India's tier II-III cities are expected to drive the next cycle of growth in the housing market as demand in big cities has been affected due to a surge in home prices post-COVID pandemic, according to Square Yards.

Real estate consultant Square Yards has come out with a report 'India's Next Real Estate Growth Cycle: The Rise of Tier-2 and Tier-3 Cities', which pointed out that affordability to buy homes across major cities have been impacted badly because of a huge price rally during 2022-24.

Limited new supply of affordable and mid-income homes in the seven major cities -- Mumbai Metropolitan Region, Pune, Bengaluru, Delhi-NCR, Hyderabad, Chennai and Kolkata -- has made matters worse.

"India's residential market is entering a structurally distinct phase. The post-pandemic premium cycle that powered accelerated price appreciation across metro markets is now showing signs of stabilisation," the report pointed out.

In several tier-1 corridors, Square Yards said, the price growth has outpaced income expansion, resulting in visible affordability compression and a gradual tempering of incremental demand at higher ticket sizes.

The consultant mentioned that the next phase of growth in India's housing market would come from tier II and tier III cities.

"In contrast, emerging cities are exhibiting a more sustainable growth configuration. These markets offer lower entry ticket sizes and stronger price-to-income alignment, creating a more accessible ownership landscape," the report said.

Employment expansion beyond metros is broadening the residential demand base, the consultant said, adding that the housing demand in these smaller cities is largely end-user driven.

"The 2026-2028 residential cycle, therefore, is unlikely to mirror the speculative premium surge of the recent past. Instead, it is poised to be employment-backed, affordability-aligned and geographically diversified, marking a decisive recalibration of India's housing growth trajectory," the report said.

Tanuj Shori, founder and CEO of Square Yards, noted that several major Tier-1 markets have entered into the 'too-premium-to-afford' phase, as sustained price appreciation over the last few years has pushed affordability under visible strain.

He pointed out that new home supply in the affordable segment has declined steadily, limiting small-ticket investment options for end-users and investors alike.

"Considering Tier-1 cities are now largely saturated, with limited scope for future growth, unlocking new growth territories is of utmost importance to maintain large-scale activity in the country's second-largest employment-generating sector," Shori said.

The report has listed cities, such as Bhubaneswar, Cuttack, Erode, Puri, Varanasi and Visakhapatnam, to spearhead the next growth cycle.

Published on March 15, 2026