Private Credit Fuels India's Real Estate Surge: AIFs Lead the Way
Private credit has emerged as one of the biggest forces driving India’s real estate boom. As more global and domestic investors search for alternatives to traditional investment avenues, a steady flow of private credit has opened up fresh funding routes for developers. A new Knight Frank study places this change at the center of the sector’s current momentum, noting that “Private credit has become indispensable to India’s real estate sector, delivering 12–21% Internal Rate of Return (IRR) well above traditional instruments and attracting global and domestic investors.” This performance is drawing sustained interest from high-net-worth and institutional investors seeking yield in a tight credit environment.
Over the past decade, the residential segment has taken the lion’s share of these investments. Office, industrial, retail, and township projects have also attracted significant interest. With flexible structures and attractive returns, private credit is now playing a strategic role in keeping projects moving and filling funding gaps across the sector.
The rise of private credit is not isolated to India. Knight Frank says developers and investors across Asia-Pacific are turning to non-bank financing as regulatory pressure reduces the availability of conventional loans. Banks across the region continue to operate under Basel III capital requirements and face additional constraints as Basel IV pushes them further towards standardised, lower-risk exposures. This has limited appetite for development loans, especially in long-duration or capital-intensive projects. The report says private credit has stepped in with speed, flexibility, and structure, serving markets such as India, Australia, Hong Kong, and South Korea where developers increasingly need capital better aligned with project phases.
Private credit refers to non-bank lending where specialised funds, rather than traditional banks, provide structured debt directly to borrowers.
India is emerging as one of the most important private credit destinations in Asia-Pacific. Private-debt assets under management rose sharply over the past decade, increasing to $17.8 billion in 2023 from $0.7 billion in 2010, as both domestic and global investors expanded allocations. Knight Frank estimates India could contribute as much as 30% of regional private credit fundraising by 2025, boosted by steady end-user demand for housing, economic recovery, and targeted policy reforms.
Bank lending to the economy grew at a compound annual rate of 11.6% between 2015 and 2025, reaching Rs 182 lakh crore, driven largely by housing. But despite this expansion, the mechanics of traditional credit have tightened. Indian developers face regulatory limits on exposure, risk-based lending norms, and project-specific restrictions from both banks and NBFCs. Rising funding costs globally have added another layer of pressure. Knight Frank says the result is a widening gap between the needs of developers and the funding conventional lenders are prepared to provide.
Private credit has filled this gap by offering tailored structures suited to land acquisition, construction finance, refinancing, and capital for stalled projects. The study shows instruments such as mezzanine debt, bridge loans, and preferred equity, which allow developers to match debt servicing with sales and cash-flow cycles. This flexibility has been particularly important for residential developers managing multi-phase launches and high-volume demand across major metros.
Knight Frank identifies the rise of Category II Alternative Investment Funds (AIFs) as a defining factor in India’s private credit expansion. These SEBI-regulated funds, which invest in unlisted debt and equity, have become the core domestic vehicle for structured real estate credit. The number of registered AIFs has risen more than tenfold, from 143 in March 2015 to 1,532 in March 2025, indicating growing investor confidence in professionally managed, regulated private-market products.
Category II AIFs now manage assets valued at Rs 10.3 lakh crore ($117 billion), and Knight Frank says their growth signals the institutionalisation of private credit in India. The appeal lies in their flexibility, longer investment horizons, governance, and the ability to structure downside protection. Developers increasingly use a mix of bank lines and AIF-backed credit to create capital stacks that are faster and more predictable.
The report also indicates sustained demand from high-net-worth individuals seeking diversified fixed-income options with higher yields. Knight Frank notes that the popularity of private credit among HNIs shows both return expectations and the increasing comfort with structured real estate exposure.
To illustrate how private credit capital is flowing into India, Knight Frank shows a $215 million deployment by Ares Asia Private Credit Platform and SC Lowy into projects by Century Real Estate Holdings. The investment will fund premium residential and office developments across North and East Bengaluru, including a luxury township and a mixed-use project in Whitefield. The report says this deal demonstrates the growing willingness of global credit funds to underwrite Indian developers with strong track records and diversified pipelines.
Harry Chaplin Rogers, Director of International Capital Markets at Knight Frank India, says private credit gives developers “faster access to tailored capital for land acquisition, construction, and refinancing,” positioning it as a critical driver of the next phase of real estate expansion.
Knight Frank links India’s private credit momentum to broader changes in investor behavior. The 2025 BlackRock Family Office survey, referenced in the report’s investor-demand section, shows that nearly a third of global family offices plan to increase allocations to private credit, the highest preference across all asset classes. In Asia-Pacific, where capital preservation remains a priority, private credit’s yield stability and structured protections are seen as advantages during periods of economic uncertainty.
