Real Estate Investment: Returns Higher In Metro Or Tier-2 Cities? What MagicBricks Report Says

Tier-II cities have outperformed metropolitan cities in terms of appreciation in the value of real estate investments, according to a report released MagicBricks.

"As remote work becomes more mainstream and urban congestion grows, homebuyers and investors alike are turning to Tier-II cities for better value and long-term potential. The momentum here signals a structural shift in India’s real estate landscape,” said Rahul Singla, director at Mapsko Group.

The average capital appreciation in Tier-II cities went up 17.6%, overtaking Delhi’s 15.7%, the online real estate platform said in its report.

This seems to indicate a trend for a growing inclination from investors and home buyers for mid-tier urban areas, with potential for strong returns.

"Tier-II cities are increasingly surpassing metros in property appreciation, driven by robust infrastructure development and changing buyer aspirations," Santosh Agarwal, chief financial officer and Executive Director of Alpha Corp Development Ltd.

This trend is most evident in North India, with Kanpur and Lucknow leading at 24.53% and 22.61% year-on-year capital appreciation, respectively, the report said.

Other cities showing this trend in the same region include Dehradun, Jaipur and Patna. The report attributed this appreciation to a mix of high demand and affordable rates, combining to result in notable growth.

"Moreover, cities like Meerut has evolved into a promising real estate destination due to enhanced connectivity and urban expansion. Additionally, Karnal, in particular, is undergoing remarkable transformation with the progress of the RRTS extension, significantly improving its connectivity with Delhi and bringing broader benefits to the region," Agarwal said.

To put things into perspective, the average price per square foot in Lucknow is Rs 6,394, Rs 6,986 in Kanpur, Rs 5,653 in Dehradun and Rs 5,654 in Jaipur compared to Delhi’s Rs 18,618 per sq ft, according to Magicbricks.

This price gap serves as an accessible entry point for end-users and investors alike who are seeking value and upside potential, the report said.

"This acceleration is attributable to improvements in infrastructure, increased industrial investment, and a discernible preference for an enhanced quality of life beyond densely populated metros," Yashank Wason, managing director of Royal Green Realty said.

• Extensive infrastructure development: Upgrades in roads, metro connectivity, airports, and industrial corridors have substantially improved accessibility and livability, making these cities more attractive, Magicbricks said.

• Affordability: Lower property prices compared to metros enable a wider demographic to consider homeownership, fuelling demand and capital growth.

• Rising demand for quality housing: Young professionals, first-time buyers, and families are increasingly drawn to Tier-II cities due to better quality of life and less congestion.

• Economic and industrial expansion: The emergence of new industries, IT/ITeS hubs, and business parks is creating jobs and stimulating residential and commercial real estate demand.

• Reverse migration and urban decentralization: The post-pandemic era has seen professionals returning to their hometowns or seeking opportunities in less crowded cities, further boosting demand.

"Our assessment indicates the continuation of this trend, as these cities present compelling value propositions, robust investment returns, and a conducive environment for sustainable urban development," Wason added.