Tier-2 and Tier-3 cities, Gen Z buyers drive the next phase of India’s housing boom: Report

Tier-2 and Tier-3 cities are emerging as the next growth engine of India’s housing market, even as Millennials and Gen Z increasingly dominate homeownership decisions across the country. Together, these shifts are reshaping how India finances its housing dreams, pushing lenders, developers and policymakers to rethink products, processes and outreach beyond metropolitan centres.

According to a recent consumer insights report by BASIC Home Loan, younger buyers now account for nearly 90–95% of home purchases in India, underlining a decisive generational transition in housing demand. This cohort, driven by aspirations for stability, asset creation and lifestyle upgrades, is increasingly looking beyond large metros to smaller cities that offer affordability, improving infrastructure and better quality of life.

Tier-2 and Tier-3 markets 

The rise of Tier-2 and Tier-3 markets is being powered by multiple structural factors. Improved digital connectivity, expanding formal credit access and rising income levels have significantly narrowed the gap between metro and non-metro India. With job creation spreading across manufacturing hubs, services clusters and logistics corridors, homeownership demand is becoming more geographically diversified.

Raj Vikash Verma, Former Chairman & Managing Director, National Housing Bank, added, “India’s housing finance ecosystem has become more diversified and consumer-centric. Strengthening inclusion in Tier-2 and Tier-3 markets, while improving transparency and trust, can make housing a powerful lever of social security, economic dignity and long-term national development.”

Digital adoption has played a central role in this transformation. The report highlights that nearly 72% of borrowers under the age of 40 prefer applying for home loans online, signalling a strong shift toward digital-first lending journeys. Importantly, this trend is no longer limited to urban centres. Even in semi-urban and rural regions, borrowers are increasingly comfortable using online platforms to compare lenders, submit documents and track loan approvals.

Atul Monga, CEO & Co‑Founder, BASIC Home Loan, said, “Millennials and Gen Z are at the heart of India’s housing story, and their preference for fast, transparent digital loan journeys is reshaping the ecosystem. By reducing documentation friction, leveraging IndiaStack and respecting the borrower’s time, we can expand inclusion and unlock housing demand across Bharat, from metros to Tier-3 towns. This is essential to achieving truly inclusive homeownership at scale."

Loan processing

The growing use of India Stack infrastructure has further accelerated this shift. DigiLocker, in particular, has emerged as a key enabler of faster and more transparent loan processing. Nearly 80% of DigiLocker users in the home loan process are aged 35 or below, reflecting the younger generation’s preference for paperless documentation and quicker turnaround times.

While public sector banks continue to dominate India’s housing finance landscape due to competitive interest rates and institutional trust, the report points to a more diversified lending ecosystem taking shape. Private banks and non-banking financial companies (NBFCs) are steadily gaining ground, especially among borrowers with non-traditional income profiles or those seeking faster disbursals. In Tier-2 and Tier-3 cities, NBFCs are playing a critical role in bridging credit gaps left by conventional banking channels.

Borrower expectations are also evolving. Although interest rates remain the most important factor in lender selection, speed, transparency and customer service are becoming increasingly influential — particularly among younger, self-employed and digitally savvy borrowers. Many homebuyers are willing to accept marginally higher rates in exchange for quicker approvals and simpler processes.

Affordability trends

Affordability trends show a gradual improvement across markets. Rising incomes and relatively stable interest rates have increased borrowers’ comfort with higher EMI-to-income ratios, especially in metro and larger Tier-2 cities. At the same time, rural and smaller-town borrowers continue to prefer more conservative repayment structures, highlighting the need for customised loan products across regions.

Despite these gains, challenges remain. Excessive documentation, mis-selling by agents and lack of process transparency continue to be cited as key pain points by borrowers across geographies. Addressing these issues will be critical to sustaining housing inclusion and expanding formal credit access.

Experts say the convergence of young demand, digital infrastructure and non-metro growth represents a structural shift rather than a cyclical trend. As Tier-2 and Tier-3 cities become central to India’s housing story, the success of the sector will increasingly depend on how effectively lenders align technology, trust and affordability with the aspirations of a new generation of homebuyers.