Top tier-2 cities emerging as real estate hotspots

A key trend seen in the Indian real estate sector is the emergence of several top tier 2 cities in India as real estate investment destinations. Due to rapid urbanisation and saturation of top cities, the focus has shifted to prominent tier 2 cities in India, such as Chandigarh, Lucknow, Nagpur, etc., which have started to cater to the increasing housing demand. Moreover, most of these cities are witnessing new infrastructural developments and the emergence of new business hubs, attracting a significant number of homebuyers and renters. In this article, we list the top 10 tier-2 cities in India, which have emerged as real estate hotspots. 

Click to read property prices up by 10-15% in prime areas in tier-2 cities

 

What is a tier 2 city?

Cities In India are categorised into different tiers based on factors such as population size, infrastructure, economic development, presence of social amenities, etc. Cities classified based on population size between 50,000 and 99,999 refer to tier 2 cities in India. These are emerging urban centres with fast-developing infrastructure, modern amenities and growing employment opportunities, generating demand for real estate investments. 

 

How do they differ from tier 1 cities?

Tier 1 cities are the top metro cities with a population of over 1 lakh. These are established urban centres witnessing high economic activities and having advanced infrastructure and bustling commercial hubs. These are top housing markets with high demand for real estate investments. Thus, property prices in the top eight cities are higher than in other cities in India. 

Compared to tier 1 cities, tier 2 markets are considered affordable real estate destinations. However, the demand for properties and prices, as a result, are steadily increasing due to the rapid infrastructure development and growth of employment-generating industries.  

Moreover, there are also tier 3 and tier 4 cities, which are relatively smaller towns and urban centres. Economic activities in these cities are majorly localised, serving regional trade hubs. These cities have basic infrastructure and lack advanced facilities. 

 

Key growth drivers for real estate in Tier 2 cities in India

• Infrastructure development: The government is focusing on enhancing the infrastructure in several tier 2 cities. These include metro expansion projects, upcoming expressways, etc.
• Urbanisation: Owing to rapid industrialisation and urbanisation, the influx of migrant population in these cities have been increasing due to the growth in employment opportunities. This has resulted in affordable housing and better quality of life for the people. Further, the rise of start-up culture has been a key factor in attracting more job seekers to these cities. 
• Development of facilities: Several tier 2 cities have seen a growth in educational institutions and healthcare facilities, fulfilling the lifestyle needs of potential homebuyers. This has led to the rise of more gated community projects.
• Affordability: Property rates in tier 2 cities are affordable than those in top cities. This has attracted more investment and increased real estate developments in these cities. 
• Evolving lifestyle needs: Many people prefer having access to urban facilities while enjoying being away from the hustle and bustle of city life. Thus, there is a growing number of people moving away from bust metros to tier 2 cities, thus creating increased demand for housing.
• Growth of commercial real estate: Tier 2 cities witness a significant growth in commercial real estate developments owing to the growing presence of several companies across key industries such as IT, manufacturing, etc. This has led to the demand for office spaces, co-working facilities, retail outlets, etc. This has a direct impact on the residential market as well.

 

Challenges faced in tier 2 cities

While tier-2 cities offer real estate investment opportunities, there are a few challenges due to which tier-1 cities still have the edge over these cities.

• Infrastructure in most tier-2 cities is still in the development stage. Thus, investors and end-users need to assess the long-term growth potential before buying a property.
• Another key challenge is the gradual increase in population in these tier 2 cities as they continue to see the growth of employment opportunities and migration of working professionals. This can result in congestion and a rise in property prices owing to the increased demand, similar to the situation witnessed in top metro cities.

 

Top 10 tier 2 cities in India

City	Average price (Rs per sqft)	Price appreciation (YOY)	Average rentals
Bhopal	Rs 4,500	7.35%	Rs 15,958
Chandigarh	Rs 8,000	10%	Rs 35,000
Zirakpur	Rs 4,500	-2.01%	Rs 25,000
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
Vadodara	Rs 4,400	0.2%	Rs 20,000

 

 

 

 

 

 

 

 

 

 

Tier 1 cities vs tier 2 cities: Price comparison

Typically, the prices of properties are significantly higher in tier-1 cities than in tier-2 cities. For example, a standard 2 or 3 BHK flat in Mumbai will cost around Rs 21,800 per square foot on average. On the other hand, the same type of property will cost around Rs 5,000 per square foot in Nagpur. Similarly, the rental rates are also higher in metro cities such as Mumbai, where the average rent is Rs 71,800, while the average rent is Rs 19,000 in Nagpur.

