Most of us know about the big metropolitan cities in India – Kolkata, Mumbai, Chennai, Bengaluru, Hyderabad, Delhi, Pune etc. Yet a big majority of cities in India do not fall within the highly developed category of Tier 1 cities like Mumbai or Delhi. Most Indians hail from smaller cities and towns, well ahead in the path of development or some that are underdeveloped. These are the cities that have been classified as Tier 2 and 3 by the Pay Commission in India, differing from what they were previously classified as pre-2008 i.e., the historical classification of cities. Today, based on the salary, population density, and level of development, cities are classified into X (tier 1), Y (tier 2), and Z (tier 3) categories. Currently, there are >100 (and counting) tier 2 cities in India. But what is a tier 2 city? Why is it classified the way it is? What kind of change in basic assumptions are we noticing towards real estate in the top tier 2 cities in India? What is the market value of land in tier 2 cities?
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In this blog, therefore, we have decided to explore these questions and more, for us to be aware of why tier 2 cities in India are invest-worthy. Read on!
What Are Tier 2 Cities?
In India, Tier 1 cities are the ones most developed, while tier 3 cities are the developing ones. Tier 2 cities fall somewhere in between. They are more densely populated than tier 3 cities, have a higher cost of living than tier 3 cities, and have decent infrastructure and connectivity. For example, it is the belief of economists that tier 2 cities such as Noida, Vellore, Kochi, Goa, Gurgaon etc. will steadily transform into tier 1 cities due to the higher cumulative income of the world’s fastest-growing democracy and the biggest number of the working population globally – India. There are certain advantages of investing in tier 2 cities as they have:
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- Decent infrastructure
- Less traffic in transportation
- Moderate cost of living
- Low cost of doing business
- Better quality of life than tier 3 cities
- Higher economic activity and therefore higher employment options than tier 3 cities
There is more to the tier 2 city meaning in terms of technicalities. For example, as per RBI, tier 2 cities have a population of around 50,000 to 99,999. This kind of classification based on the population helps the government decide the average salary of the employees working in those cities. According to the current 7th Pay Commission, the current classification of the tier 2 cities in India is listed as below:
- Agra
- Ajmer
- Aligarh
- Amravati
- Amritsar
- Asansol
- Aurangabad
- Bareilly
- Belgaum
- Bhavnagar
- Bhiwandi
- Bhopal
- Bhubaneswar
- Bikaner
- Bilaspur
- Bokaro Steel City
- Chandigarh
- Coimbatore
- Cuttack
- Dehradun
- Dhanbad
- Bhilai
- Durgapur
- Erode
- Faridabad
- Firozabad
- Ghaziabad
- Gorakhpur
- Gulbarga
- Guntur
- Gwalior
- Gurugram
- Guwahati
- Hamirpur
- Hubli–Dharwad
- Indore
- Jabalpur
- Jaipur
- Jalandhar
- Jalgaon
- Jammu
- Jamnagar
- Jamshedpur
- Jhansi
- Jodhpur
- Kakinada
- Kannur
- Kanpur
- Karnal
- Kochi
- Kolhapur
- Kollam
- Kozhikode
- Kurnool
- Ludhiana
- Lucknow
- Madurai
- Malappuram
- Mathura
- Mangalore
- Meerut
- Moradabad
- Mysore
- Nagpur
- Nanded
- Nashik
- Nellore
- Noida
- Patna
- Puducherry
- Purulia
- Prayagraj
- Raipur
- Rajkot
- Rajamahendravaram
- Ranchi
- Rourkela
- Ratlam
- Salem
- Sangli
- Shimla
- Siliguri
- Solapur
- Srinagar
- Surat
- Thanjavur
- Thiruvananthapuram
- Thrissur
- Tiruchirappalli
- Tirunelveli
- Tiruvannamalai
- Ujjain
- Vijayapura
- Vadodara
- Varanasi
- Vasai-Virar City
- Vijayawada
- Visakhapatnam
- Vellore
- Warangal
A Paradigm Shift in Tier 2 Cities’ Real Estate
It wasn’t long ago that working migrant populations would move to tier 1 cities in search of jobs, education – and a better quality of life.
