India’s residential real estate market is entering a phase of structural transition, with growth increasingly shifting towards Tier 2 and 3 cities even as affordability pressures continue to weigh on metro demand. A Square Yards report indicates that infrastructure spending and policy push are driving this geographic redistribution of housing demand.
However, the emerging trend raises a deeper concern- whether this is genuine demand expansion or a structural adjustment triggered by rising prices and limited affordability.
Is Metro Housing Unaffordable Now?
The report notes that several Tier 1 markets have entered a “too-premium-to-afford” phase, where property prices have outpaced income growth, leading to affordability compression and moderation in demand at higher ticket sizes.
“Affordability constraints in Tier 1 cities are real and could restrain end-user demand over time, particularly for first-time buyers who are finding it increasingly difficult to enter the housing market,” said Aman Sharma, Managing Director and Founder, Aarize Group.
Sharma added, “While demand may not structurally decline, it is likely to shift in form, with buyers moving towards peripheral micro-markets or rental housing options, reflecting a gradual change in ownership patterns rather than a complete demand slowdown.”
Is Demand Simply Shifting Locations?
The report highlights that Tier 2 and 3 cities offer better price-to-income alignment, lower entry costs and infrastructure-led activation, making them more accessible compared to expensive metro markets.
Demand movement beyond metro cores is already visible. Hardik Shah, Director, Shyam Group-Dholera SIR, said, “Rising property prices in Tier 1 cities are pushing buyers towards peripheral locations and neighbouring Tier 2 markets, where affordability remains relatively better.”
He further noted that improved connectivity and infrastructure upgrades are enabling new micro-markets to emerge, gradually redistributing demand away from traditional urban hotspots and into emerging residential corridors.
New Micro-Markets Emerging
The report underlines that infrastructure expansion is unlocking underdeveloped zones and enabling the formation of new residential clusters, particularly in regions where connectivity and planned development are improving.
Highlighting this shift, Shah said, “Improved infrastructure and connectivity are making previously inaccessible areas more viable, allowing new residential and commercial micro-markets to emerge with increasing buyer interest.”
Shah added that as these areas become more liveable through better logistics and civic infrastructure, demand is gradually building in a more distributed manner rather than being concentrated only within established metro corridors.
Infra Driving Real Demand
The report underscores that large-scale public capital expenditure, including Rs 12.2 lakh crore, is unlocking new corridors, improving connectivity and reshaping real estate demand across regions.
“Infrastructure expansion today is fundamentally a land value story,” said Amit Modi, Director, County Group, pointing to how projects such as expressways and airports are unlocking underdeveloped zones and accelerating price appreciation.
Modi added, “Development cycles are now aligning faster with infrastructure timelines, with residential and commercial ecosystems emerging simultaneously, although this also raises concerns that price growth may move ahead of actual end-user absorption in early stages.”
Will CERs Deliver Balanced Growth
The report identifies City Economic Regions (CERs), with Rs 5,000 crore allocation per region, as a key structural reform aimed at decentralising economic activity and boosting housing demand beyond metro cities.
Highlighting their potential Sharma said, “CERs can create self-sustained economic clusters beyond core metropolitan areas, expanding housing demand in emerging regions and reducing pressure on large cities.”
He added, “However, their success will depend on alignment between infrastructure development, employment generation and planning, as any disconnect could limit their ability to create sustained housing demand.”
Why Affordable Housing Is Still Missing
The report flags a steady decline in affordable housing supply, noting that limited incentives and rising costs have constrained options for middle-income buyers.
“Addressing the affordability gap requires coordinated action through policy support and cost rationalisation,” said Modi, highlighting structural challenges in sustaining affordable housing supply.
Modi added, “Developers are increasingly focusing on design efficiency and smaller formats, signalling a shift from volume-driven affordable housing towards a more viability-driven approach in the current market environment.”
Developers note that while infrastructure-led growth and Tier-2 expansion are creating new opportunities, concerns around affordability, demand quality and execution persist. With buyers adjusting preferences rather than expanding demand, they indicate that the sustainability of the current real estate cycle will depend on how effectively these imbalances are resolved. |