 

Top 10 tier 2 cities in India

#1. Bhopal

Bhopal, the capital of Madhya Pradesh, is emerging as the top tier 2 city in India for real estate investment. The city is known for its tourist spots and thriving pharmaceutical, textile, electrical and automobile industries, creating numerous employment opportunities. Besides, the entry of MNCs and IT companies has further attracted many job seekers, increasing the demand for residential properties across the city.  Owing to this, the rental demand has also significantly increased in recent years. Further, the low land prices in Bhopal compared to other cities have attracted several prominent developers. Moreover, the upcoming metro network in Bhopal is driving new real estate developments in the city. 

Top localities to invest

• Kolar Road
• MP Nagar
• Hoshangabad Road
• Ayodhya Bypass
• Katara Hills

Property options: New gated community projects have come up in these localities offering 2 and 3 BHK flats and villas are available. There are several residential plots available for sale. 

 

#2. Chandigarh

Chandigarh, a union territory and the capital of Punjab and Haryana, has become a popular real estate destination owing to its thriving business hubs and proximity to metro cities. Moreover, the eco-city of New Chandigarh and Panchkula are witnessing similar growth. Chandigarh is a well-planned city known for its green areas and wider streets.  Social infrastructure is well-developed. The city has created many job opportunities owing to the growth of IT sector and other companies. Further, the upcoming Tricity Metro project will connect prominent localities of the city. These developments have led to an increase in rental demand. Property rates in some of the premium localities in the Chandigarh Tricity (Chandigarh, Mohali and Panchkula) are almost at par with the key markets of Delhi-NCR and Mumbai Metropolitan Region (MMR).

Top localities to invest

• Sector 5
• Sector 8
• Sector 10
• Sector 11
• Sector 16

Property options: One can find apartments of 2, 3 and 4BHK in new housing projects and independent houses for investment. Residential plots in the range of Rs 65 lakh to 5 crore are available for investment. 

 

#3. Zirakpur

Zirakpur has attracted property buyers in recent years owing to its affordable prices, lower cost of living, and strategic location near Chandigarh, Panchkula, and Mohali. The Chandigarh-Ambala Highway provides quick accessibility to Chandigarh, which is a major advantage. Moreover, commercial hubs, healthcare centres, educational institutions, and recreational options cater to homebuyers’ needs. Due to a significant growth in investment in the residential sector, the residential rental market has also seen significant activity in recent years. 

Top localities to invest

• Gazipur
• Badal Colony
• Dhakoli
• Lohgarh
• PR-7 Airport Road

Property options: Residential properties such as villas, 1, 2 and 3BHK apartments and independent houses are available for investment in the city. 

 

#4. Coimbatore

Coimbatore is another favourable tier 2 city in Tamil Nadu. It has thriving industries, educational hubs and emerging IT and ITES sectors, driving the growth of employment opportunities and affordable housing. Further, contemporary amenities such as malls, medical facilities, etc., ensure a convenient lifestyle for the residents. The city has robust connectivity to key cities in south India, such as Salem, Mysore, Bangalore, Trichy and Kochi, through major highways. In addition, infrastructure projects such as the Coimbatore Metro will boost connectivity and steer real estate growth across the city. This has also resulted in the growth of the residential rental market with rental yield significantly higher than in cities such as Madurai and Trichy.   

Top localities to invest

• Gandhipuram
• R S Puram
• Saibaba Colony
• Race Course
• Singanallur

Property options: Modern 2 and 3 BHK apartments, villas and residential plots are available for investment in Coimbatore. 

 

#5. Jaipur

Jaipur, the capital of Rajasthan, is known for several micro, small, and medium enterprises and growing IT hubs. Jaipur has witnessed significant growth in real estate demand in recent years due to its rapidly developing infrastructure and emerging startups that draw several working professionals to the city. Besides, the city is seeing the development of SEZs and the growth of MNCs. These factors have created a significant demand for rental properties. There are quality social infrastructural facilities, including healthcare facilities, shopping malls, recreational centres, etc., catering to the needs of modern homebuyers. A robust network of roads and highways provides enhanced connectivity to other cities. 

Top localities to invest

• Vaishali Nagar
• Tonk Road
• Jagatpura
• Ajmer Road
• Sirsi Road

Property options: Apartment projects, row houses, villas and independent houses are among the residential property options available for investment in Jaipur. 

 

#6. Kochi

Kochi is a bustling commercial hub in Kerala and among the top tier-2 cities in India for real estate investment. The city has an international airport, metro services and arterial roads linking key cities, ensuring good connectivity. There are thriving business hubs, including IT companies and other MNCs. Further, the real estate sector also attracts investments from NRIs. The residential rental market is witnessing significant demand, especially from working professionals and expatriates. Besides catering to high-end property buyers, the real estate market in Kochi has also seen the growth of affordable housing, especially due to government initiatives.

Top localities to invest

• Kakkanad
• Edapally
• Vyttila
• Aluva
• Thrippunithura

Property options: Luxury apartments of 2, 3 and 4BHK sizes and villas in gated projects are available for investment in Kochi. 

