Domestic Funds Lead as Foreign Investment in Indian Real Estate Plummets
Institutional investments in Indian real estate totaled $1.76 billion in Q3 2025, with a significant shift towards domestic investors. Foreign investment fell by 88% quarter-on-quarter, while domestic funds accounted for more than half of all inflows.
Real EstateForeign InvestmentDomestic FundsCoinvestmentCommercial SectorReal EstateOct 29, 2025
Foreign Capital Retreats Amid Global Volatility
Foreign investments dropped precipitously to $140.69 million in Q3 2025, compared with $1.19 billion in Q2 2025, marking an 88% QoQ decline and 68% YoY fall. Their share in total institutional inflows fell from 66% in Q2 2025 and 46% in Q3 2024 to just 8% this quarter.
Domestic Investors Take Center Stage
In contrast, India-focused institutional investors — including real estate funds, domestic financial institutions, and sovereign-backed entities — increased their participation by 166% quarter-on-quarter and 115% year-on-year, investing $892.22 million in Q3 2025.
Their share in overall institutional investments rose to 51%, from 19% in the previous quarter and 43% in Q3 2024, the highest ever quarterly contribution from domestic investors.
This trend reflects rising confidence among local investors in India’s economic stability and the long-term potential of its real estate market, particularly across the commercial, warehousing, and premium residential segments.
“Domestic investors are now driving India’s real estate capital flows. Their growing role highlights the sector’s financial maturity and the shift toward self-sustaining growth,” said Shrinivas Rao, FRICS, CEO, Vestian, in the company’s latest quarterly report.
Co-Investments Surge as Foreign Funds Partner Locals
The co-investment model — where foreign investors partner with domestic institutions or developers — has emerged as a preferred structure amid global volatility.
In Q3 2025, co-investment inflows rose to $726.58 million, up 173% quarter-on-quarter and a massive 562% year-on-year, accounting for 41% of total institutional inflows compared to just 15% in the prior quarter.
This hybrid approach allows foreign funds to share risk, leverage local expertise, and maintain exposure to Indian assets while navigating global macro headwinds.
“Foreign investors are not abandoning India — they’re simply becoming more collaborative,” said Rao. “Co-investment partnerships are bridging the confidence gap and anchoring foreign capital in domestic structures.”
Key Points:
- Foreign investment share: down to 8% (4-year low)
- Domestic investment share: 51% (up 115% YoY)
- Co-investments: up 562% YoY
- Total inflows: $1.76 billion (+83% YoY)
- Commercial sector: still dominant with 79% share of total institutional inflows
Where is money going?
The commercial sector accounted for the largest share of investments (79%), surpassing its earlier record of 61% in the last quarter and 71% in the same quarter a year ago. In terms of value, investments soared to nearly USD 1.4 Bn, registering a robust annual growth of 104%.
The residential sector attracted investments worth $191.7 million in Q3 2025, accounting for 11% of the total—down from 21% in the previous quarter. This reflects a sharp quarterly decline of 49%, despite registering a 6% year-on-year growth.
The industrial and warehousing sector accounted for a nominal 5% of the total institutional investments. However, investments surged by 168% over the previous quarter to USD 85.8 Mn, primarily due to the growing demand for logistics parks.
“Driven largely by the commercial asset class, institutional investments in Indian real estate have surged by 83% year-on-year, reaffirming the sector’s strong resilience amid global headwinds. While foreign investors adopt a cautious approach, the significant rise in the share of domestic investments and co-investments underscores the growing confidence of domestic investors in India’s growth story,” said Srinivas.
Frequently Asked Questions
What is the current trend in foreign investment in Indian real estate?
Foreign investment in Indian real estate has significantly declined, falling to $140.69 million in Q3 2025, a 88% quarter-on-quarter (QoQ) decline and 68% year-on-year (YoY) fall.
How have domestic investments in Indian real estate changed?
Domestic investments have increased by 166% quarter-on-quarter and 115% year-on-year, with a total investment of $892.22 million in Q3 2025, accounting for 51% of all institutional inflows.
What is the role of co-investments in the Indian real estate market?
Co-investments, where foreign investors partner with domestic institutions, have surged by 562% year-on-year, accounting for 41% of total institutional inflows in Q3 2025.
Which sector is attracting the most investment in Indian real estate?
The commercial sector is the dominant investment area, accounting for 79% of total institutional inflows, with investments totaling nearly USD 1.4 Bn in Q3 2025.
What is the outlook for the Indian real estate market in the future?
The outlook for the Indian real estate market is positive, with domestic investors driving growth and co-investments playing a crucial role in maintaining foreign capital inflows.
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