Pvt credit emerges key growth driver for India's real estate: Knight Frank

Institutional investors include family offices and global private equity firms

India has emerged as one of the most active real estate private credit markets in the Asia-Pacific (APAC) region, ranking second and accounting for 36 per cent of regional fundraising between 2020 and 2024, according to Knight Frank.

 

APAC real estate private credit totalled USD 11.2 billion between 2020 and 2024, up 40 per cent from USD 8.0 billion in 2015–2019. Australia contributed 40 per cent of the total raised in 2020–2024.

 

Between 2025 and 2028, the APAC region is expected to raise USD 90–110 billion in private credit, with India projected to contribute 20–25 per cent. Australia is expected to account for nearly 50 per cent, supported by tighter bank lending and rising demand for flexible financing.

 

The report noted that developers’ increasing reliance on non-bank capital, amid regulatory changes and a more selective banking environment, has accelerated private credit growth. Institutional investors — including family offices and global private equity firms — are tapping opportunities in residential development, refinancing and special situations.

 

Shishir Baijal, chairperson and managing director, Knight Frank India, said, “Developers are increasingly turning to structured and alternative financing to bridge capital gaps and meet rising urban housing demand. As interest rates globally remain elevated, private credit offers a compelling avenue for investors seeking higher yields with tangible underlying assets.”

 

Bank credit in India grew at an 11.6 per cent compound annual growth rate (CAGR) between 2015 and 2025 to Rs 182.4 trillion, led by housing, which grew 16.9 per cent annually to Rs 30.1 trillion. Commercial real estate rose 12.2 per cent annually to Rs 5.3 trillion, supported by economic growth and government-driven infrastructure and housing programmes.

 

India’s private credit market is also diversifying beyond traditional development finance. Structured debt, last-mile funding and special situation funds are increasingly used to revive stalled projects and support developers during liquidity cycles.

 

According to the report, in India, investor participation has expanded across performing credit and special situations or distressed assets. While foreign portfolio investors historically dominated, Securities and Exchange Board of India-regulated Category II Alternative Investment Funds (AIFs) — focused on unlisted equity and debt — have reshaped the market due to their high-return potential, longer horizons, regulatory scrutiny and flexibility.

 

India’s private credit assets under management have surged from USD 0.7 billion in 2010 to USD 17.8 billion in 2023, reflecting deeper institutional participation and growing investor confidence.

 

Lalit Parihar, managing director, Aaiji Group, a Dholera-based real estate firm, said, “The rapid growth in private credit AUM demonstrates strong investor confidence and the success of regulatory reforms that have enhanced transparency and broadened financing avenues. As India is poised to contribute up to a quarter of the region’s private credit growth by 2028, we see tremendous opportunity for well-capitalised, forward-thinking developers.”

 

Registered AIFs have grown from 143 in March 2015 to 1,532 in March 2025, recording a 52 per cent CAGR in investments over the decade.

 

Over the past decade, the residential segment has consistently commanded the largest share of private credit investments, particularly during housing downturns due to flexible lending terms. Offices accounted for 17 per cent of total investments, industrial 5 per cent (USD 852 million), retail 2 per cent (USD 251 million), with the rest distributed across diversified and township projects.

 

Private credit now plays a critical role in India’s real estate ecosystem, delivering 12–21 per cent internal rate of return, well above traditional instruments, and drawing strong global and domestic interest. Structures such as mezzanine debt, bridge loans and preferred equity continue to support stalled and underserved segments, including affordable housing, the report added.

 

Harry Chaplin Rogers, director, international capital markets, Knight Frank India, said, “Private credit has become a viable option for India’s real estate developers, enabling faster access to tailored capital for land acquisition, construction and refinancing. As more developers opt for these flexible structures over traditional funding options, investor appetite is expanding and processes are becoming more streamlined, ultimately positioning private credit as a key driver of the sector’s next growth phase.”