Private Credit Emerges as a Lifeline for Indian Real Estate Developers
Private credit is gaining prominence in the residential real estate market as a slowdown in housing sales and tighter lending norms are pushing developers to rely more on structured debt from non-bank lenders.
Developers are increasingly turning to private credit as banks and non-banking financial companies remain constrained in funding land purchases, pre-construction costs, and premium payments, according to industry executives. Private credit refers to lending by specialized funds that provide structured debt directly to borrowers, typically at higher costs but with greater flexibility than traditional loans.
High Yields and Flexibility
On average, around $1 billion of private credit deals are concluded in real estate annually, with 60–70% directed towards residential projects, according to Vivek Rathi, National Director of Research at Knight Frank India. He expects annual volumes to rise to $2–3 billion as housing sales moderate and customer advances decline. “Private credit goes largely to residential as it is flexible. But developers don’t wish to hold it as it is expensive. Once the sales cycle starts, they retire it quickly,” Rathi said. Pricing on such deals ranges from 14% to 30%, depending on the use of funds.
The increased reliance on debt comes against the backdrop of a slowdown in demand. Housing sales across the top seven cities fell 14% in 2025, according to Anarock Research.
The country is expected to account for 20–25% of Asia-Pacific’s projected $90–110 billion growth in private credit by 2028, supported by regulatory reforms, diversified funding structures, and sustained demand for flexible financing. India could contribute up to 30% of regional private credit fundraising by 2025. In 2025 alone, about 45% of private credit deals, from a projected $13 billion pool, are expected to be in real estate, industry estimates show.
Fund managers are also increasing exposure. Data from the Securities and Exchange Board of India show that Category II alternative investment funds raised Rs 53,438 crore last year, with about a third coming from real estate-focused funds. Around half of the funds raised are deployed annually, according to Shobhit Agarwal, Managing Director of Anarock Capital. “AIFs which lend for land and special situations are mushrooming everywhere,” he said.
Vipul Roongta, Chief Executive of HDFC Capital Advisors, said growth capital for residential developers is now largely being accessed through IPOs and private credit platforms rather than traditional private equity. Funding is increasingly directed towards land acquisition, pre-construction costs, land premiums, inventory financing, and special situations, he said.
Equity to Alternative Funds
Traditional private equity investments in housing fell 50% in 2025 to $576 million from $1.17 billion in 2024, according to Knight Frank, reflecting concerns around cost of capital, exit visibility, and valuation alignment.
Karthik Athreya, Managing Director at Sundaram Alternates, said tighter regulatory capital limits on banks and NBFCs have created a persistent financing gap. “With banks and NBFCs facing tighter regulatory capital limits, there is a persistent financing gap for mid-stage construction and structured credit,” Athreya said, adding that greater transparency after RERA and GST has made real estate attractive for high-yield investors.
As developers increasingly opt for flexible credit structures, investor appetite is expanding and processes are becoming more streamlined, positioning private credit as a key driver of the sector’s next phase of growth, said Harry Chaplin Rogers, Director of International Capital Markets at Knight Frank.
