Is affordable housing losing ground? Tier-2 data shows growing divide

 

The latest PropEquity report on housing activity in India’s top 15 tier-2 cities reveals a deeper shift underway in the country’s real estate landscape. While overall housing sales volumes declined 4% year-on-year in the July–September quarter of 2025, the total sales value rose 4%, signalling a decisive movement toward premium and high-value homes rather than the mass-market affordable housing that traditionally drives demand in these regions. This trend reflects a growing divide between elite housing buyers and the middle-class population, whose purchasing power is increasingly strained.

Rising construction costs, expensive land acquisition, higher financing rates, and evolving consumer expectations have collectively pushed developers toward larger, amenity-rich, and more profitable projects. Meanwhile, launches in affordable and mid-income categories have noticeably slowed. The report highlights that new supply fell 10% across the tier-2 markets, with several cities witnessing drastic drops, including 88% in Bhubaneshwar and 83% in Mohali. Such reductions suggest developers are consciously limiting risk in price-sensitive segments where demand has become uncertain.

The geographical trends reinforce this divide. Western India, led by Ahmedabad, Surat, Vadodara, Gandhinagar, Nashik, Nagpur and Goa, continues to dominate, accounting for 76% of the total sales in tier-2 cities. However, even this region recorded a 6% annual decline in volumes. Northern markets such as Jaipur, Mohali, and Lucknow stood out as the only region showing growth, with a 16% rise in sales, indicating pockets of resilience likely driven by infrastructure upgrades, new economic activity, and improved connectivity. In contrast, southern and eastern tier-2 cities experienced notable declines, reflecting a more cautious buyer sentiment in traditionally middle-class dominated markets.

The Indian housing market now appears to be moving on two parallel tracks. In major metros, luxury and upper-premium housing continue to thrive, supported by affluent buyers who have strengthened investment capacity post-pandemic. At the same time, tier-2 markets—where homeownership remains a primary aspiration for the middle class—are losing momentum in the segments they depend upon most. Sales value growth with declining unit sales makes it clear that fewer families are able to enter the market, while premium buyers are taking a larger share.

This emerging imbalance raises questions. Can India sustain a real estate boom driven mainly by upscale housing? Will tier-2 cities continue absorbing the pressure if affordability keeps eroding? And most importantly, what happens to the large middle-income demographic that forms the backbone of housing demand but is now increasingly priced out?

The government’s objective of “housing for all” depends on an active and expanding affordable housing pipeline, not one shrinking under market pressures. Unless policies and incentives revive supply in the mid and lower segments—through fiscal support, interest subvention, or regulatory easing—the divide between elite and middle-class home buyers will continue to widen. The latest data is more than a quarterly fluctuation; it is a signal of transformation in where and for whom India is building its cities.