“In 2025, Tier 2 and Tier 3 cities will emerge as the new frontiers of housing market, offering a blend of affordability and quality of life that is hard to resist.” – Sidhant Gupta former director of Kwality Ltd.
As India’s economy continues to flourish, several sectors have played pivotal roles in this growth narrative, with the Indian real estate sector standing out as a leading driver. The housing market, in particular, has experienced remarkable expansion, and this momentum is expected to continue.
Let’s delve into the dynamics of the Indian housing market’s growth with insights from Sidhant Gupta, former director of Kwality, to understand the trends shaping this sector.
India’s real estate sector has had a transformative expansion in past few years, with projections indicating it will reach $5.8 trillion by 2047. This growth will significantly increase its contribution to the country’s GDP, rising from 7.3% currently to 15.5% by 2047. The sector is expected to experience rapid growth, reaching a market size of $1 trillion by 2030, marking a substantial increase from $200 billion in 2021.
Within the real estate sector, the housing market India’s housing market has experienced a noteworthy resurgence, with sales figures reaching unprecedented heights. According to kpmg.com, between January and September 2024, the top seven cities sold over 229,900 units, marking a substantial 17% increase from the previous year and a notable 60% rise from 2019.
This growth is largely driven by the mid-and high-end segments, where premium housing now accounts for 16% of demand, up significantly from just 6% in 2019.
So what exactly are the drivers behind this growth in the housing market in India?
Firstly Tier 2 and 3 cities in India are experiencing unprecedented growth, driven by a combination of factors including improved infrastructure, government initiatives, and shifting consumer preferences. Cities like Jaipur, Indore, and Kochi are emerging as pivotal hubs for real estate development, with over 40% of new housing projects expected to be concentrated in these areas by 2025.
Sidhant Gupta believes “As the chaos of Tier 1 cities becomes overwhelming, many are seeking refuge in smaller towns. The rise of remote work has made it possible to ditch the urban grind for a more peaceful life. Smaller cities offer a serene escape with lower costs and a relaxed pace, perfect for those craving a better work-life balance. The charm of these towns is proving irresistible, drawing in digital nomads and remote workers alike. It’s a trade-off that’s hard to resist: tranquility over traffic, community over concrete.”
Moreover, the government’s focus on enhancing infrastructure in Tier 2 and 3 cities is another key driver of this growth. Initiatives such as improved transportation networks, modernized utilities, and enhanced connectivity are making these cities more attractive for both residents and investors.
Initiatives like the Smart Cities Mission in India are transforming urban landscapes by promoting sustainable and inclusive development. Launched in 2015, this mission aimed to enhance the quality of life in 100 selected cities by providing core infrastructure, efficient services, and a sustainable environment. As of January 2025, the mission has made significant strides, with over 7,380 projects completed out of a total of 8,075, reflecting substantial progress in achieving its objectives.
In another initiative by The Commerce Ministry, the recent directive to develop a “City Level Economic Vision” for 100 Tier 2 and 3 cities by June 2026 underscores the government’s commitment to fostering economic growth in these regions. This infrastructural development not only supports local economic expansion but also enhances the quality of life for residents, making these cities more appealing for long-term investments.
“The Indian government’s initiatives have given a big boost to the housing sector in smaller cities. Who wouldn’t want to trade in the chaos of metropolitan life for a more serene and connected existence in smaller cities? With better infrastructure, enhanced security, and a higher quality of life, these smart cities are making people rethink their urban priorities.”
“The result? Property values are soaring, and people are more than happy to ditch the big city for a smarter, more sustainable lifestyle in smaller towns. It’s a win-win: you get to enjoy the tranquility, and the real estate sector gets a boost. Talk about a smart move!” he adds.
Another big push is the recent rearrangements in tax slabs which are expected to boost disposable incomes, encouraging more individuals to invest in housing property. As the middle class grows and becomes more affluent, there is an increasing preference for quality housing, driving demand in the real estate sector.
This trend is likely to continue as more people seek to capitalize on the potential for long-term appreciation in property values, especially in smaller cities where prices are relatively more affordable compared to metropolitan areas.
Looking ahead, Tier 2 and 3 cities will be the drivers of growth in the housing market driven by sustained government support, infrastructural improvements, and evolving consumer preferences.
As these cities become more integrated into the national economy, they are likely to attract more investments, both domestic and foreign, further propelling their economic and real estate development. The emphasis on sustainability and technological advancements in these regions will also play a crucial role in shaping their future growth, making them not just attractive investment destinations but also hubs for innovation and entrepreneurship.
