Residential demand across India’s Tier-2 cities has expanded at a robust 14 per cent compound annual growth rate (CAGR) over the past five years, driven by infrastructure development, urbanisation and rising employment opportunities.
Representational Image (IANS)
Residential demand across India’s Tier-2 cities has expanded at a robust 14 per cent compound annual growth rate (CAGR) over the past five years, driven by infrastructure development, urbanisation and rising employment opportunities. However, rising property prices and affordability concerns are beginning to reshape home-buying patterns, according to a report by Crisil Intelligence.
The report found that residential demand across 10 major Tier-2 cities grew at a 14 per cent CAGR between FY21 and FY26, with Nagpur, Coimbatore and Lucknow outperforming the broader market by recording nearly 20 per cent CAGR during the period.
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Despite the strong demand momentum, Crisil cautioned that rapid price appreciation in several markets is making homeownership less affordable, prompting buyers to pay closer attention to pricing, inventory levels and local economic drivers before making investment decisions.
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The report noted that 2 BHK and 3 BHK units accounted for more than 75 per cent of new housing supply over the past five years. At the same time, the average size of larger homes has increased, reflecting buyers’ growing preference for more spacious living.
However, the combination of larger homes and rising prices has pushed average ticket sizes above Rs 1 crore in Bhubaneswar, Indore and Lucknow. This has affected affordability and narrowed the pool of potential buyers, resulting in relatively slower sales compared with more affordable Tier-2 markets.
Crisil highlighted a growing divergence in housing markets across Tier-2 cities. Indore, Lucknow and Surat have emerged as premium residential destinations, with more than 20 per cent of active housing supply priced above Rs 2 crore. According to the report, the expansion of the information technology (IT) sector and rising entrepreneurial wealth have supported demand for premium homes and higher-value home loans.
“These cities offer sustained appetite for premium housing and higher-value home loans,” Crisil said.
In contrast, Jaipur, Nagpur, Nashik and Vadodara continue to be dominated by the mid-income segment, with more than 75 per cent of available housing supply priced below Rs 75 lakh. Backed by manufacturing and industrial employment, these markets continue to prioritise affordability, supporting volume-driven housing demand and steady growth in retail home loans.
“Tier-2 India is not monolithic. Understanding how local economic engines—IT services, traditional businesses or manufacturing—shape residential demand is critical for developers while launching new projects,” the report said.
The report also highlighted that Bhubaneswar, Coimbatore and Lucknow now command average residential prices of more than Rs 10,000 per sq ft, placing them on a par with several micro-markets in Tier-1 cities. Crisil warned that sustained price appreciation could further erode affordability, particularly in Bhubaneswar, where unsold inventory remains relatively high.
On the financing front, retail home loan disbursements grew by more than 15 per cent between 2020 and 2025, with Indore, Nagpur and Jaipur leading the growth. This reflects sustained demand for residential real estate in Tier-2 markets despite mounting affordability pressures.
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