Tier-2 cities closing gap with India’s Top 8 as property prices surge by 10-15% in prime areas: Report

Fuelled by economic diversification, rising consumer demand, and reverse migration patterns accelerated by the pandemic, the real estate markets of Tier-2 cities are witnessing remarkable growth trends, and these once overlooked urban centres are rapidly closing the gap with their Tier-1 counterparts, according to Housing.com’s ‘The Bharat in India’ report.

This surge can be attributed to the burgeoning economic potential of these cities attracting a growing influx of residents. Notably, this trend has gained momentum in the wake of the pandemic and fuelled by the phenomenon of reverse migration.

The economic dynamism has had a multiplier effect on the real estate market in Tier-2 cities especially in retail, warehousing and residential segments. For instance, the burgeoning interest from national and international brands has catalyzed the development of high-street areas and premium retail spaces in these urban centers. Notably, Kochi in Kerala stands out with the largest mall in India, showcasing the evolving retail landscape in these regions.

Furthermore, the escalating e-commerce activity has prompted companies to expand their presence in these cities. A prime example is the leasing of approximately 6.1 lakh sq ft of space for an Amazon fulfilment center in Lucknow, marking its largest center in India. Moreover, the development of industrial corridors with Tier-2 cities as integral parts, alongside airports being equipped with cargo handling facilities, has propelled growth in the warehousing sector.

Similarly, the property markets have experienced heightened activity. This is underscored by Housing.com’s Property Buy index, which tracks high-intent homebuyer activity, indicating that Tier-2 cities are trending above the top-eight cities.

Commenting on the report, Dhruv Agarwala, Group CEO of Housing.com, said, “The real estate narrative of India is evolving rapidly, with Tier-2 cities like Kochi, Jaipur, Goa, and Chandigarh Tri-city emerging as new growth powerhouses. Our proprietary Property Buy Index reveals Tier-2 cities surpassing the top eight metros by a staggering 88 points, underscoring their increasing prominence and service sector potential.”

Key highlights from ‘The Bharat in India’ report:

* Key micro-markets in Tier-2 cities have witnessed significant double-digit capital value appreciation of 10-15% year-on-year, narrowing the price gap with top metros.

* Capital values in premium localities of Goa, Chandigarh Tricity, and Kochi are now almost at par with key markets in Delhi-NCR and Mumbai Metropolitan Region. For instance, Central localities of Kochi, including Kaloor, Vyttila, and Edapally, located near to NH 66, boast of premium capital prices ranging from INR 6,000–10,000 per sq ft. This premium comes on the back of proximity to retail hubs, metro connectivity, and other essential social infrastructure, making these localities highly desirable investment destinations.

* Tier-2 cities like Goa boast robust rental markets with yields as high as 8%, in contrast to 2-3% in major metros. With villas able to yield rental returns as high as 8.0 per cent in Goa, they are attracting investments from high-net-worth individuals, business, and technology professionals. Consequently, capital values in the area are now at par with the top-eight cities. For instance, Anjuna, commanding the highest property prices in Goa (INR 17,000–19,000 per sq ft), is comparable to key micro-markets, such as Golf Course Extension in Gurugram (INR 15,000–17,000 per sq ft), and Thane West in Mumbai MMR (INR 14,000–16,000 per sq ft).

* Homebuyer preferences are shifting towards high-rise apartments and lifestyle amenities like clubhouses, open spaces, and sports facilities.

* Online property searches by potential buyers in the INR 1-2 crore segment have surged 61%, while the above INR 2 crore bracket has seen a growth of 121%.

“The economic kaleidoscope is shifting, and Tier-2 urban clusters are emerging as new magnets for the skilled workforce and the start-up ecosystem. This report paints a compelling picture of India’s evolving real estate landscape and underscores the immense opportunities that lie ahead for investors, developers, and homebuyers looking beyond the traditional real estate hotspots. Tier-2 cities are no longer on the sidelines; they are becoming major players, attracting investments and offering attractive opportunities,” Agarwala added.

Ankita Sood, Head of Research at Housing.com, said, “Tier-II cities are the true Bharat of India and their growth momentum has been phenomenal over the last half decade. Trending on our Property Buy Index, which tracks high-intent high volume property activity on our portal, the Tier IIs registered a 88 point lead over the metros. This growing demand for property has pushed prices upwards by 10-15% in key micro markets, bringing some cities like Kochi, Goa, and Lucknow on par with the property prices of key markets in the metros of Gurugram, Mumbai, Bengaluru and Hyderabad.”

She further added, “Tier-II cities today are reflecting the preferences of homebuyers that we usually see in major cities with heightened searches for amenity-rich premium homes priced above INR 2 crore. The search for this price bracket has registered the steepest increase of 121% since the pandemic. Tier-II cities will continue to play a key role in shaping the future of India’s real estate market and are also key stakeholders in the country’s growth narrative.”