India’s Tier 2 cities have been the next big thing in real estate for years. As infrastructure improved, jobs multiplied, and aspirations grew, these cities attracted both buyers and investors during the last decade. But in the first quarter of 2025, something unusual occurred—housing sales in these cities dropped 8% year-on-year even as the overall value of transactions increased by 6%. Let’s break it down what’s actually happening.
The Numbers: Sales Volume vs Sales Value
In Q1 2025, about 43,781 housing units were sold across 15 major Tier 2 cities in India. This was a clear dip compared to the same quarter in 2024. However, while fewer homes were sold, the value of those transactions rose to ₹40,443 crore, up from ₹38,102 crore a year ago. So what does this imply? Less people are purchasing homes, but the ones who are, appear to be choosing more pricey or upgraded homes. It’s an indicator of changing consumer tastes and perhaps a change towards quality over quantity.
Why Are Sales Declining in Quantity?
1. Inflation and Interest Rates: The cost of living has seen consistent inflationary pressure. Combine that with rising home loan interest rates in late 2024 and early 2025, and you’ve got a recipe for reduced affordability. For middle-income families in Tier 2 cities, even a 1% hike in interest rates can significantly increase monthly EMIs, delaying homeownership decisions.
2. Shift in Buyer Demographics: There’s been a discernible increase in high-end buyers—individuals who are no longer content with plain 2BHK apartments. The buyer of today, particularly from salaried classes and NRIs investing within the homeland, is searching for more spacious houses, gated communities, parks, and smart facilities. These are pricier homes, so although the volume declines, the average ticket size increases.
3. Inventory Overhang: Tier 2 markets are seeing inventory overhang—projects introduced during the housing bubble of 2022–23 haven’t sold out yet. With demand outpacing supply, developers are holding off on introducing new units, and purchasers are holding out for a better bargain, which is helping slow down the sales.
Also read: Bangalore Real Estate in 2025: Prices Are Set to Explode – Are You Ready?
Where the Sales Dropped—and Where They Didn’t
Not all Tier 2 cities acted alike during Q1 2025. Ahmedabad, Lucknow, and Nagpur experienced a decrease in units sold. These are established markets which have experienced high growth, and it could be that demand is stabilizing. But cities such as Coimbatore and Dehradun defied the trend altogether. Coimbatore registered a 23% surge in residential sales, while Dehradun registered a whopping 47% growth. Why? A combination of improving connectivity, inflow of remote workers, and improved quality of life appears to be attracting buyers to these relatively smaller markets.
The Rise in Property Value: What’s Driving It?
In spite of the decrease in units sold, the value of total sales increasing informs us that higher-priced properties are being sought after. There are a number of reasons for this:
- Improved Lifestyle Choices: In the post-COVID era, most buyers desire spacious apartments with balconies, studies, and contemporary comforts.
- Affluence in Tier 2: Disposable income is increasing in Tier 2 cities, particularly among small business owners and entrepreneurs.
- NRI Investment: NRIs like to invest in their hometowns, and the choice is mostly for upscale homes instead of cheap flats.
- Developer Strategy: Builders are emphasizing high-margin projects more than high-volume projects. With increasing material and labor prices, higher-end housing is more rewarding.
What This Means for Homebuyers and Developers
- For buyers, particularly first-time buyers, this could be a double-edged sword. On the plus side, less competition equals stronger bargaining leverage. On the negative side, the movement toward luxury products could drive prices out of the range of the middle class.
- For builders, the word is out: get to know your neighborhood market. The one-size-fits-all strategy will not suffice. In certain cities, there is unmistakable demand for upscale houses. In others, affordability reigns supreme. Tuning in to aspiration while keeping an eye on affordability will be the magic formula to sustainable demand.
What Lies Ahead for Tier 2 Real Estate
The Tier 2 tale is far from finished. The first quarter of 2025 was correction rather than crisis. Property in these cities is still growing, but the rhythm and form of that growth are changing.
- More selective new launches centered on high-end living.
- Inventory planning driven by demand based on hyperlocal requirements.
- Heightened demand from remote professionals and small business owners prioritizing quality of life over metro proximity.
- Greater adoption of PropTech to simplify sales, leasing, and home purchasing decisions.
The decline in sales of houses in Tier 2 cities in Q1 2025 is not the end of the real estate boom—it is a change. Buyers are wising up, developers are cutting their teeth, and cities are diversifying their real estate base. For anyone monitoring India’s housing market, this is a moment to observe closely—not with fear, but with strategy.
Written by Pydimarri Hema Harshini
