Is it Wise to Buy Real Estate in Tier 2 Cities in India?

Real estate tier 2 city

The Tier 2 cities in India are fast becoming a hotspot for property investments. The coveted Financial Express, in one of its recent reports, referred to Tier 2 and 3 cities as “new frontiers of real estate development”. But is it a wise decision to buy a property in these cities? When considering buying real estate in Tier 2 cities, several factors need to be evaluated to make an informed decision.

Continue reading to know!

5 Reasons to Buy Real Estate in Tier 2 Cities

Here’s why you can strongly consider investing in properties located in Tier 2 cities.

1. Commendable Economic Growth Equals Higher Property Appreciation 

In recent years, tier 2 cities have been witnessing unprecedented and multifaceted economic growth, whether it is in terms of infrastructure, employment opportunities, or lifestyle changes.

According to a report released by the National Council of Applied Economic Research (NCAER), the towns falling in tier 2 and tier 3 cities had made a noteworthy contribution of approximately 40% to India’s GDP back in 2015. The report also forecasts an increase in this contribution to 45% by 2025. 

Moreover, several multinational companies have also sprung up in these regions, transforming them into thriving IT hubs, ultimately resulting in numerous employment opportunities and driving the demand for housing and commercial setup.

Besides improved infrastructure, scaling connectivity with new highways, railways, and airports, is also making these cities more accessible, and hence, more preferred. All of this combined will also lead to an impeccable appreciation in property prices in the longer run.

2. Affordability

The escalating property values in the top-tier cities have, in a way, sparked the demand for affordable spaces in Tier 2 and tier 3 cities

Tier 2 cities provide a great starting point for real estate investments, especially if you have a tight budget and low-risk tolerance. Properties here come at much lower prices in comparison to metros, making it easier for middle-income investors to purchase a property. 

Besides, these places also demand a significantly lower cost for both living and doing business. This enables investors to get more value for their money. Furthermore, these cities also have a wealth of unexplored real estate markets, allowing investors to grasp fresh and high-potential investment opportunities.

3. Government Initiatives

Tier 2 cities have also caught the eye of the government due to their immense potential for development.

For instance, the Government of India,  in the Union Budget (2023-24), has further reinstated its inclination towards promoting infrastructure development of Tier 2 and 3 cities. Honourable Finance Minister, Nirmala Sitharaman, declared the initiation of the Urban Infrastructure Development Fund (UIDF) which aims to stand by the public agencies and support them in creating urban infrastructure across these cities.

Such proactive efforts made by the government will not only boost the overall growth potential of the cities but also unblock lucrative opportunities for real estate investors

4. Higher Rental Yields

The rental yields tend to be more substantial in Tier 2 and Tier 3 cities than in Tier 1 cities. This is primarily because of the comparatively lower real estate prices in the former, in addition to the high demand for rental accommodations.

5. Better Quality of Life

Prospective homebuyers are seeking to draw away from the chaotic urban environment offered by the major metropolises to lesser populated towns and cities in quest for a serene living experience. Tier 2 cities provide a considerably improved quality of life with a peaceful ambience, cleaner environment, sparse traffic congestion, and proximity to nature.

This becomes especially meaningful given the unexpectedly unfolded work-from-home culture post-pandemic. As a seemingly large chunk of people are preferring WFH, they are looking for a space where they can lay back, enjoy peace of mind, and be at their productive best. Therefore, buying real estate in Tier 2 cities becomes an attractive option for those seeking a better quality of life while maintaining their productivity.

Are There Any Challenges Associated With Investing in Tier 2 Cities’?

Tier 2 cities often don’t have the same level of regulatory strictness as metropolises, which can lead to delays in the execution and delivery of property-related projects.

Also, due to the ongoing infrastructure and development projects, the property values may take longer than usual to appreciate and provide you with a considerably good long-term return. 

Hence, buying real estate in these cities is a wise decision if you are looking for long-term investments, and are patient enough for the city to develop and reap high returns. 

Final Word

We would recommend doing rigorous research before buying a property in tier 2 cities. To make a well-informed decision, consider various factors such as future development plans for the city, growth prospects, and potential return on investment, among others. Visit our blog to obtain more insights like so!

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