Once the COVID-19 pandemic set in, however, we have seen a stark shift of investment from tier 1 cities to tier two cities in India, because of several reasons. A big reason was the overall health and wellness concerns during the pandemic that popularized the ‘work-from-home’ culture. This means companies wanting to hire talent from anywhere in India can easily find their pick of the pack within these tier 2 cities. Secondly, the pandemic also brought in the need to have spacious interiors of homes, open greenery, and nature, far away from the hustle and bustle of a tier 1 city. Finally, for investors, better entry prices, sizeable returns, and flexibility turned out to be the most beneficial aspects of investing in tier ii cities’ real estate.
Today, it is not simply homeowners or real estate investors looking at opportunities outside tier 1 metros, but also international companies and governments investing in tier 2 cities. Not only is the high population of the tier 2 cities in India an advantage from a sales point of view for businesses, but it is also a large population of aspiring real estate investors seeing a high return on investment over a long time. Given more and more businesses are becoming capital intensive, locating to a tier 2 city where the cost of living and doing business is lower is also beneficial, from a real-estate point of view.
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Essentially, we can expect the trend of shifting importance to tier 2 cities to continue in the future, wherein more and more tier 2 cities will witness a plethora of investment, and opportunities, as well as first-mover advantage for businesses and homeowners.
The Future of Tier 2 Cities in India
As most of India’s operations have moved to the digital realm, the internet has turned out to become a necessity for Indians in every nook and corner of the country, in addition to food, clothes, and shelter (roti, kapdaa, makaan). From >400 million people online in the year 2017 to more than 500 million today, the growth of digital adoption has been incredible.
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While the reverse migration that took place during the pandemic has brought people back to offices, there are quite a number of tier 2 cities in India, where people have completely adapted to the working from home culture. With this trend, not only will more developers with reputed experience be attracted to tier 2 cities in India, but the housing quality will also increase in such cities. This includes the publicly used infrastructure such as schools, hospitals, roads, workplaces, commercial joints etc.
Another advantage for first-time buyers in tier 2 cities in India will be the entry-level affordability for housing, given the rising trend of work-from-home permanently in many cases. Prospective buyers can not only buy their first or even second homes at low costs, but they can also fuel the development of local regions – leading to better employment opportunities, improved connectivity, and economic activity. This means following the pandemic’s completion, businesses will also increase their touchpoints in tier 2 cities, new policies from the government will favour tax benefits and more.
The Top 10 Tier 2 Cities in India to Invest In
There has been a rise in disposable income due to the rise of the work-from-anywhere culture. As revealed in the top 10 Randstad salary trend reports, cities like Chandigarh, Ahmedabad, Bhubaneswar, Thiruvananthapuram, Jaipur, Indore, and Vadodara have been listed as the fastest-growing cities in the nation. From the list of these top 10 tier 2 cities in India, Ahmedabad has topped the list, followed by Chandigarh, Thiruvananthapuram, Kochi, Bhubaneshwar and more. As a result, not only has housing activities increased in these cities, but commercial activities including manufacturing, e-commerce, post-pandemic touring and more have also risen. This includes higher investments from Non-Resident Indians looking to spend on spacious holiday homes in affordable places. Let us now look at the best tier 2 cities to live in India (as well as a few notable tier 3 cities) in some states and why they have attracted higher real estate investment there.
Top Tier 2 Cities in Karnataka
Rapid urbanization following cities like Bengaluru has led the Karnataka government to encourage real estate activities in various tier 2 cities. As a result, cities like Mysuru, Hubli-Dharwad, Bellary and more have emerged to be showing great real estate investment potential.
- Mysore: It is not simply the high historical importance that sets Mysore apart, it is also the rapid urbanization that has led to high investments in this beautiful city – including holiday homes, infrastructure growth, connectivity improvements and more.
- Hubli-Dharwad: The twin cities of Dharwad and Hubli have emerged as one of the top urbanization regions in the city, including a municipality, business hubs and more.
- Bellary: Located in the verdant and natural-resources-rich north-western region of Karnataka, Bellary has emerged with several beautiful urban housing communities in the state.
- Top Tier 2 Cities In Andhra Pradesh
Ranking high in the fields of ease of doing business, Andhra Pradesh has emerged to be a hub of high manufacturing, heavy industries, fisheries and more.
Visakhapatnam: The city of Vishakhapatnam is popular for its import-export sector, mineral extraction, and pharmaceuticals, making it a high potential real estate investment region.
Kurnool: The former capital of Andhra Pradesh is also highly populous, and has now begun seeing high real estate investment activities boosted by its natural resources and agriculture industries.
