India’s real estate sector experienced a remarkable surge in institutional investments during the second quarter of 2025. According to a new report by real estate consultancy firm Vestian, the sector attracted $1.80 billion in investments, marking a 122% increase from the previous quarter. This resurgence is largely driven by foreign investors, particularly from the US, Japan, and Hong Kong, who have shown a keen interest in commercial assets.
Foreign Investment Surge Despite Year-on-Year Decline
The report highlights a significant contribution from foreign investments, accounting for $1.19 billion of the total. However, this figure still represents a 46% annual drop from the same period last year. Notably, the share of foreign investments fell from 71% in Q2 2024 to 66% this year, indicating a shift towards more cautious investment strategies amidst global economic uncertainties.
Co-Investment Models Gain Traction
Vestian’s report underscores a growing preference for co-investment models among foreign investors. These models accounted for 15% of total institutional investments in Q2, nearly doubling the 8% share observed in the previous quarter. This trend reflects investors’ desire to mitigate risks in light of ongoing geopolitical tensions.
“While overall inflows remained lower on an annual basis, the substantial quarterly growth reflects renewed investor confidence supported by robust macroeconomic fundamentals and strong inherent demand,” said Shrinivas Rao, FRICS, CEO of Vestian.
Commercial Real Estate Remains a Hotspot
Commercial real estate continues to dominate, drawing the majority of institutional capital in Q2. In contrast, residential properties only garnered 11% of the total inflows, with the remainder directed towards diversified asset classes. This preference highlights the sustained demand for commercial spaces in India’s growing economy.
| Quick Facts | Data |
|---|---|
| Total Institutional Investment | $1.80 billion |
| Foreign Investment Share | 66% |
| Co-Investment Share | 15% |
| Commercial Real Estate Share | Majority |
| Residential Real Estate Share | 11% |
Domestic Investment Challenges
On the domestic front, the investment scene remains subdued. Domestic investors contributed a mere 19% of total institutional investments, a decrease from 21% the previous year. In absolute terms, domestic inflows dropped to $336 million, marking a 47% year-on-year decline. The report attributes this pullback to global conflicts and trade disruptions that have dampened investor sentiment.
Future Outlook
Despite the challenges, there is optimism for continued capital inflows in the upcoming quarters. The report suggests that stable macroeconomic indicators and supportive policy measures could further enhance investor confidence, particularly if India’s GDP growth surpasses 6% and borrowing costs decrease following recent repo rate cuts.
FAQ
Q1
What led to the 122% surge in real estate investments in Q2 2025?
The surge was primarily driven by foreign investors focusing on commercial assets, supported by robust macroeconomic fundamentals and strong inherent demand.
Q2
Why did foreign investment share drop despite the quarterly growth?
Foreign investment share dropped due to a more cautious approach amid geopolitical tensions, with investors favoring co-investment models to minimize risk.
Q3
What is the significance of co-investment models in the current market?
Co-investment models are gaining traction as they allow investors to share risks and leverage combined expertise, which is crucial during uncertain economic times.
Q4
How have domestic investments performed in Q2 2025?
Domestic investments have declined, contributing only 19% of the total, impacted by global conflicts and trade disruptions.
Q5
What are the prospects for future investments in the sector?
Future prospects are optimistic if macroeconomic conditions remain stable and policy measures continue to support the sector, potentially boosting investor confidence.
In conclusion, while the Indian real estate sector faces several challenges, the significant quarterly increase in institutional funding indicates a positive outlook. With continued foreign interest and evolving investment models, the sector is poised for growth, provided macroeconomic stability and favorable policies persist.