Tier 1 vs Tier 2: Which is Better for Buying a Home?

If you’ve ever thought about buying a home in India, you’ve probably been torn between choosing a tier 1 or tier 2 city. The truth is, both options come with their own set of pros and cons. Whether you’re a first-time buyer or someone looking to invest, the decision matters a lot. Your lifestyle, income, and future plans can all be shaped by where you live.

Before we get into what makes one better than the other, let’s break down what tier 1 city meaning and tier 2 city meaning actually is.

Also Read: Home Loan: All You Need to Know – Godrej Capital

Understanding Tier 1 and Tier 2 Cities

Let’s start with the basics.

• Tier 1 city meaning: These are the major metropolitan cities like Mumbai, Delhi, Bengaluru, Hyderabad, Chennai, and Kolkata. These cities are economic hubs. They have a high cost of living and top-level infrastructure.
• Tier 2 city meaning: These are smaller cities like Pune, Coimbatore, Indore, Jaipur, and Chandigarh. They’re developing fast but have lower property prices, less traffic, and a better quality of life.

Government policies, population size, and infrastructure all help classify a city into a tier. While tier 1 cities are saturated and more expensive, tier 2 cities are seeing a rise in demand due to better affordability and urban development.

Property Prices: A Big Factor in Your Decision

Let’s face it, pricing is a big deal when it comes to buying your home. You want to make sure you're getting value for money.

In cities like Mumbai or Bengaluru, average property prices can go upwards of INR 15,000 per sq ft. In prime areas, it can be even higher.

This massive difference can be a game-changer for middle-income buyers.

Benefits of Buying a Home in Tier 1 Cities

Buying a home in a Tier 1 city comes with certain undeniable perks:

• Better job opportunities.
• Strong public transport and connectivity.
• Higher rental returns if you plan to lease.
• Access to quality healthcare, education, and shopping.

But these cities are also crowded and expensive, and they often come with higher property taxes and higher living costs.

Why Tier 2 Cities are Gaining Popularity

Here’s why buying a house in Tier 2 cities is becoming more attractive:

• More space and better air quality.
• The cost of living is much lower.
• Less traffic and congestion.
• Many IT companies and startups are moving operations to Tier 2 cities.

Governments are investing in smart city projects. For example, the Smart Cities Mission has developed over 100 cities with better roads, waste management, and housing (Source: Ministry of Housing and Urban Affairs, India). This has led to a real estate boom in cities like Surat, Bhubaneswar, and Vadodara. These places are no longer seen as small towns — they’re emerging hubs.

Government Schemes that Help

If you're considering buying your home, you can also benefit from government support.

• Pradhan Mantri Awas Yojana (PMAY) offers subsidies on home loans for first-time buyers in both urban and rural areas.
• Under PMAY, beneficiaries can get an interest subsidy of up to INR 2.67 lakh (Source: PMAY Urban, Government of India).
• This scheme is still active in 2025 and helps make home ownership affordable for lakhs of Indians.

Both tier 1 and tier 2 cities qualify for these schemes, depending on your income and loan amount.

Also Read: How Loan-to-Value Shapes Your Home Buying Experience

Making the Right Decision

Now comes the big question—where should you buy your home? Here’s a quick guide to help:

Choose a tier 1 city if:

• You work in a corporate job and don’t plan to move.
• You’re okay with paying a premium for connectivity and lifestyle.
• You want long-term rental income from the property.

Choose a tier 2 city if:

• You want more space and peace.
• Your budget is limited.
• You’re looking for long-term appreciation and affordable living.

The Bottom Line

There’s no one-size-fits-all answer to this debate. If you value fast-paced living and career growth and don’t mind spending more, a Tier 1 city might suit you better. But if you’re looking at affordability, less stress, and long-term value, a Tier 2 city is the smarter choice for house-buying in India today.

Whatever you choose, make sure it aligns with your long-term goals. With growing infrastructure and government support, both options are great for buying a home—it just depends on your needs.

Apply for a home loan now and take your first step towards buying your home in the city that fits you best.

Additionally, if you want ot know more about your EMIs so that you can plan your finances well, don’t forget to use an EMI calculator that will give you accurate information on your EMIs with zero effort!

FAQs

Q.1. What is the difference between Tier 1 and Tier 2 cities?

A. In India, Tier 1 cities are defined by being the largest and most developed urban centers with a robust infrastructure, diverse job opportunities, and a high cost of living. Tier 2 cities, on the other hand, are smaller, less developed, have lower costs of living and a more relaxed pace of life. They also have fewer job opportunities.

Q.2. Which Tier 1 cities are the best to invest in India?

A. Some of the Tier 1 cities in India that are considered good investment options are Mumbai, Bangalore, Pune, Hyderabad, and Chennai as they offer numerous job opportunities and have a higher cost of living. They are great for investment as they aslo have well-developed infrastructure.

Q.3. Which Tier 2 cities are the best to invest in India?

A. Some of the Tier 1 cities in India that are considered good investment options are Jaipur, Lucknow, Indore, Coimbatore, and Surat as they offer affordable property prices and growing economies, making them ideal for real estate investment.

Q.4. Which city is best for buying a house?

A. Some developed cities with good infrastructure are Bangalore, Mumbai, Gurgaon, Hyderabad, Delhi, etc., making them extremely suitable for buying houses.

Q.5. What are tier 1, 2, and 3 cities by RBI?

A. The RBI uses population as the primary metric to determine the tier of a city. Tier 1 cities have a population of 1,00,000 or more; Tier 2 cities’ population ranges from 50,000 to 99,999; Tier 3 cities’ population ranges from 20,000 to 49,999, and Tier 4 cities’ population ranges from 10,000 to 19,999.

Disclaimer:

The contents of this article are for information purposes only and not a financial advisory. The information is subject to update, revision, and amendment and may change materially. The information is not intended for distribution or use by any person in any jurisdiction where such distribution or use would be contrary to law or regulation or would subject Godrej Capital or its Affiliates to any requirements. Godrej Capital or its Affiliates shall not be responsible for any direct/indirect loss or liability incurred by the reader for making any decisions, financial or otherwise based on the contents and information mentioned. For more information, please visit www.godrejcapital.com