NEW DELHI: Private equity (PE) investments in India’s real estate sector declined 31 per cent year-on-year (Y-o-Y) to $1.66 billion during the first nine months of 2026, as foreign investments fell to their lowest level since 2012 amid better returns in overseas markets and the rupee’s depreciation to record lows.
“Higher return thresholds in overseas markets, coupled with rupee depreciation, have weighed on foreign investment,” according to a report by real estate consultancy Knight Frank.
Overall, PE investments in Indian real estate fell to $1.66 billion during January-September 2026 from $2.41 billion in the corresponding period last year, a six-year low. Meanwhile, foreign investments declined to $243 million during January-September 2026 from $1.81 billion in the corresponding period last year. At 15 per cent of total PE investments, foreign institutional investors (FIIs) marked their lowest level since 2012. In the same nine-month period last year, their share was 75 per cent.
Knight Frank said foreign investors were increasingly directing capital towards developed real estate markets in the US and Europe, as well as select economies in Asia, where they saw better return opportunities.
However, the decline in foreign investment was accompanied by a jump in domestic investor appetite, with domestic investors accounting for 85 per cent of investments during January-September 2026, compared with 25 per cent a year earlier. This marked a reversal of the historical dominance of foreign capital.
Domestic investment rose to $1.42 billion during the period, up from $603 million in January-September 2025, according to the report.
“Domestic capital is playing a much larger role now, contributing 85 per cent of total PE investments in real estate, while investors are becoming more deliberate about the size, structure and risk of each commitment,” Shishir Baijal, international partner, chairman and managing director at Knight Frank India, said.
Contrary to the overall investment trend, the number of transactions increased from 24 to 31 during the first nine months of 2026, as the average disclosed deal size fell 47 per cent to $53 million. This reflected the absence of large-ticket transactions that had supported investment volumes in previous periods.
Knight Frank attributed the decline in large-ticket transactions to higher return expectations in overseas markets and the rupee’s depreciation. It said the narrowing gap between Indian and US bond yields had also made foreign investors more selective, particularly towards under-construction projects.
Overall, PE investments reached their lowest level in six years, with the decline primarily driven by the absence of large-ticket deals, the report added.
A possible recovery in foreign investment, the consultancy said, would depend on stabilisation in global interest rate expectations and greater clarity on returns after accounting for borrowing costs and currency fluctuations.
Meanwhile, investments in the office segment touched $1.18 billion, maintaining its position as the largest asset class, even as investments in the segment declined 19 per cent Y-o-Y. Further, completed assets accounted for 78 per cent of investments, up from 49 per cent during the first nine months of 2025.
“This preference for completed assets reflects investors’ focus on established income streams and lower development risk amid higher return requirements,” the report said.
Source: Business Standard
