The emerging real estate markets are seeing a sharp rise in property values across the country, putting their traditional affordability advantage under greater scrutiny as prices begin to grow faster than those in the country’s largest cities.

Residential prices across 11 emerging markets rose 63 per cent between 2021 and 2026, against 42 per cent across the top eight cities, according to a CII-Knight Frank India report. With Tier 2 and Tier 3 cities projected to contribute 25-30 per cent, or USD 1.4-1.7 trillion, of India’s real estate output by 2047, the key question is whether this price growth can remain aligned with end-user purchasing power.

Ashwinder R. Singh, Vice Chairman, BCD Group and Chairman, CII Committee on Real Estate (NR), flagged the possibility that faster price appreciation could gradually erode the affordability advantage of these markets. “Sixty-three pecent price growth does concern me if incomes are not moving similarly. Tier 2 cities still have an affordability advantage, but we shouldn’t destroy it by celebrating every price increase.”

The sustainability of this growth, therefore, depends on whether purchasing power rises alongside prices rather than appreciation becoming disconnected from end-user demand. “End user affordability, not appreciation, is what will sustain these markets,” Singh said.

Jobs Needed For Housing Demand

Infrastructure is becoming a larger part of India’s public investment, with its share of total government capex rising from 39 per cent in FY2015 to 55 per cent in FY2026. But for emerging housing markets, the larger test is whether this spending creates enough economic activity and jobs to support sustained demand

For emerging markets, the connection between infrastructure and housing demand is becoming increasingly important. Samujjwal Ghosh, CEO, The House of Abhinandan Lodha, linked the two through a broader economic cycle: “Infrastructure only converts to housing demand when it brings employment with it.”

Nagpur illustrates that sequence, with Ghosh pointing to the Samruddhi Mahamarg and industrial investment in the city. “That sequence, infrastructure then employment then absorption, matters more than the capex share itself,” he said.

Supply Struggles To Keep Pace

The CII-Knight Frank India report finds that supporting this expansion will require demand-led supply, serviced land, efficient approvals, reliable utilities and liveable urban conditions, with supply capacity emerging as a key challenge for these markets.

Viswa Prathap Desu, COO Residential, Brigade Group, identified the supply side as the more immediate constraint despite strong demand. “Approval timelines, availability of serviced land, trunk infrastructure, basic utilities, these are the constraints that determine whether a market can absorb growth or not.”

The issue is not simply whether enough homes can be built, but whether the supporting ecosystem reaches the market at the same time. “We have seen situations where the buyer was ready, but the city’s infrastructure was not and that delayed absorption and created inefficiencies,” Desu said.

Civic Infrastructure Lags Housing Growth

Population growth outside the top eight cities is projected at 28.2 per cent, compared with 8.7 per cent in the top eight. The report indicates the need for stronger urban capacity as emerging markets absorb new residents.

For Singh, the concern is whether cities are prepared for this growth: “Frankly, many emerging cities are not ready for that growth today. But that is also the opportunity. They can avoid mistakes metros are now correcting at enormous cost. Water, sewage, mobility and social infrastructure must be planned before density, not after it.”

Desu also points to gaps in basic civic capacity: “Many of these cities today have gaps in water supply, sewage treatment, public transport and road networks. These are realities any developer evaluates before entering a market.”

Planned Growth Becomes Critical

As emerging cities scale up, the report highlights the importance of coordinated urban development, with infrastructure, housing supply and approvals needing to expand alongside market demand.

For Ghosh, the bigger challenge is how this expansion is planned: “The real risk to building out 1.4 to 1.7 trillion dollars of Tier 2 and Tier 3 real estate is fragmentation, not capacity. Master planned developments with land set aside for infrastructure tend to keep pace with demand; piecemeal ones don’t.”

That makes coordination between development and infrastructure critical as these markets expand. Ghosh also cautions that real estate can move ahead of civic infrastructure in emerging cities, creating a mismatch between housing growth and urban capacity.