Registered AIFs grow tenfold to 1,532 funds as the sector delivers 12-21% IRR, attracting global and domestic investors
India's real estate sector has recovered strongly in recent years, supported by steady demand, economic growth, and favourable government policies. Between 2015 and 2025, bank credit grew at a CAGR of 11.6% to US$2.2 trillion. Housing led this expansion with a CAGR of 16.9% to US$360 billion, while commercial real estate rose at a 12.2% CAGR to US$64 billion.
However, global monetary tightening and reduced lending appetite have made traditional funding more difficult to secure. In India, developers also face regulatory limits, risk-based lending norms, and project-specific restrictions from banks and non-banking financial companies.
Against this backdrop, private credit has emerged as a viable alternative, offering faster capital deployment, flexible structuring, and funding solutions aligned with developers' needs. It provides tailored financing for land acquisition, construction, and refinancing, bridging gaps left by traditional sources. Though still developing, the segment is scaling up rapidly, with specialised real estate debt funds enabling larger and more structured transactions.
Category II AIFs expand market access
The investor base for India's private credit market has expanded considerably. While foreign portfolio investors once dominated, SEBI-regulated Category II Alternative Investment Funds have become the primary vehicle for private credit investment. These funds offer high-return potential, longer investment horizons, regulatory oversight, and flexible structures.
Registered AIFs have grown more than tenfold, from 143 in March 2015 to 1,532 in March 2025, with investments growing at 52% annually over the last decade. This expansion reflects the institutionalisation of private credit in India as a formal and diversified financing channel.
Residential projects draw the most capital
Private credit has become a key growth driver over the past decade. Capital inflows from investors seeking alternatives have expanded lending to a wider range of developers and projects.
Residential projects have captured the largest share of private credit investments. During the housing market downturn, flexible lending terms made private credit an attractive option for developers. Office projects accounted for 17% of total investments, with warehousing at 5% (US$852 million) and retail at 2% (US$251 million). Other investments include diversified and township developments.
Higher returns attract investors
Private credit delivers 12-21% IRR in India's real estate sector, significantly exceeding traditional bank returns and drawing interest from global and domestic investors. Flexible structures such as mezzanine debt, bridge loans, and preferred equity enable financing for stalled projects and underserved segments such as affordable housing.
These return profiles have proven particularly attractive in an environment where traditional bank lending has become more restrictive. Developers gain access to capital with fewer pre-conditions, while investors capture yields that reflect both market opportunity and execution complexity.
Regulatory framework supports expansion
India's private credit market is growing rapidly, supported by evolving developer needs, favourable regulations, and increasing investor demand. Category II AIFs, valued at US$117 billion, have played a central role in this expansion.
SEBI's regulatory framework has attracted institutional capital by providing clear rules on fund structure, investor protection, and reporting requirements. This has legitimized private credit as an asset class and broadened participation.
High-net-worth individuals are increasingly allocating to private credit for diversified fixed-income exposure, reinforcing its position as a credible alternative investment in India's real estate market.
Growth trajectory remains strong
As more developers choose flexible financing over traditional bank loans, investor appetite is growing, and transaction processes are becoming more efficient. This establishes private credit as an increasingly important component of India's real estate financing market.
Strong economic fundamentals, supportive government policy, and constrained bank lending create favourable conditions for private credit growth. With Category II AIFs providing regulatory clarity and a proven track record, the sector is well-positioned for sustained expansion.
For more insights, please download the latest edition of Knight Frank’s Asia-Pacific Outlook series, The Rise of Real Estate Credit in Asia-Pacific - Bridging the Gap, report below.
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Notes to Editors
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