Introduction
Indian cities are classify into Tier I, II, III, and IV is based on population, infrastructure, economic growth, and development level. This system helps in planning and investment in real estate.
Considering India’s urban landscape, the cities in the country are divided into four tiers (tier I, tier II, tier III, tier IV), where the classification is done primarily on the basis of population size, economic growth, investment potential, and similar factors. However, this categorization has proved useful when evaluating the real estate growth, government planning, and development opportunities. This article will take you through a broader perspective on how the tier cities in India are classified and exactly how the real estate works in the multiple tiers. Explore Now:
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Tier
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Overview
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I
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The tier 1 cities are best referred as the most developed and the largest metropolitan cities where the economic and infrastructural growth is top-notch with a decent population size. Also, the real estate market booms with elite residential and commercial projects.
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II
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With outstanding growth potential, the tier 2 cities in the country serve as the emerging urban centres, where the growth in sectors like employment, healthcare, education, and infrastructure is consistently expanding. Also, these cities attract most young professionals and entrepreneurs.
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III
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The tier 3 cities are best described as the places that are witnessing a steady growth in economic and development. These majorly attract industrial and real estate investments due to their connectivity with the regional growth and offers lower cost of living.
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IV
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These are usually smaller towns, and the growth and infrastructural development are comparatively slow. The tier 4 cities are often preferred for small industrial investment, agricultural development, and local trade. Also, the population is low as compared to other tiers.
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Also Read | Top 10 Best Cities to Live in India
When you classify tier 1 cities or tier 2 cities in India, it’s imperative to take a note of the population. While metro cities have a population above 1 lakh, urban areas have the population ranging between 1 lakh to 10 lakhs. In semi-urban areas, the population is anything between 10,000 to 1 lakh. On the other hand, rural areas are sparsely populated, and have a count less than 10,000.
The government of India has classified its cities into different tiers based on different factors. These include the quality of lifestyle, population, education, and infrastructure. Based on the tier, other essential aspects like taxation along with economic and social progress are determined.
Now, have a look at the population of the largest cities in India. The tier classification has been made based on this population.
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City
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Population
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Mumbai
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1,24,42,373
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Delhi
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1,10,07,835
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Bangalore
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84,25,970
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Hyderabad
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68,09,970
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Ahmedabad
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55,70,585
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Chennai
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46,81,087
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Kolkata
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44,86,679
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Surat
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44,67,797
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Pune
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31,15,431
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Jaipur
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30,46,163
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Lucknow
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28,15,601
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Kanpur
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27,67,031
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Nagpur
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24,05,665
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Indore
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19,60,631
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Thane
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18,18,872
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Bhopal
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17,95,648
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Visakhapatnam
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17,30,320
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Pimpri-Chinchwad
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17,27,692
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Patna
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16,84,222
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Vadodara
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16,70,806
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Ghaziabad
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16,48,643
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Ludhiana
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16,18,879
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Agra
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15,85,704
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Nashik
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14,86,053
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Faridabad
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14,14,050
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Meerut
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13,05,429
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Rajkot
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12,86,678
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Kalyan-Dombivli
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12,47,327
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Vasai-Virar
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12,22,390
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Varanasi
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12,01,815
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Srinagar
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11,80,570
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Aurangabad
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11,75,116
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Dhanbad
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11,62,472
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Amritsar
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11,32,383
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Navi Mumbai
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11,20,547
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Allahabad
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11,12,544
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Howrah
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10,77,075
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Ranchi
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10,73,427
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Gwalior
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10,69,276
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Jabalpur
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10,55,525
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Coimbatore
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10,50,721
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Vijayawada
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10,34,358
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Jodhpur
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10,33,918
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Madurai
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10,17,865
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Raipur
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10,10,087
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Kota
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10,01,694
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Chandigarh
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9,60,787
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Guwahati
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9,57,352
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Solapur
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9,51,558
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Hubli-Dharwad
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9,43,788
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City
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GDP
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Mumbai
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$ 368 billion
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Delhi
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$ 293 billion
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Bangalore
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$ 110 billion
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Hyderabad
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$ 74 billion
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Chennai
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$ 66 billion
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Kolkata
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$ 63 billion
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Pune
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$ 48 billion
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Ahmedabad
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$ 47 billion
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Surat
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$ 40 billion
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Visakhapatnam
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$ 26 billion
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The classification of cities in India is also based on income tax. A higher number of taxpayers in a city indicates better economic infrastructure. In these cities, employment opportunities and growth look impressive. Here are some of the cities from tier 1 and 2 categories that hold the record of the maximum number of taxpayers. This leads to further economic growth of the country.
