Tier 2 Cities Are Quietly Becoming India’s Most Resilient Real Estate Markets

As global conflicts continue to disrupt the supply chains of various resources in India, one such hard-hit industry is the real estate industry. The Indian real estate segment is facing a fresh wave of cost pressures due to the disruptions in the West. Rising steel and cement prices, volatile freight rates, delays in material imports and even labour expenses have pushed prices to the market. As per a report by JLL, the estimates indicate that construction costs have increased by nearly 10 per cent to 20 per cent in several sub-segments of the industry. However, Tier-2 cities emerge as resilient during all the price pressure.

“The ongoing geopolitical tensions across global markets are impacting India’s real estate sector through rising steel prices, volatile freight costs, supply chain disruptions and increasing construction expenses. Industry estimates suggest construction input costs have risen between 10% and 20 per cent in several segments over recent quarters. Naturally, this creates pressure on developers, project timelines and homebuyer sentiment across the country,” adds Manoj Dhanotiya, Founder and CEO, Micro Mitti

For ages, urban growth focus has been on the metro and economic hubs such as Mumbai, Delhi, Bengaluru, and Hyderabad. The tier-2 and other prominent peripheral cities have delivered rapid expansion and large-scale development, and they have also become increasingly burdened by congestion, extremely high land prices, infrastructure, and declining affordability. In the current global environment, these limitations have become more visible and a prominent factor while making a purchase.

Tier-2 cities have shown remarkable resilience in terms of adaptability. Cities like Indore, Ahmedabad, Jaipur, Lucknow, and Coimbatore are not just the second in line to metros in terms of buyer preference. They are the upcoming growth centres to witness the expanding infrastructure, improved connectivity, and rising employment. These growth factors indicate a self-sustaining city.

One of the biggest advantages these cities have to offer to the modern-day buyer is the balanced land economics. In the metro markets, land acquisition costs are already very high, which leaves very little room for stakeholders to absorb the sudden increase in expenses. Tier-2 cities provide lower land costs, comparatively, which allows the stakeholders to manage temporary shocks without affecting the projects.

In another update, the Confederation of Real Estate Developers’ Association of India (CREDAI) has urged the Ministry of Housing and Urban Affairs (MoHUA) to appeal to the Real Estate Regulatory Authorities of each state to grant a three- to six-month extension for project completion timelines. This request is reflective of the concerns developers across several regions continue to face execution-related upheavals. This includes supply chain disruptions, rising construction costs, and delays in approvals.

“The recent request by industry bodies like CREDAI for timeline extensions reflects the reality of temporary supply chain disruptions and rising execution costs. But this is not a sign of weakness in Indian real estate. It is part of a global economic adjustment cycle. Importantly, India’s regulatory environment today is far more mature, with RERA, escrow-linked protections and stricter compliance frameworks providing stronger safeguards for homebuyers,” adds Dhanotiya.

In many ways, industry stakeholders have noted through several reports that the infrastructure-led growth across states, especially tier-2, has accelerated, and even new projects have been launched. CREDAI’s appeal extends the project timelines that would support the developers in terms of finances and reputation, as well as protect the homebuyers' interests by making sure the projects are completed in a structured manner, and the developer doesn’t compromise on materials to meet the deadlines.

This balanced regulatory approach is important for sustaining growth in the Indian housing market, as the residential market is witnessing a rise in investments.