Tier 1 Cities v/s Tier 2 Cities - The Better Choice For Buying a House - Explained!

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.

Comparison Between Tier-1 & Tier-2 cities

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.