The Rise of Smaller Cities - How Tier-2 and Tier-3 Markets Are Reshaping India's Real Estate Landscape

India's real estate market is experiencing a remarkable transformation as tier-2 and tier-3 cities emerge from the shadows of metropolitan centers to become powerful drivers of industry growth. These smaller urban centers are increasingly attracting both developers and homebuyers, creating a significant shift in investment patterns across the country.

Investment Shift: Nearly Half of Land Acquisitions Now in Smaller Cities

According to a joint study by Credai and Liases Foras, tier-2 and tier-3 cities accounted for 44% of the 3,294 acres of land acquired by developers in 2024. This striking statistic highlights how 60 smaller cities are now commanding a substantial portion of real estate investment, signaling a fundamental change in market dynamics.

Manoj Gaur, chairman of Credai, stated that tier-2 and tier-3 cities are becoming the cornerstone of India's next phase of urbanization, driving inclusive growth and economic diversification. The seismic shift in investment patterns reflects developers' growing recognition of these regions' long-term potential.

Record Growth in Housing Sales and Market Value

Housing sales across 60 cities rose by 20% year-on-year to 681,138 units, with the primary market reaching ₹7.5 lakh crore in sales—a remarkable 43% growth.

ALSO READ :- 5 Smart Ways to Invest in Indian Real Estate (and Actually Make Money)

The luxury and ultra-luxury segments led this momentum:

Properties priced between ₹1-₹2 crore saw a 52% surge in sales (132,532 apartments)

The ultra-luxury segment (over ₹2 crore) experienced an even sharper rise of 73%

Luxury sales now constitute 71% of the total value in the market.

These figures demonstrate developers' confidence in catering to high-net-worth buyers, while maintaining balanced supply-demand dynamics in premium markets.

Economic Impact and Market Evolution

The Indian real estate sector is now valued at ₹22.5 lakh crore, contributing 7.2% to the country's economy. While metro cities still dominate premium housing sales, tier-2 and tier-3 cities are increasingly functioning as academic, logistics, and industrial hubs, generating new housing demands.

Boman Irani, President of Credai, explained that India's real estate sector is undergoing a paradigm shift. As smaller cities transform into economic and industrial centers, the demand for affordable and mid-segment housing continues to grow, prompting developers to increase investments and launch new projects.

Drivers of Growth in Smaller Cities

Several factors are fueling the rise of tier-2 and tier-3 cities in the real estate landscape:

• Enhanced urbanization and infrastructure development

• Improved connectivity between satellite towns and metropolitan centers

• Government initiatives like the Prime Minister's Gati Shakti mission

• Affordability compared to metropolitan areas

• Steady price appreciation in cities like Lucknow, Jaipur, and Bhubaneswar

The affordable housing segment remains crucial for market growth, with the priority sector lending (PSL) category (homes under ₹30 lakh) and the ₹30-₹50 lakh segment continuing to attract first-time homebuyers and investors. 

ALSO READ :- India Real Estate Market: Emerging Trends & Investment Hotspots