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City
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Tax Collected in FY 2022-23
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Mumbai
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Rs 4.95 trillion
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Delhi
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Rs 2.07 trillion
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Bangalore
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Rs 2.04 trillion
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Chennai
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Rs 1.05 trillion
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Hyderabad
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Rs 88,438 crore
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Kolkata
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Rs 56,422 crore
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Ahmedabad
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Rs 41,000 crore
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Gurgaon
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Rs 40,000 crore
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Also Read | List of Top 10 Smart Cities in India
In India, the cities are classified into different tiers; however, it is equally imperative to understand the relevance. Below are key reasons that elaborate on the purpose of classification:
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Effective Administration: From policy implementation to resource allocation, with tier classification, the government is offered efficiency in making informed decisions.
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Better Urban Planning and Infrastructure: This classification helps the government to plan initiatives to enhance the infrastructure within different cities. Also, with proper division of tiers, the government can entirely focus on the key cities demanding maximum development and prioritize accordingly.
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Clarity for Investments: The classification of cities elevates the clarity when it comes to making investment decisions. The investors or buyers can evaluate their purchase on the basis of potential market rates, compare the real estate markets across cities, and determine where the returns are possibly high.
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Economic Evaluation: The economic growth differs from city to city. These diverse types of tier cities in India hold their own strengths and growth potential that foster clarity for the investors.
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Lifestyle Standards: This parameter majorly focuses on the overall lifestyle standards of the city, where the quality of life and social development are evaluated for potential investments.
The classification of the cities in India not only divides them into different categories but also reflects the status of their economic growth and further development. And for the home buyers and investors, it is essential to understand the real estate market of the city and how beneficial the knowledge is to evaluate the demand, prospects, and ongoing trends. Henceforth, below specified are the framework and the key parameters considered for tier 1, 2, 3, 4, cities classification India:
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Population: The larger the population, the better the tier is. The cities with the most population fall under Tier I character, and as the population decreases, so do the tiers.
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Economy and Employment: The economic potential of the cities and the strong corporate presence level up the tiers for cities. Likewise, the employment rates are very high in tier 1 cities, whereas the tier 3 and 4 usually have lower rates.
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Infrastructure: The infrastructure growth in tier 1,2,3,4 cities in India is a major parameter when categorizing. From enhanced road, rail, and metro connectivity to modern airports, tier 1 cities possess a well-developed system. On the other hand, the tier 2 have decent ones, while tier 3 and 4 still witness slower progress or need for redevelopment.
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Real Estate Market: The Tier 1 cities are packed with premium and luxurious residential and commercial properties, wherein the rates are significantly high. Whereas, for the tier 2 and 3 cities, the real estate market is progressing and offers affordable rates.
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Social Infrastructure: The reputed educational and healthcare facilities majorly decide the categories of the cities, accompanied by top-notch lifestyle amenities, shopping centres, entertainment hubs, and more.
The real estate market in India is a roller coaster that keeps on varying up and down in terms of trends and changing dynamics. Henceforth, from tier I to real estate trends in tier 2, 3 cities and 4, below are the key trends to witness:
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Parameter
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Tier I
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Tier II
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Tier III
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Tier IV
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Cities
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Bengaluru, Delhi, Mumbai, Pune, Hyderabad, Kolkata, Ahmedabad, Chennai
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Amritsar, Bhopal, Chandigarh, Ghaziabad, Jaipur, Kochi, Lucknow, Surat, Agra, Kanpur, Srinagar, Visakhapatnam, Jamshedpur, Faridabad
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Mysuru, Madurai, Rajkot, Varanasi, Dehradun, Gwalior, Ajmer
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Datia, Gangtok, Banswara, Bhadreswar, Nagda, Sujangarh, Kapurthala, Kasganj, Kalyani
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Demand for Properties
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Higher demand for real estate properties due to vast employment opportunities and economic growth
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Increased demand for investment options and improved infrastructure
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Investors and developers are eyeing the cities due to the affordable land cost
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Limited real estate developments and more focus of the cities are on the local trade
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Property Prices
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Property prices are significantly high due to luxurious residential and commercial projects and prime locations.
