India’s Housing Demand Shifts From Metros to Tier-2 Cities

India’s residential property market is showing signs of a structural shift. While large metros such as Mumbai, Bengaluru, and Delhi-NCR continue to dominate in terms of new supply, demand growth is increasingly tilting towards tier-2 cities. Markets like Lucknow, Indore, and Coimbatore are recording faster housing absorption, signalling changing buyer priorities shaped by affordability, infrastructure, and lifestyle considerations.

According to recent research by Colliers and Knight Frank, tier-2 cities are now outpacing metros in absorption growth, even as overall residential demand remains steady nationwide. The trend suggests that India’s housing story is no longer metro-centric, but increasingly multi-polar.

Absorption Growth Outpaces Metros

Data from Colliers’ Q4 2025 report shows that tier-2 cities collectively recorded year-on-year absorption growth of close to 20%. In comparison, metros such as Mumbai and Bengaluru saw absorption growth of around 8–10% during the same period.

Lucknow emerged as a standout performer, with residential sales rising 22% year-on-year. Indore and Coimbatore followed closely, benefiting from a combination of infrastructure upgrades and relatively affordable housing options. Analysts point out that metro expansions, new expressways, and airport modernisation projects have significantly improved connectivity and investor confidence in these markets.

This growth is not being driven by speculative demand alone. Instead, it reflects a widening base of end-users, including first-time homebuyers, professionals returning to their home cities, and families seeking larger homes at accessible prices.

Affordability Is the Biggest Pull

Affordability remains the strongest differentiator between metros and tier-2 cities. Knight Frank’s analysis shows that average ticket sizes in tier-2 markets typically range between ₹40 lakh and ₹60 lakh. In contrast, comparable homes in metros often cost between ₹1.2 crore and ₹1.5 crore.

This gap has become increasingly difficult to ignore, especially as interest rates remain elevated and household budgets stay under pressure. For many buyers, tier-2 cities offer the possibility of ownership without over-leveraging, along with the added benefit of larger living spaces.

Developers note that buyers who might earlier have stretched budgets to enter metro markets are now choosing to purchase better-sized homes or plots in smaller cities, often with immediate possession.

What Is Selling on the Ground

On-ground trends show that housing demand in tier-2 cities looks very different from that in metros. In Lucknow, plotted developments are leading absorption. Buyers are showing a clear preference for owning land, attracted by the flexibility to build independently and the long-term value associated with plots.

Compact 2BHK apartments priced below ₹50 lakh are also seeing strong demand, particularly from young professionals and nuclear families. These homes offer a balance between affordability and modern amenities, making them popular among first-time buyers.

Indore, on the other hand, is witnessing demand for smaller apartments located close to IT parks, educational institutions, and commercial hubs. Coimbatore’s market is skewing towards villas and row houses, reflecting lifestyle aspirations and the availability of larger land parcels compared to congested metros.

Lifestyle and Livability Drive Choices

Beyond price, lifestyle considerations are playing an increasingly important role in buyer decisions. Tier-2 cities offer lower congestion, shorter commute times, and a stronger sense of community, factors that gained prominence after the pandemic.

Gated plotted developments and mid-scale townships in these cities now come with clubhouses, landscaped parks, security, and recreational facilities, amenities that were once limited to premium metro projects. Buyers see these developments as offering a better quality of life, especially for families and retirees.

Investors See Rising Returns

Investors are also turning their attention to tier-2 markets. Rental yields in cities such as Lucknow and Indore have improved to around 3.5–4%, compared to 2.5–3% in most metros. Brokers say resale liquidity has also strengthened, particularly for ready-to-move plots and compact apartments.

As infrastructure improves and employment hubs expand, investors expect both rental income and capital appreciation to remain stable, if not outperform metros in the near term.

Implications for Developers and Policymakers

The rise of tier-2 cities is prompting developers to recalibrate their strategies. National developers such as Godrej Properties and Sobha are exploring expansions into smaller cities, while regional players are scaling up township and plotted development formats.

For policymakers, the trend underscores the importance of sustained infrastructure investment. Highways, metro rail projects, and airport upgrades have shown a direct link to housing demand in these markets. The Union Budget 2026–27’s emphasis on tier-2 infrastructure is expected to further strengthen this momentum.

The Road Ahead

Industry analysts believe tier-2 cities will continue to outperform metros in absorption growth through 2026. With affordability, infrastructure upgrades, and lifestyle aspirations aligning, these markets are fast emerging as India’s next residential growth engines.

As India’s housing demand broadens beyond metros, the future of real estate growth may well be shaped by cities that were once considered secondary, but are now firmly stepping into the spotlight.