As Kerala’s real estate landscape continues to evolve, tier-2 cities in the state are becoming more attractive to both investors and homebuyers. However, despite their growing potential, tier-2 cities in Kerala still face several challenges in the housing sector. In 2025, these challenges will likely continue to shape the region’s real estate market as the state transitions towards a more urbanized future.
In this blog, we’ll discuss the key challenges faced by Kerala’s tier-2 cities in the housing sector in 2025, and why addressing these issues is crucial for the region’s real estate development.
1. Slow Pace of Infrastructure Development
Growing Demand but Insufficient Infrastructure
While Kerala’s tier-2 cities, such as Thrissur, Kollam, Kottayam, and Malappuram, have experienced growth in housing demand, they still face significant challenges in infrastructure development. Many of these cities continue to lag behind in terms of road networks, public transport systems, and utilities, making them less attractive to potential residents and investors.
- Urban Sprawl and Congestion: As tier-2 cities expand, there is a lack of well-planned urban expansion, leading to traffic congestion and a strain on infrastructure.
- Limited Connectivity: While connectivity has improved in some areas, the development of high-speed transit systems, such as metro networks, is still in its infancy, especially in smaller towns.
Why It’s Important:
The lack of quality infrastructure can hinder the growth of housing demand, as potential buyers often prioritize well-connected and accessible areas. For developers, the lack of proper infrastructure can also delay construction projects and increase costs, resulting in a slower return on investment.
2. Regulatory and Land Acquisition Challenges
Bureaucratic Delays and Legal Hurdles
One of the primary issues that developers face in Kerala’s tier-2 cities is the cumbersome land acquisition process and bureaucratic inefficiencies. The real estate sector often suffers from delays in approvals, unclear land titles, and conflicting land-use regulations.
- Land Ownership Disputes: Many properties in tier-2 cities are mired in legal issues, especially when dealing with agricultural land or ancestral properties. This uncertainty can discourage potential buyers and developers.
- Complex Zoning Laws: Local authorities have complex zoning regulations, and obtaining the necessary approvals from agencies like the Kerala Coastal Zone Management Authority (KCZMA) or the Town and Country Planning Department can be time-consuming.
Why It’s Important:
These delays and regulatory challenges can significantly impact developers’ timelines, driving up costs and reducing the availability of residential units. For homebuyers, these challenges can create an uncertain environment that might make investing in tier-2 cities less appealing.
3. Limited Availability of Affordable Housing
Economic Constraints and Affordability Gap
While real estate prices in tier-2 cities in Kerala are generally lower than in the state’s metropolitan areas, affordability remains a significant challenge. Many middle-class buyers still find it difficult to afford homes, especially with stagnant wage growth and inflationary pressures.
- Slow Wage Growth: In 2025, tier-2 cities may still struggle with limited economic diversification. The lack of high-paying jobs or industries other than agriculture, retail, or traditional sectors could restrict the buying power of many potential homeowners.
- Increasing Property Prices: While housing prices are relatively more affordable than tier-1 cities, real estate prices in these cities are rising, which further reduces the affordability for local buyers and could lead to increased demand for rental properties rather than homeownership.
Why It’s Important:
Limited affordability can deter a large portion of the population from entering the real estate market, leading to a slower rate of homeownership. For developers, focusing on affordable housing solutions could open up a significant market segment, while also helping bridge the housing gap in these cities.
4. Overdependence on Migrant Labor for Construction
Labor Shortages and Rising Costs
The housing sector in Kerala’s tier-2 cities is heavily dependent on migrant labor, primarily from states like Bihar, Uttar Pradesh, and West Bengal. This reliance presents challenges, particularly in 2025 when labor shortages and rising wages may become more prominent.
- Uncertainty of Labor Availability: With increasing demand for construction workers in other regions and countries, the supply of labor in Kerala’s tier-2 cities may be insufficient, causing delays in construction and higher wages for workers.