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Affordable and more focused on offering mid-segment. Properties are offering a blend of luxury and comfort at the same time.
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Affordable housing in tier 3 cities and commercial projects are Ideal for first-time investors or buyers.
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Lower costs of land and plots. More focus of these cities lies in local developments and small-housing projects.
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Major Focus
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Primary focus is on modernizing the lifestyle and offering luxury real estate projects to match the preferences of the urban population
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From growing demand for top-notch townships to changing customer preferences, the key focus is on the development of townships, commercial spaces, and industrial parks for better investment.
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Development of modern infrastructure and elevate sectors like education, healthcare, and hospitality is the prime focus. Additionally, the government is working on improved connectivity.
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The real estate market is emerging and the focus is now to develop residential properties in accordance with the regional needs. Also, retail outlets and small shopping centres are being developed equally.
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Demand and Culture
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The urbanized lifestyle and higher living standards drive significant growth in luxury and high-end properties in the real estate market
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The development of industrial parks, business hubs, and the IT sector is the need of the hour. The government is attracting professionals.
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Several infrastructure development initiatives are rolling through the cities in order to attract a reasonable investment from potential buyers and investors seeking affordable projects.
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Local markets have been the focus of the government, however, the demand from investors is increasing for small projects that cater to the local population.
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The tiers are shaped in accordance with the rapid growth and urbanization led by the government. Also, the evolving lifestyle of the population plays the game-changer too. Henceforth, each tier has its own significance when considering the future of the cities.
Tier 1: These cities will keep advancing in smart infrastructure development and attract global investments from top corporates and startups. Likewise, it will keep delivering high-quality education and healthcare facilities, while introducing new additions. The real estate will keep booming, specifically with premium residential and commercial projects.
Tier 2: With effective government-led projects and strategic planning, these cities will embrace the lifestyle through improved and modernized infrastructure projects. Additionally, the connectivity projects, including metros and highways, are being worked upon. On the real estate front, the demand for affordable housing will rise due to the development of IT and corporate sectors.
Tier 3: Primary focus will be laid on developing education, healthcare, and public services facilities. Also, these cities are witnessing an upsurge in affordable yet quality residential projects.
Tier 4: These cities are underway for their surprising transformation as a result of the rural-to-urban development initiatives by the government. Not only are the local industries being worked upon, but the infrastructure expansion is also progressing. Also, these modest cities are promoting the essence of the eco-friendly and sustainable lifestyle.
Over the last few years, the government of India has taken several initiatives to drive urban development in different cities. For instance, it has launched the smart cities mission, under which as many as 100 cities under the second and third tiers are being developed. The objective is to create citizen-friendly and urban living environments.
Also, the AMRUT scheme is currently in place. It has been designed to provide basic infrastructure to residents like water supply, urban transport, sanitization, and green spaces. This mission is being carried out in the tier 2, 3, and 4 cities.
Other schemes include the Pradhan Mantri Awas Yojana (PMAY) to provide affordable housing facilities with subsidies and financial assistance for construction. On the other hand, the Swachh Bharat Mission aims to gain sanitization and cleanliness in urban areas. The government is actively carrying out waste management to promote hygiene.
FAQs
The Indian cities have been divided into four different tiers depending upon their infrastructure development, economic growth, and industrial presence. While Tier 1 cities are metropolitan, the rest tier 2, 3, and 4, fall under the category of emerging and faster growing ones.
For those who are eying a robust investment, then tier 1 cities offer premium residential and commercial properties. On the other hand, for those seeking a reasonable yet luxurious investment option, tier 2 is the ideal. Lastly, tier 3 and tier 4 cities are budget-friendly.
Yes, the real estate prices are typically high in tier 1 cities due to urbanized projects and high demand, whereas the tier 2 and tier 3 cities offer an affordable range with growth potential.
Yes, the recent budget will have a major impact on tier 2 and 3 cities as it will enhance the development and enforce economic growth. The government prime focus will be on developing affordable housing with premium facilities and improving connectivity.
Not really, as the tier 4 cities lack major developments and rather focus on elevating a local market. However, if you are seeking a good rental income, then investing in properties in tier 1 and 2 cities will offer an outstanding potential for further growth.
Yes, the city tiers keep changing as per the growth in population and their economic development. The government initiatives are transforming the cities and rapidly working to boost their tiers with time.