Nellore: Known for its flourishing agricultural industry, Nellore’s service and industrial sector have made the region ripe for economic and real estate investment activities.
Top Tier 2 Cities in Kerala
With the highest literacy rate and second-least impoverished state in India, Kerala has become an attractive location for real estate investments.
Thiruvananthapuram: Among the 5 major cities in the state, Trivandrum or Thiruvananthapuram is the best tier 2 city to invest in.
Kochi: The Queen of the Arabian Sea or Kochi, is not only beautiful but is also well-known for its tourist attractions, picking up pace this year rapidly.
Kozhikode: Rich in historical antiquities and spice trade, the city of Kozhikode is now also going through rapid urbanisation.
Top Tier 3 and Tier 2 Cities in Maharashtra
Given that tier 1 cities in Maharashtra like Mumbai and Pune are too expensive in terms of real estate, tier 2 and tier 3 cities have turned out to be more lucrative investment options. While Nagpur, Kolhapur, Navi Mumbai, and Nashik are popular tier 2 cities, the top tier 3 cities in Maharashtra include Pimpri-Chinchwad, Ulhasnagar, Nanded Waghala and more.
Nagpur: The ‘Orange City’ of Maharashtra is the third-largest city in the state despite being a tier 2 city. The city is a major political and commercial centre as well as trade-in oranges as well as other agricultural products.
Kolhapur: Well-known for its handcrafted products as well as the Marathi film industry, Kolhapur has a lot of rich spiritual history. With a proper municipality system in place, this tier 2 city is ripe for real estate investments and rapid urbanization.
Nashik: Located on the banks of the river Godavari, Nashik is also one of the largest cities in Maharashtra. Known as the ‘wine capital of India’ and the popular site of the annual Kumbh Mela, Nashik has seen a high real estate investment in recent years.
Top Tier 3 and Tier 2 Cities in Tamil Nādu
The Tamil film industry’s popularity not just in India, but across the world is well known. That said, while tier 1 cities like Chennai are densely populated and therefore high in real estate cost, it makes sense to invest in tier 2 and 3 cities where accelerated development is taking place. While Ambur, Madurai, Tiruchirappalli, and Vellore rank high in tier 2 cities, the top tier 3 cities in Tamil Nadu include Adiramapattinam, Chengam, Ariyalur, Kalakkurichi and more.
- Ambur: With its newly announced municipality and known for its major leather industry, Ambur has grown to become a centre of several significant business hubs. So not only can you try its very popular spicy ‘Ambur Biryani’, but you can also invest in the rapidly growing real estate community.
- Madurai: Madurai houses the 3rd largest urban agglomerations in the state of Tamil Nadu after Coimbatore and Chennai. With a highly developed transportation system and government infrastructure, the Madurai real estate industry is ripe for investments.
- Vellore: Located on the banks of river Palar, Vellore is widely popular in India for its prominent medical and technological industry. As a result of rapid urbanization, this tier 2 city is also witnessing accelerated real estate investments.
Make Your Move to Any Tier 2 Cities in India
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FAQ‘s
Q1. How many tier 2 cities are there in India?
Ans- If you are wondering about how many tier 2 cities in India are present, there are >100 tier 2 cities in India currently.
Q2. What are tier 2 cities?
Ans- In India, Tier 1 cities are the ones most developed, while tier 3 cities are the developing ones. Tier 2 cities fall somewhere in between. They are more densely populated than tier 3 cities, have a higher cost of living than tier 3 cities, and have decent infrastructure and connectivity.
Q3. What are the advantages of investing in a tier 2 city?
Ans- There are certain advantages of investing in tier 2 cities including decent infrastructure, less traffic in transportation, moderate cost of living, low cost of doing business, a better quality of life than tier 3 cities, as well as higher economic activity and therefore higher employment options than tier 3 cities.
Q4. What was the effect of the COVID-19 pandemic on tier 2 cities’ real estate?
Ans- From moving to the digital realm, adopting the work-from-home culture, higher disposable income and more, businesses and people have found investing in real estate in tier 2 cities to be more affordable and beneficial.
Q5. Which are the fastest growing tier 2 cities in India in terms of income?
Ans- As revealed in the top 10 Randstad salary trend reports, cities like Chandigarh, Ahmedabad, Bhubaneswar, Thiruvananthapuram, Jaipur, Indore, and Vadodara have been listed as the fastest-growing cities in the nation.
