26 NOVEMBER, 2021

Living abroad for a few years now, Rajiv wanted to invest in real estate in India. He always wanted a home, back in his country. The recent drop in home loan interest rates motivated him to buy a house in India. However, when he started looking for properties, he was confused if he should buy a house in a Tier 1 or Tier 2 cities. While earlier, Tier 1 cities were regarded as the best option for investment, Tier 2 looked equally promising.

The debate between Tier 1 and Tier 2 cities is never-ending. Depending on your needs and priorities, both Tier 1 and Tier 2 cities can help you lead a comfortable life. However, the choice between the two can be confusing. Here we list down the comparison between buying a house in Tier 1 vs. Tier 2 cities to help you decide.

Which Cities Fall in Tier 1 and Tier 2 Cities?

8 Indian cities viz. Ahmedabad, Bengaluru, Chennai, Delhi, Hyderabad, Kolkata, Mumbai, and Pune have been categorized under Tier 1 cities. 97 Indian cities are categorized as Tier 2 cities in India. Noteworthily, as per the Sixth Central Pay Finance, cities that have a population of 1 lakhs and above are termed as Tier-1 cities, and cities that have a population of 50,000 to 99,999 are termed as Tier 2 cities.

Comparing both

Comparing the pros and cons of both the categories of cities can help decide which city is better to buy a house.

  • Affordability

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, if you have a low budget, it would be better to buy a house in a Tier 2 city. To invest in Tier 1 cities, you might have to avail a home loan, which, nowadays, is available at competitive home loan interest rates.

  • Public services

While it is considered that public services are best in Tier 1 cities, it is not completely 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

As real estate prices are high in metros, 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.

Bottom-line

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 lifestyle. 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 home loan and buy your dream home.

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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.