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• Tier-II cities are increasingly driving India's housing market, supported by infrastructure development, expanding service-sector employment and improving economic activity.
• Developers have maintained healthy inventory levels by moderating new project launches, reducing the risk of oversupply and sharp price corrections.
• Housing demand has diverged across cities, with some emerging as premium residential markets while others continue to be driven by affordable and mid-segment housing.
• The report highlights that infrastructure growth, affordability, developer quality and financing trends will shape the next phase of expansion in Tier-II residential markets.
India's Tier-II cities are becoming increasingly important to the country's residential real estate sector, with stronger infrastructure, expanding local economies and improving employment opportunities driving sustained housing demand, according to a Crisil Intelligence report. The study suggests that these emerging markets are no longer competing solely on affordability but are developing distinct residential characteristics shaped by their economic strengths.
The report notes that developers in these cities have adopted a disciplined approach to project launches over the past two financial years after a period of strong activity between FY2021 and FY2024. By keeping unsold inventory within a healthy range of around 15 to 20 months, developers have limited the risk of oversupply while supporting more stable market conditions and reducing the possibility of steep price corrections that previously affected several Tier-II markets.
Housing preferences have also evolved, with two- and three-bedroom apartments accounting for the majority of new supply. Demand for larger homes has increased, pushing average ticket sizes above 1 crore in cities such as Bhubaneswar, Indore and Lucknow. At the same time, residential pricing patterns have become increasingly diverse. Markets including Indore, Lucknow and Surat have witnessed growing demand for premium housing, while Jaipur, Nagpur, Nashik and Vadodara continue to be dominated by affordable and mid-segment residential projects, reflecting differences in their local economic drivers.
The report further highlights that residential prices in some Tier-II cities are now approaching those seen in established Tier-I markets. Coimbatore, Lucknow and Bhubaneswar have recorded average prices exceeding 10,000 per sq ft, making affordability and the pace of inventory absorption important factors to monitor in the coming years.
On the financing side, retail home loan disbursements have grown by more than 15% across Tier-II cities between 2020 and 2025, indicating robust housing activity. While some cities continue to see loans primarily funding new residential purchases, others have recorded increasing demand for self-construction, home improvements and secondary market transactions, reflecting a broader expansion of the housing ecosystem. The report also notes that the presence of relatively fewer financially rated developers in many Tier-II cities presents both opportunities and challenges for project financing.
According to Crisil, continued investment in infrastructure, improving connectivity and the spread of service-sector employment are expected to strengthen the role of Tier-II cities in India's housing market. However, developers, lenders and investors will need to closely monitor affordability, absorption of higher-priced inventory and the execution capabilities of smaller developers as these markets continue to mature.
Source: Crisil Intelligence
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