Real estate sector defies gloom: Domestic capital drives growth despite FII pullback

The first half 2025 saw inflows to the tune of $3 billion in the real estate sector
| Photo Credit:
SIDDHANT THAKUR

Despite widespread reports of a challenging market and cautious buyer sentiment, India’s real estate sector continues to attract significant institutional investment, with the first half of the calendar year witnessing inflows to the tune of $3 billion.

While this marks a 15 per cent year-on-year decline compared to H1 2024, the sector’s resilience is reflected by a significant surge in domestic capital, which saw a 53 per cent surge to reach $1.4 billion.

While domestic investors displayed strong confidence, foreign institutional investments experienced a 39 per cent year-on-year decline in the first half, amounting to $1.6 billion. This caution among global investors is attributed to the evolving macroeconomic scenario, flow of credit and inflationary pressures, according to Colliers India data.

The domestic investments accounted for a significant 48% of the total investments in the first half of 2025, signalling a shift in the capital investment landscape.

“Domestic capital has emerged as a key driver in India’s real estate investments, with its share in total investments rising steadily from 16 per cent in 2021 to 34 per cent in 2024,” Badal Yagnik, Chief Executive Officer, Colliers India, said.

“Their growing dominance has helped cushion the impact of global uncertainties and push total investments to the $3-b mark. As domestic capital deepens and diversifies, it is poised to bring greater stability and long-term confidence to India’s maturing real estate ecosystem,” he said.

Echoing this sentiment, Mahesh Katragadda, CEO of Meenakshi Alternates, highlighted the strong conviction among local players.

“Despite the widely reported challenges in the real estate sector and cautious buyer sentiment, institutional investors, particularly domestic capital, are demonstrating strong conviction in the market’s long-term potential,” Katragadda observed.

“An increased domestic participation, now comprising nearly half of total inflows, reflects an evolving investor mindset that prioritises stability, asset quality, and sustainable growth over short-term market fluctuations,” he pointed out.

“The sector’s strength is anchored in robust urbanisation trends, evolving demand for commercial and logistics assets, and favorable policy reforms,” he said.

Key segments

Key asset classes continue to attract significant investment. The residential segment drove 27 per cent of the total inflows during H1 2025 with $0.8 billion in investments, followed closely by office assets at a 24 per cent share. 

G Hari Babu, National President of (National Real Estate Development Council) NAREDCO, said that foreign investment in the country had been affected by international instability. “The real estate market should not worry about (a drop in foreign investment. Domestic investors have performed well and this is a good indicator for the real estate sector,” he said.

Citing the $235-million investment by Mindspace REIT in Hyderabad’s office segment, he said that investment flow was a forward-looking indicator.

“We can say that India’s real estate sector is reshaping itself for a more sustainable and efficient future,” he said.

“The fact that capital is still being invested, especially in data centers, is a testament to the strength of India’s top-performing cities and asset classes that align with long-term growth trends such as IT expansion, hybrid work models, and infrastructure-led urbanisation,” Hari Babu said.

Geographically, Mumbai and Bengaluru together drove 39 per cent of the investment inflows in the first half. Mumbai led with 22 per cent of total investments, primarily in office assets, while Bengaluru contributed nearly 17 per cent, with office and residential assets forming 57 per cent of its share. 

Published on July 6, 2025