 

#7. Lucknow

Lucknow, the capital of Uttar Pradesh, is transforming itself as one of the preferred destinations for real estate investment in north India. Growing economy led by IT, retail and manufacturing sectors and government initiatives such as smart city projects are driving the real estate demand in the city. Lucknow is among the tier-2 cities in India that are witnessing significant property price appreciation, bringing the property values on par with cities such as Gurgaon, Mumbai and Bangalore. In addition, the growth of educational institutions is attracting a lot of students, creating demand for rented properties. 

Top localities to invest

• Gomti Nagar
• Jankipuram
• Indira Nagar
• Krishna Nagar
• Aliganj

Property options: Modern gated community projects offering 2 and 3BHK flats, villas and plots are available for investment. 

 

#8. Nagpur

Nagpur is the third largest city in Maharashtra and among the top tier 2 cities in India. The city has a well-developed infrastructure such as an international airport, robust road connectivity, and metro services. Besides, the Nagpur Goa Shaktipeeth expressway is expected to drive economic growth along the corridor, generating property demand. Further, the presence of IT and educational hubs attracts many renters. The city has well-developed social infrastructural facilities encompassing educational facilities, multispecialty hospitals, shopping malls, etc.

Top localities to invest

• Amravati Road
• Laxminagar
• Manewada
• Manish Nagar
• Trimurti Nagar

Property options: Modern 2, 3 and 4BHK apartments and residential plots are available for investment. 

 

#9. Nashik

Nashik is among the largest cities in Maharashtra. Bustling industries and IT hubs, including tech parks and SEZs, have generated significant real estate demand in the city over the years. The strategic location of the city, close to Mumbai and Pune, and good road and rail connectivity is a major advantage. Social infrastructure is well-developed, which includes educational institutions, hospitals, malls, etc. Owing to these factors, the city attracts a lot of homebuyers and renters. Further, upcoming infrastructural developments such as the Nashik Metro and the Nashik-Pune Expressway will drive real estate growth in the city. Property prices and rental rates are expected to further increase. 

Top localities to invest

• Gangapur Road
• Indira Nagar
• Panchavati
• Govind Nagar
• Mahatma Nagar

Property options: Modern 2, 3 and 4BHK apartments and residential plots are available for investment. 

 

#10. Vadodara

Vadodara is the third largest city in Gujarat and a major industrial hub. Robust infrastructural facilities such as healthcare facilities, educational institutions, malls, etc., meet the lifestyle needs of the residents. The growth of IT hubs and government policies, contribute to the economic growth of the city. The city attracts numerous domestic and international companies for investment. Owing to these factors, the real estate sector has seen significant growth in recent years. The residential rental market has also grown due to the demand generated by working professionals looking for homes. 

Top localities to invest

• Sama Savli Road
• Alkapuri
• Gotri
• Bhayli
• Vadsar

Property options: Affordable and luxury projects, offering modern 2, 3 and 4BHK apartments are available for investment.  

 

Housing.com News Viewpoint

These tier-2 cities have been witnessing rapid development in terms of infrastructure, catering to the preferences of modern home seekers. Further, the affordability factor in these cities is a major plus point for those looking to buy a home. With property prices in tier-cities steadily increasing and new housing projects being developed by reputed builders, the time is favourable to invest in property in these cities. 

Given the pace of urbanisation in India and the growing pressure on the metro cities, there is a significant shift towards the prominent tier-2 cities. Infrastructure development, growth of industries and employment generation are driving the real estate growth in these cities. The increase in real estate developments in the tier 2 markets in India will be instrumental in shaping not just the real estate landscape but the urbanisation landscape of India, given the emergence of industries and increased economic activities in these cities. As a result, tier 2 cities will continue to see a steady demand for homes, which will help decongest the already-saturated metro cities. 

 

FAQs

What are the fastest growing tier 2 cities in India?

Bhopal, Chandigarh, Jaipur, Lucknow, Nagpur, Coimbatore, and Kochi are some of the top tier-2 cities in India.

What are tier 2 cities in India?

Tier 2 cities are developing cities categorized based on the size of the population (50,000 – 99,999), which is less than the population of tier-1 or metro cities.

Are tier-2 cities good for real estate investment?

Prominent tier-2 cities such as Bhopal, Chandigarh, Lucknow, etc., are witnessing significant growth in real estate developments from prominent developers, which makes them an ideal destination for investment.

What is the rental yield in tier 2 cities?

Owing to the emergence of startups, MNCs, and SEZs, major tier-2 cities witness significant demand for rented homes from working professionals. The increased demand for rented homes ensures good rental returns that range between 3% to 5%.

Which are the top tier-2 cities to rent?

Lucknow and Jaipur are some tier-2 cities that are preferred destinations for renters, especially working professionals and students.

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