Foreign capital inflows into Indian real estate have plunged to nearly a third of their peak in financial year 2020-21, as higher global interest rates, tighter financial conditions and geopolitical uncertainty have weakened the appeal of Indian property to overseas investors.
Inflows fell to Rs 2,208 crore in FY26 from a peak of Rs 6,043 crore in FY21, according to data compiled by Anarock Capital. The decline continued in FY26, with inflows dropping 29% from Rs 3,098 crore in FY25.
The retreat in foreign capital comes even as global investors are showing greater willingness to take on development risk in India, marking a shift from their earlier preference for completed assets, said Shobhit Agarwal, chief executive at Anarock Capital.
Vivek Rathi, national director of research at Knight Frank India, said higher interest rates in developed markets have made them relatively more attractive for investors, particularly after accounting for currency risks in emerging markets such as India.
“It was expected that rates would come down there, but war and inflation kept rates high. With high cost of money, investors felt developed markets were safe bets and attractive,” Rathi said.
Though Indian assets offered a yield of 6.5-7%, investors had to take on currency risk, making it a less attractive proposition, he said.
With a yield of 6.5% and a currency loss of 3.5%, investors would have made a return of 3%. Even if they hedged and earned a return of 5-6%, they would have made similar returns in the US, but without currency or developing-country risks, he said.
“Either elevated rates should come down in the source market or returns should go up in investment markets, or both should happen for returns to go up substantially,” he said.
Shift to greenfield
Despite the overall decline, the composition of foreign investment is changing, with large global investors increasingly willing to take on development risk — an area they had traditionally approached with caution, Agarwal said.
For instance, US-based fund house Blackstone has invested in developing warehousing properties and data centres through its arms. Earlier, it bought shopping malls and offices to build its portfolio and listed them as real estate investment trusts, or REITs, with its partners.
Blackstone-owned Horizon Industrial Parks has around 28.5 million square feet of operational warehousing space and develops about 5-6 million sq ft every year.
It also owns a 40% stake in Pune-based developer Kolte-Patil Developers, which builds residential properties.
Domestic investors
Domestic institutions, developers, family offices and high-net-worth investors have become increasingly active, stepping in to capture opportunities that previously depended heavily on overseas capital, Agarwal said.
However, Rathi believes domestic and Asian investors have not been able to fully compensate for the decline in investments by foreign investors.
Japanese investors such as Sumitomo, Mitsui Fudosan and Mitsubishi Corp have invested in Indian properties and developers in recent years.