Tier-2, Tier-3 Cities, Gen Z Buyers Powering India’s Next Housing Boom, Says Report

India’s housing market is entering a decisive new phase, driven by rising demand from tier-II and tier-III cities. Insights from a report by BASIC Home Loans, titled, How Bharat Finances Its Housing Dreams, has revealed a structural shift in who is buying homes, where they are buying, and how they are financing them.

A Generational Shift

Millennials and Gen Z now account for nearly 90-95 per cent of home purchases in India, and younger buyers are not just entering the housing market earlier, but are also reshaping it with digital-first expectations and long-term wealth building goals.

Unlike previous generations, Gen Z buyers view homeownership as both an emotional milestone and a strategic investment. However, their approach differs; they demand faster loan approvals, seamless documentation, and digital transparency. Around 72 per cent of borrowers aged 40 and below prefer applying for home loans online, signalling a decisive move toward tech-enabled lending, according to the report.

Tier-II and Tier-III Cities

While metros are always in demand, non-metro and rural India are emerging as key growth engines. Over half of the survey respondents were from non-metro and rural regions, showing how the geographic diversification has happened in the housing demand for buyers.

According to the report, improved digital infrastructure has narrowed the urban-rural divide. “With Internet penetration expanding rapidly, borrowers in smaller towns are increasingly comfortable applying for loans online. In fact, digital adoption is strong across regions, with nearly two-thirds of metro, non-metro, and rural respondents preferring online loan applications,” the report added.

The report said that this surge in demand for homes in smaller cities is being supported by rising incomes, improved connectivity, and government initiatives aimed at expanding affordable housing. Programs like the Pradhan Mantri Awas Yojana (PMAY) have significantly improved access to homeownership for middle and low income households, the report added.

Digital India Fuelling Housing Finance

The integration of the India Stack infrastructure is accelerating loan processing. Nearly 80 per cent of borrowers aged around 35 and below reported using DigiLocker during their home loan journey. “This highlights the normalisation of paperless documentation and digital know-your-customer (KYC) processes, the report added.

The report said that younger borrowers expect approvals within 24–48 hours, pushing lenders to upgrade digital systems and reduce turnaround time. As such, speed and convenience are increasingly competing with interest rates as key decision drivers.

However, interest rates remained the single most important factor in lender selection, particularly among young borrowers.

According to the report, higher-income borrowers are now comfortable allocating 25–40 per cent of their monthly income toward equated monthly instalments (EMIs), reflecting stronger financial confidence and a willingness to invest in larger or premium homes. This is a trend especially visible in growing tier-2 cities. “Affordability dynamics are evolving, middle-income households show the highest loan uptake, while lower-income borrowers often struggle with downpayments and documentation hurdles,” the report further said.