Private equity flows into Indian real estate fall 41% in H1 CY25: Report

Amid global macroeconomic headwinds, PE flows into real estate fell to USD 1.7 billion in H1 CY25, with rising domestic capital and office segment resilience

Private equity (PE) investments in Indian real estate declined by 41 per cent year-on-year (Y-o-Y) to USD 1.7 billion in the first half of calendar year 2025 (H1 CY25) due to global macroeconomic pressures, according to a report by Knight Frank India.

 

According to the report, this downturn is not merely cyclical but highlights a broader structural shift in global and domestic capital views of Indian real estate. Investors appear to be more focused on post-tax visibility, currency-adjusted returns, and credible execution over scale or momentum. The number of transactions also dropped sharply from 24 in H1 CY24 to 12 in H1 CY25, further reflecting increased selectivity in deal-making. 

 

While overall capital deployment across real estate declined due to global macroeconomic pressures, the office segment stood out with USD 706 million invested across three transactions, marking a 22 per cent Y-o-Y increase from USD 579 million in H1 CY24. The investments in the residential segment stood at USD 500 million, down 41 per cent Y-o-Y.

 

Western institutional capital receded further in H1 CY25, primarily due to the narrowing India–US yield spread, rupee depreciation (from 83.1 in December 2023 to 85.6 per USD in H1 CY25), and India’s 12.5 per cent long-term capital gains tax, which affects post-tax returns. 

 

Meanwhile, domestic capital seemed to have stepped up substantially, as Indian institutions accounted for 25 per cent of total PE inflows during H1 CY25, up from an average of 11 per cent during 2011–2020. This growth was driven by deeper capital pools, regulatory stability, and maturing investment capabilities.

 

Shishir Baijal, chairman and managing director, Knight Frank India, said: “The current global economic environment—marked by persistent inflation and tighter monetary conditions—has led many Western funds to take a cautious, wait-and-watch stance, resulting in subdued private equity activity in the real estate sector. In contrast, India’s commercial real estate market continues to show strong fundamentals, driven by the return to office, rising absorption levels, and strengthening rental values. Similarly, the residential sector has seen year-on-year growth, and retail consumption remains steady, supported by overall economic momentum.”

 

The Indian warehousing sector saw a sharp pause in H1 CY25, with PE investments marking a 97 per cent Y-o-Y decline to just USD 50 million, down from USD 1.5 billion in H1 CY24. Only one transaction was recorded, highlighting a temporary reassessment of growth expectations in a sector previously dominated by large, platform-level deals.

 

After a prolonged lull of over two years, India’s retail real estate sector in H1 CY25 saw equity inflows reaching USD 481 million. The growth was driven by two large transactions, including a stabilised mall acquisition in South India by a listed real estate investment trust (REIT) and another institutional buyout in an eastern metro.

 

“As macroeconomic conditions in the West begin to ease, we expect global capital flows to return to Indian real estate, further supported by the country’s sustained growth and improving regulatory clarity,” Baijal added.