India's growth is no longer confined to metropolitan hubs like Delhi, Mumbai, or Bengaluru. According to insights from the 2026-27 budget and real estate experts, the next big leap is poised to occur in tier-II and tier-III cities. The infrastructure investments and government asset monetization proposed by the Finance Minister have unlocked new possibilities for cities like Indore, Lucknow, and Surat.
The budget places a special emphasis on connecting the 'growth corridors' and urban economic zones of tier-II and tier-III cities. This translates to major companies aiming to set up offices, logistics hubs, and large residential projects in these areas.
The expansion of expressways and regional airports is equipping these cities to stand toe-to-toe with metropolitan areas. Land and labor costs are lower compared to big cities, offering builders and investors a better 'Return on Investment' (ROI). Post-pandemic, the skilled workforce has been migrating back to their hometowns, increasing the demand for premium housing.
Also read: Real Estate to Shine from Delhi-NCR to Goa... What Experts Say About the Budget
How Will This Transform Smaller Cities?
Previously, projects in smaller cities struggled due to a lack of funding, but now mutual and large foreign investors are channeling money into these properties via REITs. Government-backed risk funds will now support large-scale projects that carry higher risks, spurring major commercial and warehousing undertakings in industrial cities like Surat.
The Magic of Data Centers and 'Tax Holidays'
The tax holiday extended to foreign cloud companies until 2047 could most advantageously benefit smaller cities. Cities like Lucknow and Indore are emerging as 'Data Center Hubs' following Noida. CBRE's Anshuman Magazine believes this exemption will boost global capital inflow, gearing up these cities with high-tech infrastructure.
Khalid Masood, Director of Shalimar Corp, asserts, "The budget's focus on the development of tier-2 and tier-3 cities will not only bolster the country's infrastructure, but it will also open new and significant development avenues for the real estate sector in the future."
Also read: Will Affordable Homes Remain a Dream? Mixed Reactions in Real Estate Sector to the Budget
Challenges Ahead?
There is another side to the story. Despite a flurry of large investments and commercial projects, the demand for affordable housing continues to decline. Anarock’s data reveals that the share of affordable homes plummeted from 38% in 2019 to 18%. Even in cities like Lucknow and Indore, the middle class faces hurdles in purchasing homes due to rising land prices.
The 2026-27 budget clearly indicates that India's urbanization now largely depends on tier-II cities. Had the government introduced 'interest subvention' (interest concession) schemes for affordable housing, this transformation of smaller cities could have been more inclusive. Nevertheless, with major projects and improved connectivity, the transformation trajectory of these cities is set in stone.
