PE funding for Indian property slumps to $1.7 billion as investors get selective, report shows

Private equity (PE) investments into India’s real estate sector saw a steep 41% year-on-year (YoY) decline in the first half of 2025, totalling $1.7 billion across just 12 deals, according to the latest report by Knight Frank India. The sharp contraction was driven primarily by a significant dip in capital flows into the residential and warehousing segments.

PE investments in the residential sector halved to $500 million in H1 2025, while the warehousing segment witnessed a near wipeout, plunging 97% year-on-year to just $50 million. These declines come against a backdrop of global capital tightening, rising interest rates, and investor re-evaluation of post-tax and currency-adjusted returns, the report highlights.

“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,” said Shishir Baijal, Chairman and Managing Director, Knight Frank India in a statement.

Despite the overall slowdown, the office segment bucked the trend, attracting $706 million in H1 2025, up 22% from the previous year. The growth, spread across three high-value transactions, highlights investor confidence in Grade-A commercial assets located in prime urban centres. This selective inflow was driven by long-term tenancy visibility, stable cash flows, and preference for institutional-grade assets. Many of these deals were structured through joint ventures or platforms aligned with Real Estate Investment Trusts (REITs).

The property management firm views this divergence in capital flows as more than just cyclical. “This downturn… highlights a broader structural shift in global and domestic capital views of the 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 2024 to 12 in H1 2025, further reflecting increased selectivity in deal-making,” the report said.

Regionally, Mumbai emerged as the top destination for PE capital in H1 2025, drawing in $468 million. Bengaluru followed closely at $453 million, bolstered by its commercial office demand and maturing real estate ecosystem. Interestingly, Kolkata received $374 million, reflecting renewed investor interest in emerging eastern markets. Hyderabad and Pune attracted $259 million and $134 million respectively, while Chennai lagged with just $50 million.

Together, South Indian cities accounted for over 44% of the total PE inflows, indicating a steady shift in regional investor preference towards these markets.

While India remains an attractive long-term destination, the report notes that future PE inflows will hinge on execution track records, scalable platforms, and better tax efficiency.

“To reignite momentum, the sector must focus on institutional deal structuring, improved tax efficiency, and scalable platforms across core asset classes. The next wave of capital will depend on performance, not just potential. India remains a compelling long-term bet, but credibility, consistency, and execution will determine sustained investor confidence,” the report said.