 cities in India: NRIs fuelling growth
For non-resident Indians (NRIs), in spite of the urge to own a house in one’s home towns, which are mostly tier 2 cities in India and tier-3 cities, the future livability in terms of professional opportunities in these home towns were non-existent. On the other hand, an investment in the tier 1 cities in India meant that while they were overseas, their retired parents preferred to live in the comfort zone of their home towns.
Most of the expat Indians are opting for properties in their home towns mostly in tier 2 cities in India, with the dual objective of providing a house for their parents while they are overseas, as well as their own future living.
Furthermore, some of the upcoming industrial corridors run through the NRIs’ home towns in these tier 2 cities in India and tier-3 destinations. Also, the fact that grade A developers from established property markets are venturing into tier 2 cities in India and tier 3 cities in India, evokes confidence among the expat Indians.
Price trends in tier 2 cities in India
Tier-2 cities have affordable property rates compared to the top-tier cities like Delhi, Mumbai and Bangalore. The limited land availability and skyrocketing property prices in major cities have shifted the focus of developers and investors to smaller cities having immense growth potential.
As tier-2 cities witness major infrastructure developments and rapid economic growth, fuelling real estate demand, prices in these cities have seen appreciation. Moreover, prominent cities like Lucknow, Coimbatore, and Jaipur have seen double-digit year-on-year appreciation in property rates.
Property prices in tier-2 cities
| City | Property price range (in Rs per sqft) | Monthly rentals |
| Lucknow | Rs 5,000 – Rs 7,000 | Rs 10,000 – Rs 80,000 |
| Coimbatore | Rs 5,800 – Rs 8,000 | Rs 8,000 – Rs 35,000 |
| Jaipur | Rs 5,500 – Rs 12,000 | Rs 10,000 – Rs 1 lakh |
| Kochi | Rs 6,800 – Rs 20,000 | Rs 20,000 – Rs 60,000 |
| Chandigarh | Rs 8,000 – Rs 20,000 | Rs 10,000 – Rs 44,000 |
How are cities divided into tiers?
In India, cities are classified into the different categories by the Pay Commission set up by Government of India. Cities are categorised into tier 1, tier 2, and tier 3 cities based on the size of the population. As per the government, cities having a population size ranging between 50,000 and 100,000 are categorised as tier 2 cities in India while cities with population size ranging between 20,000 and 50,000 are known as tier 3 cities.
| Tiers | Population |
| Tier 1 | 1 lakh or above |
| Tier 2 | 50,000 – 99,999 |
| Tier 3 | 20,000 – 49,999 |
| Tier 4 | 10,000 – 19,999 |
| Tier 5 | 5,000 – 9,999 |
| Tier 6 | Less than 5,000 |
Further, the classification is also done based on urban, semi urban, rural, and metropolitan areas in India. This classification enables the government to come up with different schemes.
| Classification of cities | Population |
| Rural centre | Less than 10,000 |
| Semi-urban centre | 10,000 to 1 lakh |
| Urban centre | 1 lakh to 10 lakh |
| Metropolitan centre | Above 10 lakh |
The cities are also categorised into the following:
- Tier 1: X, earlier referred to as A-1
- Tier 2: Y, earlier referred to as A, B-1, B-2
- Tier 3: Z, earlier referred to as C, or unclassified cities
Cities were classified into A-1, A, B-1, and B-2 before the Sixth Central Pay Commission’s recommendations were followed in 2008. The classification was earlier based on the recommendations of the Fifth Central Pay Commission of India in 1997. New Delhi, Chennai, Kolkata, and Mumbai were categorised as A-1 cities. The statuses were revised as per the Census of India 2001 results. Hyderabad and Bangalore were upgraded from A to A-1 status on August 31, 2007, and September 21, 2007, respectively.
Know about: Bikaner pin code
Tier-1, Tier-2 cities in India by population
| Mumbai | 12,442,373 |
| Delhi | 11,034,555 |
| Bangalore | 8,443,675 |
| Hyderabad | 6,731,790 |
| Ahmedabad | 5,577,940 |
| Chennai | 4,646,732 |
| Kolkata | 4,496,694 |
| Surat | 4,467,797 |
| Pune | 3,124,458 |
| Jaipur | 3,046,163 |
| Lucknow | 2,817,105 |
| Kanpur | 2,765,348 |
| Nagpur | 2,405,665 |
| Indore | 1,964,086 |
| Thane | 1,841,488 |
| Bhopal | 1,798,218 |
| Visakhapatnam | 1,728,128 |
| Pimpri-Chinchwad | 1,727,692 |
| Patna | 1,684,222 |
| Ghaziabad | 1,648,643 |
| Agra | 1,585,704 |
| Faridabad | 1,414,050 |
| Varanasi | 1,198,491 |
| Srinagar | 1,180,570 |
| Aurangabad | 1,175,116 |
| Dhanbad | 1,162,472 |
| Amritsar | 1,132,383 |
| Navi Mumbai | 1,120,547 |
| Allahabad | 1,112,544 |
| Ranchi | 1,073,427 |
| Jabalpur | 1,055,525 |
| Gwalior | 1,054,420 |
| Coimbatore | 1,050,721 |
| Jodhpur | 1,033,756 |
| Raipur | 1,010,433 |
| Kota | 1,001,694 |
| Chandigarh | 961,587 |
| Guwahati | 957,352 |
| Mysore | 893,062 |
| Gurgaon | 876,969 |
| Noida | 637,272 |
| Kochi | 602,046 |
| Puducherry | 244,377 |
Housing.com News Viewpoint
Several Tier-2 cities in India, such as Coimbatore, Jaipur, Lucknow, Kanpur, Ayodhya, etc., have emerged as a preferred destination for property investment. Development of infrastructure, employment opportunities and lower property prices compared to metro cities are the major reasons that attract investors and buyers to these cities.
When investing in a property in a tier-2 city, buyers must evaluate their needs and current market trends. For end-users, it is essential to check the availability of social amenities like schools and hospitals and good connectivity. Buying a property close to upcoming infrastructure is an advantage, as property prices tend to appreciate.
FAQs
What is Tier 1 and Tier 2 cities?
Tier 1 cities in India and tier 2 cities in India are classifications of cities, based on population density. The list of tier 1 cities in India include Delhi, Mumbai, Chennai, Kolkata, Bangalore, Hyderabad, Ahmedabad and Pune.
What are Y cities in India?
Tier 2 cities in India are referred to as ‘Y’ category cities.
Is Pune a tier 2 city?
Pune is a tier 1 city in India.
Is Gurgaon a tier 2 city?
Gurgaon is a city located in Haryana in the National Capital Region (NCR) and one of the popular tier-2 cities.
Is Jaipur tier 2 city?
Jaipur is a fast-developing tier 2 city in Rajasthan and witnessing a growing number of IT hubs.
Which tier city is Kota?
Kota is a tier-2 city in Rajasthan, which is the third-most popular city after Jaipur and Jodhpur. The city is known for its thriving industries, which include chemical, textile, stone polishing, metal handcrafts and many others. The growth of industries has a positive impact on the city’s real estate, resulting in more demand for commercial spaces.
Are tier-2 cites in India is good for real estate investment?
Several tier-2 cities in India, such as Lucknow, Ayodhya, Coimbatore and Kochi, are witnessing a boom in property investments owing to the growth in infrastructure and employment opportunities.
| 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 |
