Tier 1 vs. Tier 2 Cities in India: Choosing the Right City List to Buy Your Dream Home
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Considering a real estate investment in India, one might find the prevailing home loan rates appealing. What’s more, choosing between Tier 1 and Tier 2 cities is also not as straightforward as it once was. Traditionally, Tier 1 cities were the preferred choice, but Tier 2 cities are gaining huge traction owing to better environmental conditions and digitalisation of work.

This blog will take up salient considerations vis-a-vis Tier 1 and Tier 2 cities in India to help you make a smart choice. Explore the nuances of homebuying for a well-rounded investment decision in the Indian real estate market.

What are Tier 1 Cities in India?

Tier 1 cities in India are major urban centres that drive economic and social development. These cities, including Delhi, Mumbai, and Bangalore, boast robust infrastructure, high living standards, and significant business opportunities. Characterised by advanced amenities, these metropolises are hubs for MNCs and offer diverse cultural experiences.

With thriving real estate markets, investing in a Tier 1 city ensures access to top-notch facilities and potential high returns. Understanding the characteristics and advantages of Tier 1 cities is important to get valuable insights for those contemplating real estate investments in these dynamic urban landscapes.

What are Tier 2 Cities in India?

Tier 2 cities in India, such as Jaipur, and Coimbatore, represent emerging urban centres with substantial growth potential. These cities offer a balanced lifestyle, blending modern amenities with a cost-effective environment.

With expanding infrastructure and business opportunities, Tier 2 cities attract investors and homebuyers seeking affordability and development prospects.

The real estate landscape in these cities presents opportunities for those looking beyond the traditional Tier 1 options. A good understanding of Tier 2 cities helps you access smart strategies when considering real estate ventures in these evolving urban destinations.

Which cities are Tier 1 cities in India?

Indian cities with a population of 1 Lakh and above are termed Tier 1 cities. Here is the list of the Tier 1 cities in India.

City Category
Ahmedabad Tier 1
Bengaluru Tier 1
Chennai Tier 1
Delhi Tier 1
Hyderabad Tier 1
Kolkata Tier 1
Mumbai Tier 1
Pune Tier 1

Which cities are Tier 2 cities in India?

Indian cities with a population of 50,000 to 99,999 are termed Tier 2 cities. Here is the list of the Tier 2 cities in India.

Major Tier 2 Cities in India
Amritsar Jaipur Surat
Bhopal Kochi Visakhapatnam
Bhubaneswar Lucknow Agra
Chandigarh Kanpur Ajmer
Faridabad Patna Mysuru
Ghaziabad Jamshedpur Raipur

Real Estate Impact in Tier 1 Cities in India

Dynamic trends and significant impact mark real estate in Tier 1 cities in India. Cities like Delhi, Mumbai, and Bengaluru witness robust growth, presenting lucrative investment opportunities. The evolving landscape in these Tier 1 cities reflects the changing preferences and aspirations of homebuyers and investors, shaping the future trajectory of the real estate sector in the country's prime urban centres.

Real Estate Impact in Tier 2 Cities in India

Tier 2 cities like Jaipur and Lucknow offer a distinctive landscape compared to bustling Tier 1 counterparts. Unlike the rapid urbanisation and soaring property values of Tier 1 cities, Tier 2 hubs provide a balanced blend of affordability and development potential.

The real estate scene in these cities mirrors evolving preferences, spotlighting a unique mix of modern amenities and cost-effective living. Investors and homebuyers keen on diverse opportunities in Tier 1 and Tier 2 cities can explore nuanced growth dynamics in the real estate sector.

Comparison Between Tier 1 & Tier 2 cities

Comparing the pros and cons of Tier 1 and Tier 2 cities in India can help decide which city is better to buy a house.

Categories Tier 1 Cities Tier 2 Cities
Affordability More challenging due to high property prices. Easier affordability with reasonable property prices.
  Spacious houses may come at a higher cost. Offers spacious houses at more reasonable prices.
  Home loans may be necessary for many buyers. Suitable for those with a limited budget.
Public Services Assumed to have the best public services. Good public infrastructure, including shopping complexes, malls, cinemas and restaurants. Ex
    Excellent medical and education facilities. Limited Job Opportunities
Return on Investment Higher potential for rental income due to high property prices. More affordable living but potentially lower rental income. The cost of living is significantly lower.



It is comparatively easier to afford a house property in a Tier 2 city than in a Tier 1 city like Mumbai or Delhi. In addition, you can find spacious and sprawling houses in Tier 2 cities at reasonable prices, which could be a challenge in Tier 1 cities. Therefore, buying a house in a Tier 2 city would be better if you have a low budget. To invest in Tier 1 cities, you might have to avail a home loan, which is available at competitive home loan interest rates.

Public services

While public services are considered best in Tier 1 cities, this is only partially true. Tier 2 cities, too, have good public infrastructure like shopping complexes and malls, cinemas, and restaurants. Similarly, many Tier 2 cities have excellent medical and education facilities. However, there is usually a lack of job opportunities in Tier 2 cities.

Return on investment

Real estate prices are high in metros, so you are more likely to earn a high rental income from your investment in such cities. However, the cost of living is significantly higher in metros and Tier 1 cities.

Who Divides Cities into Categories and How?

RBI categorises Indian cities into two tiers based on population density. Here's a breakdown:

Tier Population Size
Tier 1 1,00,000 and above
Tier 2 50,000 to 99,999


Purpose and Benefits

  • Facilitates urban planning and infrastructure development.
  • Serves as an indicator for assessing a city's quality of life and social development.
  • Guides in evaluating a city's economic potential, helping investors and businesses.
  • Provides a structured framework for administrative purposes.



You can choose Tier 2 cities for low property cost, lower cost of living, growth potential, and government’s focus on its development. Tier 1 cities could be better for more job opportunities and better lifestyles. It would be best to consider the location and the intrinsic characteristics of the properties to make a decision. Whichever city you chose, you can apply for a home loan and buy your dream home.

Read Also: what is bank rate


FAQ About Tier 1 & Tier 2 Cities

1.) What are the main industries in Tier 1 cities in India?  

Tier 1 cities in India, such as Mumbai and Delhi, host diverse industries. Financial services, IT, manufacturing, and healthcare are prominent. These cities serve as economic hubs, attracting businesses across sectors.

2.) How do you decide Tier 1 cities in India?  

RBI classifies cities based on population density. Tier 1 cities have populations of 1,00,000 and above. Economic prominence, infrastructure, and population are key factors in their classification.

3.) Which are the fastest-growing Tier 2 cities in India?  

Tier 2 cities like Jaipur, and Visakhapatnam show rapid growth. Robust infrastructure, urban development, and economic potential accelerate their accelerated pace.

4.) What is the RBI classification of cities?  

RBI classifies Indian cities into 6 tiers based on population density. This classification aids urban planning, quality of life assessment, economic evaluation, and administrative purposes.

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Disclaimer: This Article is for information purpose only. The views expressed in this Article do not necessarily constitute the views of Kotak Mahindra Bank Ltd. (“Bank”) or its employees. Bank make no warranty of any kind with respect to the completeness or accuracy of the material and articles contained in this Newsletter. The information contained in this Article is sourced from empaneled external experts for the benefit of the customers and it does not constitute legal advice from Kotak. Kotak, its directors, employees and the contributors shall not be responsible or liable for any damage or loss resulting from or arising due to reliance on or use of any information contained herein.