Housing demand across India’s Tier-II cities experienced a modest setback in the January–March 2025 quarter, with sales volumes declining by 8% year-on-year. However, the overall market remained resilient in value terms, recording a 6% rise to Rs. 40,443 crore, signaling a shift towards higher-value transactions. According to PropEquity, factors such as supply-side constraints and limited new launches tempered transaction volumes, even as cities like Lucknow, Coimbatore, and Gandhinagar posted healthy growth. The broader outlook remains optimistic, supported by favorable interest rate trends, infrastructure investments, and the evolving economic significance of non-metro urban centers.
Decline in Volume, Rise in Value
In the first quarter of 2025, the 15 major Tier-II cities tracked by real estate analytics firm PropEquity saw residential sales drop to 43,781 units, from 47,378 units in the same period last year. While the 8% decline in unit sales suggests a temporary dip in market momentum, the rise in transaction value—from Rs. 38,102 crore in Q1 2024 to Rs. 40,443 crore in Q1 2025—indicates a trend toward premium housing.
This divergence in volume and value underscores an evolving demand dynamic where fewer but more expensive homes are being purchased. It also reflects consumer preference for better-located and higher-end properties, even in non-metro regions.
Regional Trends and City-Level Performance
Despite the overall softness in volume, certain cities bucked the trend. Lucknow led the charge with a 25% increase in units sold (1,301 units), followed by Coimbatore (up 21%), Gandhinagar (18%), and Mohali (2%). These gains suggest that cities with growing employment opportunities and improved infrastructure continue to attract homebuyers.
Conversely, Visakhapatnam recorded the steepest decline at 37%, followed by other cities where constrained inventory may have limited sales. Ahmedabad, the largest housing market among the 15 surveyed cities, saw a marginal 1% drop in units sold but a 7% increase in transaction value, reaching Rs. 13,565 crore.
In total, eight of the 15 cities experienced value growth in housing sales, indicating selective but strong demand in specific micro-markets.
Factors Driving Demand and Supply Imbalance
Samir Jasuja, Founder and CEO of PropEquity, attributed the decline in volumes to a lower supply pipeline during the quarter. However, he noted that state capitals fared relatively better, bolstered by stronger infrastructure and civic development.
Jasuja also emphasized the positive outlook stemming from monetary policy. With the Reserve Bank of India having already cut the repo rate by 50 basis points since January 2025—and further reductions anticipated—the resulting drop in home loan interest rates is expected to improve affordability and fuel a demand resurgence in subsequent quarters.
Macro Trends Favoring Tier-II Real Estate
Industry leaders remain bullish on the long-term prospects of Tier-II cities. Mohit Malhotra, Founder & CEO of NeoLiv, highlighted the transformation underway in these regions due to expanding corporate footprints and significant public-private infrastructure investments. This evolution is enhancing the desirability and value of real estate in secondary cities.
Yashank Wason, Managing Director at Royal Green Realty, pointed to cities such as Indore, Sonipat, and Rohtak as emerging hotspots for real estate investment. He attributed this trend to urban oversaturation in metros, which has driven both developers and end-users to explore better-value alternatives in Tier-II locales.
Similarly, Vijay Harsh Jha of VS Realtors expects the volume decline to be short-lived, underpinned by strong macroeconomic fundamentals and an increasingly accommodative lending environment.
Outlook: Navigating Shifts in Consumer Behavior
The report indicates that the residential real estate market in Tier-II cities is entering a nuanced growth phase. Though supply constraints and delayed project approvals affected Q1 2025 performance, robust value growth and continued infrastructure development provide a solid foundation for future demand.
As more developers target these emerging urban centers, offering premium yet affordable products tailored to aspirational middle-class buyers, Tier-II cities are poised to play an increasingly significant role in India's real estate growth narrative.
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