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Private equity investments in Indian real estate touched USD 1.73 billion by mid-June this year, sharply down from USD 2.96 billion during the same period last year, signalling increased caution among global investors. Knight Frank India has attributed this slowdown to shifting global capital flows influenced by high interest rates, liquidity tightening, and growing scrutiny over post-tax returns. Western capital has notably pulled back due to the rupee's depreciation, a narrowing India-US yield spread, and India's 12.5% long-term capital gains tax. Interestingly, domestic investors have ramped up their activity, becoming a critical funding source for the sector.
Private equity (PE) investment activity in India's real estate market has declined significantly this year, with inflows reaching only USD 1.73 billion until mid-June, compared to USD 2.96 billion during the same period last year. The data, shared by Knight Frank India, points to a growing sense of caution among global investors, largely driven by macroeconomic headwinds and shifting risk appetites. Advertisement
The real estate consultancy anticipates that this decline in capital flow will continue into the first half of 2025. The pullback is closely tied to the broader recalibration of global capital movements amid persistently high interest rates, tighter global liquidity, and heightened investor scrutiny on risk-adjusted, post-tax returns. These factors are forcing investors to be more selective and are lowering their appetite for emerging market exposure, including in sectors like Indian real estate.
Segment-wise, the office sector has remained the most attractive to private equity investors, drawing USD 706 million of the total inflows recorded until June. Despite the weakening momentum this year, the Indian real estate market had managed to attract USD 4.9 billion in private equity in the full calendar year of 2024, highlighting that institutional interest remains intact, albeit more measured. For context, the sector reached its peak in 2018 with a record-breaking USD 7.8 billion in private equity investments.
However, the story this year is also one of contrasting capital sources. Knight Frank observed that western institutional capital has further withdrawn from the Indian market. A key reason behind this is the shrinking yield differential between India and the US, making the Indian market less attractive on a risk-return basis. Moreover, the depreciation of the Indian rupee from INR 83.1 per USD in December 2023 to INR 85.6 per USD by mid-2025 has eroded foreign investors- returns further when converting profits back to their home currencies.
Adding to these headwinds is India's 12.5% long-term capital gains tax, which directly affects post-tax returns and has become a significant consideration for foreign investors evaluating India?s real estate landscape.
Yet, amid the pullback from overseas funds, domestic capital has stepped up meaningfully. Indian investors, including domestic institutions and high-net-worth individuals, have increased their exposure to real estate private equity, helping cushion the impact of reduced foreign participation. This trend suggests a changing investor composition, where domestic capital is playing a more central role in bridging funding gaps and ensuring liquidity in the sector.
Source-PTI
5th Jun, 2025
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