Tier 2 cities emerge as India’s next housing hotspots: Nagpur, Lucknow, Coimbatore lead

India's Tier 2 cities are rapidly emerging as the country's next residential real estate hotspots, driven by infrastructure development, urbanisation and expanding employment opportunities. However, rising property prices and affordability pressures in some markets could temper future demand, according to a new report by CRISIL.

The report, Housing Hotspots, found that residential real estate demand across 10 major Tier 2 cities grew at a compound annual growth rate (CAGR) of 14% between FY2021 and FY2026. Cities such as Nagpur, Coimbatore and Lucknow recorded even stronger growth of nearly 20%, reflecting increasing buyer interest beyond India's traditional metropolitan markets.

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The surge has been fuelled by government-led infrastructure investments and urban development, encouraging large listed developers such as Godrej Properties, Phoenix Mills and Sobha to expand their presence in these emerging markets, according to CRISIL. The report noted that most Tier 2 cities currently enjoy balanced market dynamics, characterised by stable inventory levels, growing demand for larger homes and strong home loan disbursements.

Inventory remains under control

Developers have adopted a disciplined approach to project launches in recent years. After a sharp expansion between FY2021 and FY2024, new launches slowed over the past two fiscals, helping maintain unsold inventory at around 15-20 months of sales.

This measured supply has reduced the risk of oversupply and steep price corrections that historically affected several Tier 2 markets. The report attributed this trend partly to the dominance of mid-sized and smaller developers, whose limited execution capacity and funding availability naturally restrain excessive construction.

Premium housing 

Clear shift towards larger homes, with 2BHK and 3BHK apartments accounting for over 75% of the total housing supply over the past five years. It also observed that the average size of premium homes has increased, signalling stronger demand for spacious living.

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Cities such as Indore, Lucknow and Surat have evolved into premium housing markets, with more than 20% of active residential supply priced above ₹2 crore. This trend has been supported by the expansion of the IT sector and rising entrepreneurial wealth.

On the other hand, Jaipur, Nagpur, Nashik and Vadodara continue to cater largely to the mid-income segment, with more than 75% of housing supply priced below ₹75 lakh, supporting steady demand driven by manufacturing and industrial employment.

Affordability emerges as a concern

Despite strong momentum, CRISIL warned that affordability could become a challenge in select markets. Bhubaneswar, Coimbatore and Lucknow now have average residential prices exceeding ₹10,000 per square foot, bringing them closer to price levels seen in several Tier 1 city micro-markets.

The report noted that higher ticket sizes, especially above ₹1 crore in Bhubaneswar, Indore and Lucknow, have narrowed the pool of potential buyers and slowed sales compared with more affordable cities. Bhubaneswar's relatively higher unsold inventory warrants close monitoring as prices continue to rise.

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Home loan trends vary

The study also found that retail home loan disbursements across Tier 2 cities grew by over 15% between 2020 and 2025, led by Indore, Nagpur and Jaipur. While cities such as Surat, Vadodara and Bhubaneswar primarily use home loans for new property purchases, buyers in Indore, Coimbatore, Jaipur and Lucknow increasingly utilise loans for self-construction, renovations and resale transactions, indicating broader housing activity beyond fresh launches.