- Cost of Labor: The increasing cost of labor could raise the overall cost of housing projects, making it difficult to keep prices affordable, particularly for developers focusing on the middle-income and low-income segments.
Why It’s Important:
Labor shortages and escalating construction costs could lead to project delays and price hikes, which can affect the real estate market’s overall affordability and growth. In addition, the quality of construction may suffer as developers may resort to using unskilled labor or cutting corners to manage costs.
5. Environmental and Sustainability Issues
Pressure on Eco-sensitive Areas
Kerala’s tier-2 cities are often located in regions with rich biodiversity and ecologically sensitive landscapes. As the real estate sector grows, unsustainable construction practices and unregulated development threaten the region’s natural resources.
- Flooding and Soil Erosion: Kerala’s monsoon season brings heavy rains, which can lead to flooding and soil erosion, particularly in low-lying areas. Unsustainable construction in flood-prone zones increases the risks associated with housing in these areas.
- Environmental Regulations: As environmental concerns become more prominent, developers may face stricter regulations regarding construction in sensitive areas. This can lead to increased compliance costs, regulatory delays, and reduced investment in certain regions.
Why It’s Important:
Sustainability challenges in tier-2 cities need to be addressed through eco-friendly building practices, climate-resilient infrastructure, and environmental impact assessments. Investors and developers focusing on these solutions will be able to cater to a growing segment of environmentally-conscious buyers.
6. Limited Access to Financing
Challenges for Developers and Homebuyers
In 2025, many homebuyers and developers in Kerala’s tier-2 cities will still face difficulties accessing finance. The region’s financial landscape may limit the availability of affordable loans or housing finance.
- Higher Interest Rates: Even though the demand for homes is increasing, banks and financial institutions might not offer affordable loan options due to risk aversion in less established markets.
- Limited Credit Access: For first-time homebuyers, the lack of proper credit history or secure financial standing can make it difficult to secure loans. Similarly, developers may face difficulty obtaining construction loans due to perceived lower returns in tier-2 cities.
Why It’s Important:
The inability to access affordable financing options can keep potential homeowners out of the market, reducing overall demand for properties. For developers, it can limit the growth potential of housing projects and lead to delayed timelines or cost overruns.
7. Lack of Social Infrastructure
Gaps in Healthcare, Education, and Recreation
Although tier-2 cities in Kerala offer a peaceful lifestyle, the lack of social infrastructure continues to be a challenge. Without robust healthcare, education, and recreation facilities, these cities may struggle to attract families and young professionals looking for a more holistic living experience.
- Educational Institutions: Despite some progress, there is still a lack of top-tier schools and colleges in many tier-2 cities, which forces families to relocate to tier-1 cities for better educational opportunities.
- Healthcare Facilities: Limited healthcare infrastructure can deter people from relocating to these cities, as residents might need to travel long distances for specialist medical care.
- Recreational Amenities: The absence of adequate recreational spaces, such as parks, malls, or cultural centers, can make these cities less appealing for families and working professionals who are accustomed to a vibrant urban life.
Why It’s Important:
Social infrastructure is crucial to the overall appeal of a city. Without good schools, hospitals, and entertainment options, these cities may not be able to compete with larger metropolitan areas for residents and businesses, thus affecting demand for housing.
Conclusion: Overcoming Challenges for a Bright Future
While Kerala’s tier-2 cities face a unique set of challenges in the housing sector, the potential for growth remains strong. By addressing issues related to infrastructure, regulatory hurdles, affordability, and environmental sustainability, these cities can pave the way for a more robust and thriving housing market.
Investors, developers, and policymakers must collaborate to find solutions that balance growth with sustainability, ensuring that Kerala’s tier-2 cities become vibrant and attractive places to live and invest in by 2025 and beyond. Addressing these challenges effectively will enable these cities to tap into the huge untapped potential of the housing market and emerge as strong contenders for real estate development.
