Private equity (PE) investments in Indian real estate sector fell 23% year-on-year to $1.13 billion in the first half of 2026 against $1.47 billion in H1 of 2025 as the investors are engaging in more selective capital deployment due to elevated global interest rate, tighter financial conditions and heightened geopolitical uncertainty.
Despite this decline, the office segment remains the preferred asset class for investment with 89% of PE investments in H1 of 2026, while residential sector received the remaining, said the Knight Frank’s Trends in Private Equity Investment in India: H1 2026 report on Friday.
During 2020-21, the yield gap between India's 10-year government bond and theUS 10-year Treasury was nearly 440 basis points, creating a substantial risk premium that supported capital allocation into emerging markets. However, by H1 of 2026, this spread had narrowed to around 240 basis points, nearly half the level seen during the pandemic period. As US Treasury yields rose from approximately 1.8% in 2021 to around 4.4% in H1 2026, investors could earn significantly higher returns from low-risk assets in developed markets. Consequently, India now competes not only on growth potential but also on the efficiency with which returns are generated, protected and ultimately realised.
Private equity investments in the residential sector declined from $297 million in H1 of 2025 to $128 million in H1 of 2026, as investors adopted a more cautious and selective approach towards development-led opportunities.
The moderation comes despite healthy underlying housing market fundamentals. Residential real estate continues to benefit from increasing formalisation, stronger balance sheets among leading developers and sustained end-user demand across key markets. However, higher financing costs and stricter return expectations have led investors to focus on opportunities offering stronger risk-adjusted returns.
Shishir Baijal, International Partner, Chairman and Managing Director, Knight Frank India, said, "The moderation in private equity investments during H1 of 2026 is largely a reflection of the evolving global capital environment rather than any deterioration in India's real estate fundamentals. Over the past few years, investors have witnessed a sharp rise in global borrowing costs, reducing the yield advantage that emerging markets traditionally enjoyed. Consequently, capital allocation decisions are increasingly influenced by factors such as execution certainty, taxation, liquidity and realised returns. Despite these challenges, India's office market continues to demonstrate remarkable resilience, supported by sustained GCC expansion, strong occupier demand and an increasing stock of institutional-grade assets. Looking ahead, India's long-term growth story remains compelling, but attracting larger pools of global capital will increasingly depend on creating a competitive investment framework that complements strong market fundamentals."
