India residential real estate faces capital shortfall, but experts see strong investment potential
India’s residential real estate sector is witnessing a growing capital crunch despite its dominant market share, offering untapped investment potential. At the IVCA Conclave 2025, industry leaders underscored how other real estate segments, including commercial, data centres, and retail, continue attracting ample capital, while the housing sector remains underfunded. Kalpesh Mehta, Founder of Tribeca Developers, pointed out that residential real estate offers a unique opportunity for equity investors, particularly in the post-RERA era, as regulatory reforms have significantly improved transparency. The sector, accounting for 75-80% of the real estate market, has not seen the same influx of capital as other segments, leaving developers struggling to raise funds.
Investment Landscape and Emerging Opportunities
Over the past decade, real estate investments comprised approximately 14% of all alternative capital investments, amounting to $56 billion. In 2024, the sector recorded a 65% increase in land transactions, signalling robust investor confidence. However, structural constraints continue to restrict capital flow into the residential segment. Sonu Jalan, Managing Partner at Kotak Real Estate Fund, highlighted that while residential real estate contributed over $80 billion in sales last year, commercial real estate transactions barely touched $8 billion. Given this massive disparity, developers have resorted to alternative funding mechanisms such as land collaborations, self-funding through operational revenue, and raising informal capital from overseas connections. Despite these challenges, industry experts remain optimistic, with many believing that new categories such as rental housing and studio apartments could drive future growth.
Sustainability Challenges and the Need for Long-Term Planning
With rapid urbanisation and growing housing demand, sustainable urban development remains a pressing concern. India’s real estate market must integrate green building practices, energy-efficient infrastructure, and smart urban planning to ensure long-term growth. However, the lack of structured capital inflows limits developers’ ability to adopt sustainability initiatives at scale. For instance, while affordable and rental housing could address urban housing shortages, the historically low yield rates of 2.5-3% have discouraged large-scale development. Mehta noted that a shift in market dynamics is making these asset classes more viable, with emerging rental yields in the 8-10% range, which could pave the way for large-scale, sustainable housing solutions.
Civic and Urban Implications of Capital Constraints
The capital shortage in the residential sector directly impacts urban planning and infrastructure development. Without adequate funding, developers struggle to meet rising urban housing demands, leading to an increase in unaffordable property prices, housing shortages, and unplanned urban expansion. Additionally, the underfunding of critical housing projects forces local authorities to depend on short-term solutions rather than sustainable, long-term urban development strategies. While industry experts acknowledge the risks associated with residential real estate investments, they believe that the current market conditions present a once-in-a-generation investment opportunity. With the right regulatory support and structured capital infusion, India’s residential real estate sector could unlock significant economic and urban development potential.
