In recent years, real estate growth has moved away from metro and Tier-I cities towards smaller towns, known as Tier-II and Tier-III cities. Government schemes like Housing For All and Smart Cities have supported this shift. High property costs, limited land, and rising living expenses in metros have made developers and homebuyers look at these emerging cities, which now offer better investment opportunities due to steady price growth and improving infrastructure.
Many Tier-II and Tier-III cities have strong skill-based industries such as automobile, engineering, textiles, pharmaceuticals and capital goods. Alongside these, multinational companies, especially in the IT and IT-enabled services sector, are setting up offices due to affordable skilled labour, lower overhead costs and business-friendly policies. Rising disposable incomes in these regions have encouraged companies and developers to invest in these fast-growing and promising markets.
Programmes like Jawaharlal Nehru National Urban Renewal Mission, Housing For All and Smart City are designed to deviate the pressure from metros towards these cities by achieving total development in terms of physical infrastructure, social amenities like healthcare and educational facilities, affordable housing and employment centre.
Proactive government initiatives have resulted in better infrastructural facilities in the form of Greenfield airport, flyovers, bypasses, industrial corridors, metros, and a bus rapid transport system. The improved connectivity and ease of movement have made these cities more accessible and hassle-free.
These cities offer end-users the availability of large land resources at a comparatively lower rate, lower labour and raw material costs, and a faster pace of construction. Further, stable price appreciation and growing demand have resulted in stable and higher returns on investments for developers and investors. These cities offer a number of affordable and mid-segment housing options.
Many Tier-II and Tier-III cities are seeing reverse migration. People who had moved to metros are returning to their hometowns for better work-life balance. This trend has led to more demand for residential housing and smaller office spaces in these cities. Families prefer settling down where costs are low, and remote work allows professionals to continue their jobs from any location. As a result, real estate growth in smaller cities is gaining steady momentum.
The government's digital push, including fibre optic connectivity under BharatNet and better mobile network coverage, has boosted the economic scope of these cities. Faster internet allows small businesses to thrive, remote jobs to become accessible, and digital payments to expand. This digital inclusion improves daily life and attracts new businesses, making real estate more viable for both commercial and residential buyers.
Higher education institutions and specialised training centres are being developed in several Tier-II and Tier-III cities. These include engineering colleges, management schools and vocational training institutes. The presence of quality education keeps the youth rooted in their home cities and reduces migration to bigger cities. A young population staying local creates long-term housing demand, benefiting developers and investors alike.
The rise of e-commerce has led to a sharp rise in warehousing and logistics facilities in smaller cities. Companies prefer Tier-II and Tier-III cities for warehousing because of cheaper land and proximity to rural and urban markets. These logistics hubs not only create jobs but also drive commercial property development. The steady demand for industrial real estate pushes overall city growth further.
Smaller cities have lower pollution levels and more green areas than metros. This environmental edge is becoming a key reason why many families live in Tier-II and Tier-III cities. Clean air, open spaces and less traffic add to the liveability factor. This directly boosts residential demand and encourages builders to invest in quality housing that respects natural surroundings.
In addition to the above factors, Tier-II and III cities mitigate the disadvantages associated with metros like reduced quality of life, higher cost of living, expensive transportation, inadequate infrastructure and expensive healthcare and educational facilities. In recent times, some of the emerging Tier-II and III cities are Vadodara, Surat, Nashik and Nagpur in the west; Coimbatore, Kochi, Mangalore, Thiruvanathapuram and Vizag in the south; Bhubaneswar in the east; and Chandigarh, Mohali, Pantnagar, Rudrapur, Lucknow, Kanpur, Indore and Jaipur in the north.
According to the National Housing Bank—Residex, on a two-year horizon, Tier-II and III cities have displayed steady price appreciation. Property prices in Surat grew the most by 20%, followed by Nagpur by 14.72%, Raipur by 10.90%, Guwahati by 9.80%, and Lucknow by 9.29%.
Tier-II and Tier-III cities are growing quickly because they offer a better cost of living, improved infrastructure and strong government support. These cities are also becoming more connected and self-sufficient, making them ideal for families and businesses. As more companies and workers shift their focus to these areas, real estate in smaller cities is likely to become more important in the coming years.
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