Corporate

Investors Pivot to Tier 2, 3 Cities as Metro Housing Slips Out of Reach

Owning a home in India’s metros has become increasingly unattainable for the middle class as developers chase luxury projects and land prices soar. This has shifted investor and developer focus to tier 2 and 3 cities, where affordability, better infrastructure, and lifestyle offerings are driving a new wave of demand

Investors Pivot to Tier 2, 3 Cities as Metro Housing Slips Out of Reach
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Summary
Summary of this article
  • Tier 2 & 3 hubs see 44% of land acquisitions in 2024

  • Jaipur leads with 65% price jump in new projects

  • Second homes and luxury townships attract HNIs, PE funds, and local buyers

Affordable housing is no longer affordable in India’s metro cities. Skyrocketing land prices and shrinking space in cities like Delhi NCR, Mumbai, and Bengaluru have pushed the dream of owning a home out of reach for middle-class buyers. Even developers have shifted their projects to the luxury segment. Investors and developers have also started looking beyond tier 1 cities.

Nearly 44% of the 3,294 acres of land acquired by real estate developers in 2024 were concentrated in the emerging hubs of India’s tier 2 and 3 cities, according to a joint report published by CREDAI-Liases Foras. It also stated that housing sales in 2024 also reached 681,138 units across 60 cities, recording 23% year-on-year increase.

“Investor sentiment is steadily shifting from saturated tier 1 metros to promising tier 2 NCR cities such as Karnal, Panipat, and Sonipat driven by infrastructure growth, connectivity, and affordability. These markers are witnessing strong demand for integrated luxury townships that offer modern amenities, open spaces, and a lifestyle comparable to metros,” said Vipin Sharma, chairman and founder of Aarize Group.

Interestingly, price appreciation in these hubs often surpasses larger metro due to lower base costs and faster development. Analytics firm PropEquity data revealed that the price of new launch projects in the top 30 tier 2 increased by upto 65% between 2023 and October 2024.

Of these, Jaipur saw the highest rise in the weighted average price of new launch projects, at 65% from ₹4240 per sq. ft. to ₹6979 per sq. ft. during the same time period, the report said.

“This evolving demand landscape is attracting attention from both HNIs and institutional investors, further strengthening the growing momentum in these regions,” said Santosh Agarwal, CFO and executive director of Alpha Corp Development Limited.

With institutional investors entering, the narrative shifts from just primary housing to dual-purpose investments, where second homes can serve as both occasional residences and appreciating assets. “For discerning investors, they serve as wealth diversification tools while offering the added advantage of exclusive leisure living,” said Amar Kapoor, founder Terra Grande by Eldeco Group.

Himachal Pradesh towns such as Sirmaur, Shimla, and Palampur are witnessing rising demand, as they combine natural serenity, exclusivity, and aspirational living. Beyond the hills, Kapoor stated that some destinations like Goa also continue to attract attention, largely due to improved connectivity and luxury offerings.

In comparison, cities like Lucknow or Coimbatore attract a more domestically driven base of professionals and entrepreneurs, he added. However, M3M’s Robin Mangla suggested that investors must remain vigilant about potential challenges, including oversupply, regulatory hurdles, and infrastructure deficiencies.

“Private equity funds and institutional investors are increasingly eyeing opportunities in the sector, although high net-worth individuals (HNIs) and local developers still hold significant sway,” Mangla noted.

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