Tier-2 and Tier-3 Cities Power India’s Home Loan Growth in 2025, Outpacing Metros

India’s housing finance market saw a decisive shift in 2025 as Tier-2 and Tier-3 cities recorded an 81% year-on-year rise in home loan volumes, significantly higher than the 52% growth seen in metro markets. Emerging cities such as Chandigarh, Jaipur, Surat, Madurai and Palwal drove this expansion, supported by improved infrastructure, expanding employment hubs and greater availability of mid-income housing. These markets accounted for nearly two-thirds of total home loan volumes, highlighting deeper penetration of formal housing finance beyond major urban centres. 

While premium borrowing remained concentrated in select metros like Mumbai and Gurugram, the broader growth cycle was led by affordability-driven demand and first-time homebuyers, indicating a more balanced and geographically distributed housing finance ecosystem.

Why Are Tier-2 and Tier-3 Cities Leading Home Loan Growth in 2025?

The acceleration in Tier-2 and Tier-3 cities home loan growth is being driven by a combination of economic and lifestyle factors:

• Expansion of highways, expressways, and rail connectivity
• Growth of regional business districts and industrial corridors
• Rising cost pressures in metro housing markets
• Greater availability of organised housing supply

These factors have collectively made homeownership in emerging cities both financially viable and aspirational.

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Tier-2 and Tier-3 Cities Home Loan Growth Outpaces Metros

In 2025, Tier-2 and Tier-3 markets accounted for 64% of total home loan volumes, up from 60% a year earlier. This shift indicates a broader and more geographically balanced housing finance cycle.

While metros continue to attract premium buyers, the volume momentum is clearly concentrated in non-metro regions, where affordability and end-user demand dominate borrowing patterns.

Cities Driving the Next Phase of Housing Finance Expansion

Chandigarh, Jaipur, and Surat Lead Borrower Activity

Cities such as Chandigarh, Jaipu,r and Surat recorded some of the strongest borrower participation, reflecting deeper adoption of formal housing finance. These markets are benefiting from planned urban development, stable employment bases, and improved civic infrastructure.

Madurai and Palwal See Rising Credit Penetration

Southern and NCR-adjacent cities like Madurai and Palwal are also emerging as strong contributors to Tier-2 and Tier-3 cities home loan growth, underlining how housing finance is expanding beyond established real estate hotspots.

Affordable Housing and First-Time Buyers Fuel Demand

The current growth cycle is largely affordability-led, with first-time and mid-income buyers forming the backbone of demand. Key characteristics of this trend include:

• Stable average loan ticket sizes
• Higher participation from salaried households
• Increased confidence in long-term homeownership

This marks a shift away from speculative or investor-driven borrowing toward genuine end-use housing demand.

Premiumisation Remains Concentrated in Select Metro Markets

While emerging cities dominate volume growth, premiumisation remains confined to a few high-income urban centres. Mumbai, Gurugram and Hyderabad recorded close to 20% year-on-year growth in average loan ticket sizes.

In these markets, borrowing is largely driven by affluent upgraders rather than broad-based buyer participation, reinforcing the contrast with affordability-led growth in smaller cities.

Large Tier-1 Cities Show Volume-Led Growth

Major urban centres such as Delhi, Ahmedabad and Noida are witnessing volume-driven growth supported by stable affordability rather than sharp premiumisation.

• Delhi recorded 61% YoY growth in home loan volumes
• Ahmedabad saw 44% growth, with modest increases in ticket sizes

This suggests wider participation across income groups rather than concentration among high-value borrowers.

Peripheral Markets and Affordable Corridors Sustain Momentum

Beyond city cores, peripheral and infrastructure-backed corridors continue to attract buyers:

• Navi Mumbai recorded a 55% YoY increase in loan volumes
• Noida–Greater Noida saw 42% growth in total loan value

These regions offer a balance of connectivity, affordability and organised supply, reinforcing their role in sustaining Tier-2 and Tier-3 cities home loan growth.

Stable Growth in Mature Housing Markets

Established housing markets such as Pune and Kolkata delivered steady, low-volatility growth in 2025.

• Pune posted 9% growth in loan volumes
• Kolkata recorded 5% growth, alongside single-digit ticket size increases

These trends contribute stability to the overall housing finance ecosystem.

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What This Shift Means for India’s Housing Finance Ecosystem

The rise of Tier-2 and Tier-3 cities home loan growth points to a more balanced and resilient housing market. With demand no longer concentrated in a handful of metros, lenders and developers are benefiting from:

• Reduced market cyclicality
• Broader borrower diversification
• Stronger long-term fundamentals

This distributed demand base is strengthening the structural health of India’s housing finance system.

Conclusion

India’s housing finance growth in 2025 is no longer metro-centric. With Tier-2 and Tier-3 cities recording an 81% year-on-year rise in home loan volumes, the market is entering a more inclusive and affordability-driven phase. As infrastructure expands and aspirations rise beyond major cities, Tier-2 and Tier-3 cities home loan growth is set to remain a defining theme of India’s residential real estate landscape in the years ahead.