The rise of domestic capital in Indian real estate

The Indian real estate sector is set for growth as it has a potential access to approximately USD 41 billion of untapped domestic institutional capital. Since 2010, the Indian real estate sector has attracted institutional investments of approximately USD 57 billion with about USD 46 billion of these investments occurring between 2015 and H1 2023, accounting for 81% of the investments since 2010.

Introduction of guidelines for Real Estate Investment Trusts (2014), the Housing for All Mission (2015), the Real Estate Regulation and Development Act (2016), the Benami Transactions (Prohibition) Amended Act (2016), the Goods and Services Tax (GST) and relaxation in FDI norms, gave a boost to institutional investments from 2015 onwards.

The regulatory changes brought about by the government in the last few years have resulted in increasing participation from domestic financial institutions in the real estate sector. From 2010 till H1 2023 the real estate sector has witnessed exits amounting to approx USD 12 billion across 267 deals. The depth of domestic capital is demonstrated through the facilitation of 73% of exits by domestic investors compared to the 27% facilitated by foreign investors. The report also indicates that in the last 12 years buybacks and secondary sales were the preferred exit routes, accounting for 51% and 31% respectively.

Real estate-focused Alternative Investment Funds (AIFs) are a lucrative option for real estate investment for domestic institutions, Ultra High Net Worth Individuals (UHNWIs), and family offices. As on December 31, 2022, the total fund raised in AIF-II category stood at USD 116.5 billion, representing a growth of 91% Compound Annual Growth Rate (CAGR) from USD 427 million in 2013. Approximately USD 16 billion has been raised till date in real estate through AIFs, infusing much-needed liquidity into the sector. Currently, there are 23 domestic real estate funds that have been announced and are in the process of raising capital for real estate to the tune of approximately USD 3.6 billion.

The ownership limit for foreign firms was increased to 74% in 2021 from the initial cap of 26 %. The insurance market in India is expected to reach USD 222 billion by 2026. As of March 31, 2023, the 22 life insurance companies and the top 20 general insurance companies have an Asset Under Management (AUM) of INR 53.53 trillion and INR 3.53 trillion respectively. 

India is home to the third-highest number of centi-millionaires in the world, with 1,132 individuals, trailing only behind the USA (9,730) and China (2,021). The average wealth per adult in India has risen at an annual rate of 8.7% since the year 2000, reaching USD 16,500 by the end of 2022. Furthermore, the population of ultra-high-net-worth individuals (UHNWIs) - those with a net worth over USD 30 million is estimated to increase by approximately 40% in the next few years, from 13,627 in 2021 to over 19,000 individuals in 2026.

For more insights, read the full report.