Where should you buy a home? Crisil maps India’s emerging housing hotspots | Personal Finance

Demand in Tier-2 housing markets has grown at a 14% CAGR over the past five years, but rising prices and affordability concerns are beginning to reshape where—and what—homebuyers should buy, according to a report by Crisil Intelligence.

 

The report says residential demand across 10 major Tier-2 cities expanded at a 14% compound annual growth rate (CAGR) between FY21 and FY26, with Nagpur, Coimbatore and Lucknow recording an even stronger 20% CAGR, driven by infrastructure development, urbanisation and rising employment opportunities.

 

For homebuyers, however, the report offers a nuanced picture. While these cities continue to offer more affordable alternatives to Tier-1 markets, rapid appreciation in select locations means buyers need to pay closer attention to pricing, inventory and local economic drivers before making a purchase.

 
 

Premium homes are becoming the norm

 

Over the last five years, 2 BHK and 3 BHK homes accounted for more than 75% of new housing supply, while the average size of larger homes has increased, reflecting buyers’ preference for spacious living.

 

However, larger configurations and rising prices pushed average ticket sizes above Rs 1 crore in Bhubaneswar, Indore and Lucknow, affecting affordability and shrinking the buyer pool, leading to slower sales compared with mass-market cities.

 

Simultaneously, Tier 2 markets have diverged sharply in pricing. Indore, Lucknow and Surat emerged as premium pockets, with over 20% of active supply priced above Rs 2 crore, driven by expansion of the information technology (IT) sector and entrepreneurial wealth. 

 

‘These cities offer sustained appetite for premium housing and higher-value home loans,” said Crisil.

 

In contrast, Jaipur, Nagpur, Nashik and Vadodara remain mid-segment focused, with over 75% of supply priced below Rs 75 lakh. 

 

‘As manufacturing and industrial employment bases, these cities prioritise affordability, supporting volume-driven growth and steady retail home loan demand. Tier 2 India, therefore, is not monolithic. Understanding how local economic engines—IT services, traditional business or manufacturing—shape residential demand is critical for developers while launching new projects,” said Crisil.

 

But that trend has pushed prices higher.

 

Bhubaneswar, Coimbatore and Lucknow now have average residential prices exceeding Rs 10,000 per sq ft, comparable with several micro-markets in Tier-1 cities. The report cautions that continued price appreciation could erode affordability, particularly in Bhubaneswar, where unsold inventory remains relatively high.

 

Which cities are affordable?

 

Not all Tier-2 markets are moving in the same direction.

 

According to Crisil, Jaipur, Nagpur, Nashik and Vadodara remain largely mid-income housing markets, with more than 75% of available supply priced below Rs 75 lakh, making them attractive for first-time buyers.

 

In contrast, Indore, Lucknow and Surat are emerging as premium residential destinations, with over 20% of active housing supply priced above Rs 2 crore. This shift has been driven by expanding IT ecosystems and entrepreneurial wealth, creating demand for luxury homes and larger home loans.

 

Healthy inventory reduces risk

 

One positive for prospective buyers is that developers have kept supply under control.

 

Following a surge in launches between FY21 and FY24, developers moderated new project launches over the past two years, maintaining unsold inventory at 15-20 months of sales. According to Crisil, this reduces the likelihood of oversupply and sharp price corrections that have historically affected Tier-2 markets.

 

Home loan demand remains strong

 

The report also found retail home loan disbursements grew more than 15% between 2020 and 2025, led by Indore, Nagpur and Jaipur.

 

Interestingly, not all home loans are funding purchases of new apartments. While loans in Surat, Vadodara, Bhubaneswar and Nashik are largely linked to primary home sales, borrowers in Indore, Coimbatore, Jaipur and Lucknow are increasingly taking loans for self-construction, home renovations and secondary-market purchases.

 

What should buyers watch?

 

For prospective homebuyers, Crisil says affordability should remain the key consideration as prices continue to climb.

 

The report noted that infrastructure-led growth and expanding services-sector employment are transforming Tier-2 cities into mainstream housing markets. However, buyers should closely monitor housing affordability, the pace at which premium homes are being absorbed, and developers’ financial strength, particularly in cities witnessing rapid price appreciation.

 

As Tier-2 cities mature, choosing the right city—and the right micro-market—may prove more important than simply choosing the lowest-priced home.