Private equity pours into the Indian residential real estate

V Nagarajan

The residential sector witnessed significant growth in 2024 with domestic private equity (PE) investments playing a pivotal role in driving this momentum.

As India’s population expands and urbanisation accelerates, there is a sustained demand for accessible and quality housing, creating substantial investment opportunities that are being recognised by PE investors, according to Knight Frank India research.

During 2024, PE investments in the residential sector saw a remarkable surge, reaching $.2 billion, surpassing the total investments of 2022 and 2023. This increase was driven primarily by domestic capital which now constitutes 70% of the investment pie, while foreign investments made up 30%. This shift reflects growing confidence in the domestic market and investor preference for local opportunities. Mumbai, Bengaluru and Delhi NCR attracted the highest investments with Mumbai leading at $406 million, followed by Bengaluru at $403 million, and Delhi NCR at $202 million.

Equity funding dominated the landscape with 75 per cent of the total investments in 2024 coming from equity sources. This highlights investor confidence in the residential sector’s growth potential, signalling that they are more willing to take on higher stakes in developments as opposed to relying on debt.  The residential sector is increasingly seen as a lucrative destination for long-term capital, with a growing number of projects being funded at early stages, demonstrating investor optimism about the sector’s future.

In addition to the substantial rise in investments, the distribution of funds across the country illustrates the broad appeal of India’s residential market.

The nationwide interest indicates that the sector’s growth is not confined to one region but is a pan-India phenomenon, driven by strong demand in both established and emerging cities.

This surge in PE investments, coupled with favourable government policies and the sector’s inherent growth potential, positions India’s residential real estate market for sustained long term growth.

The involvement of both domestic and international investors, alongside the sector’s increasing reliance on equity, marks a transformative phase in its development, ensuring that it remains an attractive investment option moving forward.

According to CBRE survey, India’s housing market witnessed a moderation in the third quarter of 2024. However, the sector demonstrated strong performance in absolute terms, with over 225,000 units sold during the first nine months of the year. This sustained positive sentiment in the housing market has encouraged developers to launch new projects and additional phases, resulting in approximately 215,000 new units entering the market in 9 months in 2024.

Given the strong performance in H1 2024 and the sector’s tendency to peak during the festive season, both sales and new launches of residential units are likely to remain elevated. However, high capital values amidst an uncertain global economic scenario may lead homebuyers to take a wait-and-watch approach to purchasing decisions.

In a related development, the high-end / premium categories (INR 1 to 2 crore and INR 2 to 4 crore, respectively) are likely to witness strong demand. Additionally, the traditional mid-end segment-dominated markets such as Noida, Bengaluru, Pune, and Chennai are expected to continue gravitating increasingly towards high-end developments.

I bought an apartment when I lived in India along with my mother. I have a brother and sister. My mother is getting aged and I want to protect the asset as the entire investment has been made by me. What are the options available? Mahesh Shankar, Sharjah

In the event of considering sale of property, both you and your mother must give consent to the sale. There is an option to make your mother execute a will in your favour. Alternatively, you can consider a gift deed from your mother to transfer her portion of the ownership to yourself or spouse or child. These are some of the options that would protect your interest in the property and also enable you to sell the property without any legal hassle.

We are planning to make real estate investment in the names of family members. Is individual investment or joint investment an ideal option from the tax planning point of view? Please advise. Narendra, Dubai.

Investment in property can be made in the names of two or more family members. For joint purchase, the co-owners’ investment should be in proportion with their ownership in the property. As regards minors, even if investment is made in property in the name of minor children the income arising therefrom will be clubbed with the income of the father or the mother who has higher income.

There should be clarity while demarcating the property if investment is made in a joint property between two or more family members. This will avoid future disputes and tax litigation. Commercial property is completely exempt from wealth tax.