India's real estate sector recorded a dramatic rebound in Q2 2025, attracting $1.8 billion in institutional funding—marking a remarkable 122% jump quarter-on-quarter, according to a Vestian report. This surge was primarily driven by escalating interest from foreign investors, especially in the commercial real estate segment.
Despite this good quarter for alternative investments, there is still an annual decline, underscoring the cautionary decision that remains on the minds of investors due to global economic uncertainties. In this process, the commercial has acted as the leader, having attracted most of the capital, and residential investments have lagged with just 11% of the inflows.
Foreign players, including institutions from the US, Japan, and Hong Kong, invested $1.19 billion, accounting for approximately 66% of the total, representing a slight decline from 71% in Q2 2024.
These models, which comprised 15% of total investments in Q2 (up from 8% in Q1), are seen as safer amid geopolitical tensions.
The domestic investor footprint was notably low: Indian entities accounted for just 19% of funding, down from 21% a year ago and dropping 47% year-on-year and 28% quarter-on-quarter. Market observers cite persistently elevated global uncertainties—stemming from trade policy shifts and geopolitical disruptions—as dampening domestic investor sentiment.
On the other side, the macroeconomic indicators bring rosy prospects. Rao indicated that GDP growth forecasts hovering above 6%, coupled with the likelihood of interest rate cuts, would translate into lower borrowing costs and, hence, increased investments in real estate across FY26.
Should the winds be favorable, momentum for funding will follow, especially for commercial assets with high yields, such as office parks, logistics hubs, and corporate campuses. Commercial properties continued to dominate the investment landscape in Q2, with demand far exceeding that for residential and mixed-use segments.
The findings of Vestian indicate an institutional capital focus on yield-oriented commercial real estate, thereby suggesting a strategic reorientation of investor sentiment.
By Rao’s phrase, summing up the quarter: While inflows on an annual basis are rather low overall, the quarter-on-quarter explosion has reflected fresh investor confidence supported by strong macro fundamentals and need-based demand.
A silent domestic backing, a sharp increase in foreign investor participation, and acceptance of co-investment models showcase a change in the strategies of international players.
Looking forward into FY2026, the outlook suggests a cautious optimism. With interest rates coming down and GDP expected to expand, there could very well be sustained capital inflows into the Indian real estate sector, provided that there is a dose of stability in the global economic scenario.