Expanding Housing Loan Access: How Strategic Partnerships Are Driving Growth In Tier 2 And Tier 3 Cities

By 2030, over 40 per cent of India's population is expected to live in urban areas, driving high demand for affordable housing in Tier 2 and Tier 3 cities. Growing urbanisation, better infrastructure, and lower living costs have made these cities attractive to first-time homebuyers. However, strategic partnerships between financial institutions, real estate developers, and government bodies are crucial to meet this demand. Affordable home loans and collaborative efforts are expanding access to housing, especially in these rapidly developing cities.

Rising Demand for Housing in Tier 2 and Tier 3 Cities:

The shift to Tier 2 and Tier 3 cities is rising for various reasons. There is an influx of people in cities such as Kochi, Visakhapatnam, Nagpur, etc due to the growing need for employment, housing, and infrastructure development. As metropolitan regions become extremely popular and expensive, these cities offer an enhanced quality of life at a more affordable cost. By 2036, India is expected to need 93 million housing units, highlighting the urgency of meeting the housing demand in these regions. Between 2019 and 2023, the demand for affordable housing in Tier 2 cities grew by 25 per cent, as reported by the National Housing Board.

Financial Institutions Supporting Affordable Home Loan Schemes:

In response to this increasing demand, financial organisations such as banks, housing finance companies and non-banking financial companies are introducing home loan products aimed especially at tier 2 and tier 3 customers. These products come with lower interest rates, longer loan periods and flexible repayment terms, making them appealing to first-time buyers.

One significant development is the increase in repayment periods. This allows low and middle-income buyers to pay over a longer period, making home ownership more affordable. Interest rate subsidies as well as longer payment hours add the attractiveness of these schemes to the new home buyers. Thanks to affordable housing loans, dream homes are no longer a preserve of the wealthy in these emerging regions.

Strategic Partnerships Between Industry Leaders and Lenders:

In Surat, a leading Tier 2 city, affordable housing saw impressive growth. In 2023, 65 per cent of residential units sold were priced under Rs 40 lakh. This success was due to a partnership between Shree Housing Finance and Developers, supported by government subsidies through the Pradhan Mantri Awas Yojana (PMAY). Buyers accessed loans with interest rates as low as 6.5 per cent. Over 45 per cent of them were first-time homeowners, and the number of affordable project launches increased by 30 per cent.

Kaushik Mehta, CEO of Ruloans, explains, “Strategic partnerships between financial institutions, real estate developers, and the government are reshaping the housing landscape in Tier 2 and Tier 3 cities. By working together, we can create customised, affordable loan solutions that meet the needs of first-time homebuyers. This unlocks new opportunities in these rapidly growing markets.”

In Nashik, a partnership between Ruloans and a regional bank helped Rajesh Kumar, a first-time homebuyer, secure a low-interest, long-tenure loan with minimal upfront costs. The collaboration sped up the loan approval process. Within weeks, Rajesh was a proud homeowner—something that once seemed out of reach. Stories like his illustrate how strategic alliances between lenders and developers are driving housing loan growth and spurring local economic development.

Ruloans operates across 4,000 cities in India, partnering with over 275 banks and NBFCs through a B2B2C model. These collaborations streamline the loan process, ensuring faster disbursements and enabling quicker homeownership for customers in developing areas.

Government Schemes Supporting Affordable Housing:

Several government programs like Pradhan Mantri Awas Yojana (PMAY) and Credit Linked Subsidy Scheme (CLSS) make housing finance more accessible for Tier 2 and Tier 3 residents by offering low-interest loans, easing the financial burden on first-time homebuyers. The Housing and Urban Development Corporation (HUDCO) further supports affordable housing projects with grants and loans. These public-private synergies are driving homeownership in smaller cities, contributing to housing sector growth in these regions. As partnerships continue to grow, they will be vital in shaping a sustainable and affordable housing landscape for millions.

Shaping a Bright Future for Affordable Housing:

As the country advances its development plans without overlooking the need for affordable housing, all institutions must keep up the momentum. While these positive initiatives are expanding access to homeownership, they still fall short of fully meeting demand. Yet, with greater commitment, these alliances can scale up impactful collaborations, invest in long-term infrastructure, and develop loan products tailored to emerging markets. For stakeholders, this is more than a market opportunity; it’s a transformative mission to reshape India’s housing landscape. The goal is a future where sustainable, affordable housing is accessible to all.