Tier-2 Cities and HNIs: A Strategic Shift in Real Estate Investment

India’s real estate sector is poised for a significant shift as tier-2 cities gain traction among high-net-worth individuals (HNIs) looking for promising investment opportunities. This trend marks a departure from the conventional focus on tier-1 cities like Mumbai, Delhi, and Bengaluru, as factors such as affordability, growth potential, and lifestyle enhancements make smaller urban centres increasingly appealing.

Strategic advantage

Tier-2 cities have long been considered secondary to metropolitan hubs, but this perception is changing. The price differential between tier-1 and tier-2 markets offers a clear financial advantage to investors. The lower entry cost allows HNIs to invest more freely, often securing multiple properties or larger spaces, thereby optimising their portfolio diversification.

Another key advantage lies in the high growth potential of tier-2 cities. These cities are undergoing rapid economic expansion, often driven by infrastructure improvements and government-led initiatives. A case in point is Kochi, where the luxury real estate segment saw a 15% increase in sales in 2023, buoyed by the city’s burgeoning IT sector and tourism industry.

Moreover, the appeal of tier-2 cities goes beyond just financial returns. HNIs are increasingly seeking environments that offer a superior quality of life. In cities like Chandigarh and Ahmedabad, better air quality, less congestion, and improved infrastructure offer a more relaxed, sustainable lifestyle. These features are becoming critical for HNIs seeking investment growth and personal well-being, making these cities doubly attractive.

Role of government initiatives

Government initiatives are playing a critical role in the rise of tier-2 cities. The Smart Cities Mission and various infrastructure development projects have catalysed growth in these urban centres. From 2015 to 2023, the government invested Rs 2.05 lakh crore in smart city projects, with over 60 tier-2 cities benefiting from this allocation. This has led to improved connectivity, with new airports, highways, and rail networks that enhance the accessibility and appeal of these cities.

Analysing developer strategies

Developers are focusing on luxury and premium offerings to capitalise on the growing interest in tier 2 cities. High-end properties that combine exclusivity with top-tier amenities attract HNIs. Thus, developers are prioritising creating projects that offer luxurious residences equipped with cutting-edge technology, such as smart home systems and sustainable building practices. Properties that incorporate energy-efficient designs and green spaces are more likely to appeal to environmentally conscious investors.

A crucial aspect is the emphasis on experiential living. Modern HNIs value experiences as much as assets. Wellness-focused amenities such as fitness centres, yoga decks, and expansive communal areas that promote social engagement are highly preferred.

In addition to luxury and experiential offerings, high-net-worth investors prioritise transparency and reliability when making large-scale investments. Developers with a consistent track record of delivering projects on time coupled with clear and comprehensive documentation are preferred by HNIs.

Emerging tier-2 city hotspots

Several Tier-2 cities are emerging as prime real estate investment destinations for 2024-25. These cities are experiencing rapid growth due to a combination of economic expansion, infrastructure improvements, and government incentives:

• Chandigarh: The city’s thriving IT and education sectors have driven a 12% increase in property prices year-on-year in 2023, making it an attractive market for both residential and commercial investments.
• Kochi: With its robust IT hub and growing tourism industry, Kochi has seen a sharp rise in luxury real estate sales, reflecting a 15% increase in 2023 alone.
• Indore: Known for its industrial growth and enhanced infrastructure, Indore experienced an 18% rise in property values in 2023, making it one of the fastest-growing Tier-2 cities.
• Ahmedabad: The development of GIFT City and the city’s solid economic base have spurred a 10% increase in luxury property prices, attracting significant attention from HNI investors.

As the landscape of Indian real estate evolves, tier-2 cities are increasingly emerging as key investment destinations for HNIs. Lower entry costs, coupled with high growth potential and a superior quality of life, make these cities highly attractive to investors looking for both lifestyle and financial returns.