Housing Market Decline in Tier 2 Cities: Decrease in Affordable Supply in Q1
The affordable housing market in India’s major tier 2 cities has experienced a significant downturn, with a staggering 54% decline in new launches during the first quarter of 2025. According to a recent report by PropEquity, the total new housing supply in these cities fell to 30,155 units, a sharp decrease from 45,901 units in the same period last year. This trend reflects a strategic shift among developers, who are increasingly focusing on premium housing segments, leaving lower-priced homes in short supply.
Decline in New Housing Supply
The analysis by PropEquity highlights a concerning trend in the affordable housing sector across 15 major tier 2 cities in India. The overall new housing supply dropped by 35% year-on-year in the first quarter of 2025. Homes priced between Rs 50 lakh and Rs 1 crore accounted for 48% of new launches this year, a notable increase from 36% in the same quarter of 2024. Among the cities surveyed, Bhubaneshwar faced the most significant decline, with a 72% reduction in new units, bringing the total to just 772. In contrast, Nashik recorded the smallest dip, with a mere 2% decrease, resulting in 2,466 new units.
Regionally, the data reveals that Eastern and Central India experienced the sharpest decline in new housing launches, plummeting by 68%. Northern India followed closely with a 55% drop, while Western and Southern India saw declines of 28% and 26%, respectively. The seven state capitals within the top 15 tier 2 cities also reported a 43% decrease in housing supply, indicating a widespread trend across various regions.
Shift in Developer Strategies
Samir Jasuja, the Founder and CEO of PropEquity, attributes the decline in housing supply to a strategic shift among developers. He noted that financially stable developers are now prioritizing the launch of premium homes to enhance profit margins. This shift has led to a consistent decrease in the availability of homes priced below Rs 50 lakh, which are increasingly viewed as unviable. Jasuja emphasized that while homes in the Rs 1-2 crore range have seen a 17% year-on-year growth in supply, the share of homes priced below Rs 50 lakh has significantly diminished.
The report indicates that 95% of new housing supply in Q1 2025 consisted of units priced below Rs 2 crore, up from 87% a year prior. The supply of homes under Rs 50 lakh fell dramatically from 15,420 units in Q1 2024 to just 7,124 units in Q1 2025, reducing their market share from 33% to 24%. Meanwhile, homes priced between Rs 50 lakh and Rs 1 crore experienced a 12% decline in volume but increased their market share from 36% to 48%.
Impact of Home Loan Rates
Current home loan rates are reported to be between 8% and 8.5%. However, the Reserve Bank of India’s recent 50 basis point cut in the repo rate is expected to further lower these rates. This reduction could benefit properties priced between Rs 50 lakh and Rs 2 crore in tier 2 cities, potentially stimulating demand in these segments. Jasuja highlighted that tier 2 cities present a significant opportunity for developers and corporates, driven by substantial infrastructure development and government initiatives aimed at transforming these cities into growth hubs.
In the seven state capitals, the supply of homes priced below Rs 50 lakh saw a staggering 90% drop, while units in the Rs 50 lakh to Rs 1 crore category declined by 13%. Conversely, the Rs 1-2 crore segment witnessed a 31% increase in supply during the quarter, indicating a clear shift in market dynamics and consumer preferences.
Future Outlook for Affordable Housing
The current trends in the affordable housing market reflect broader economic shifts and changing consumer demands. As developers focus on higher-end properties, the availability of affordable housing options continues to dwindle. This situation poses challenges for potential homebuyers seeking budget-friendly options in tier 2 cities. The ongoing infrastructure developments and government support may eventually lead to a resurgence in demand for affordable housing, but for now, the market remains heavily skewed towards premium offerings. The future of affordable housing in India’s tier 2 cities will depend on how developers adapt to these changing market conditions and consumer needs.
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