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Why private credit will be critical for India’s real estate to hit $1 trillion by 2030, according to Saurabh Rathi, of Motilal Oswal Alternates
According to Saurabh Rathi, Managing Director & Co-Head (Real Estate) at Motilal Oswal Alternates, a remarkable 42% of all private credit deal volume in H1 FY25 was absorbed by the real estate sector alone. This dominance is no accident.
It reflects a powerful combination of structural demand, hard collateral, and financing gaps that traditional lenders are increasingly unable to fill.
As Indian real estate becomes more institutionalised and regulated, developers are seeking sophisticated, bespoke capital solutions for last-mile funding, land aggregation, dispute settlements, and approval-linked obligations—needs that private credit is uniquely positioned to address.
In this conversation, Rathi breaks down why real estate has become the natural entry point for private credit in India, how fund structures and strategies are evolving, and why this trend will play a pivotal role in helping the sector scale toward its projected $1 trillion size by 2030. Edited Excerpts –
Q) What is fuelling rise in institutional investments in the real estate sector? Is the sector dynamics or other asset classes are not performing well?
A) The rise in institutional capital – both domestic and international, is being driven far more by sector fundamentals and formalisation than by weakness in other asset classes.
Over the last decade, Indian real estate has moved from being a largely promoter-driven, opaque sector to a more institutional, regulated asset class. RERA, GST, IBC and tax transparency have sharply improved governance and discipline.We’ve also seen a clear consolidation towards stronger, well-governed developers, especially in the top 7–8 cities. As an investor, that gives you far better visibility on execution, governance and exit pathways.
On the demand side, there’s a structural story: sustained urbanisation, rising household incomes, affordability at multi-year best levels, a formal jobs boom led by GCCs and services, and deepening demand across residential, offices, logistics, data centres and alternative housing.
There is also a portfolio allocation angle. As global fixed income yields normalise and public markets remain volatile, investors are looking for real assets that can provide steady cash flows, inflation protection and some illiquidity premium. Real estate in India offers that combination today.
Q) With 42% of private credit deal volume in H1FY25 coming from real estate, what’s fuelling this dominance, and how does it fit into the broader private credit landscape in India?
A) Real estate has become the natural front door for private credit in India because it combines three things: (i) strong underlying demand, (ii) hard collateral, and (iii) a set of capital requirements that traditional banks/NBFCs are either unable or unwilling to meet.
Rising dominance of real estate in private credit deals is being driven by high-quality opportunities in last-mile completion funding, land aggregation, dispute resolution and settlement structures, and large approval-linked obligations that sit outside the comfort zone of conventional bank lending. For many of these use-cases, developers need bespoke, structured capital rather than plain-vanilla term loans.
In the broader private credit landscape, real estate has effectively demonstrated the “proof of concept”. Private credit AUM in India has grown from about USD 0.7 billion in 2010 to roughly USD 17.8 billion in 2023, and is projected to scale meaningfully further by 2028.
Alongside corporate, infra and special situations, real estate is now one of the anchor verticals around which dedicated India private credit platforms are being built.
Q) What innovations are you seeing in real estate fund structures and offerings to attract long-term institutional demand?
A) Innovation is happening at three levels: fund design, deal structuring and exits.
Fund design: Traditional 4–5 year closed-end funds are evolving into longer-tenor vehicles and structured credit/structured equity strategies that better match the long-duration nature of real estate. Institutions increasingly prefer multi-vintage platforms and separately managed accounts (SMAs) where they can commit scale capital with bespoke risk/return and concentration limits rather than one-off funds.
Deal structuring: There is a lot more use of structured solutions. Senior-secured loans with cash sweeps, mezzanine and preferred equity, platform-level financing across multiple projects, and club deals alongside global LPs. Outcome-linked features such as step-up coupons, pre-agreed refinance triggers and upside-sharing beyond a threshold IRR or equity multiple are now fairly common.
Exit pathways: Asset monetisation within the residential segment has become increasingly predictable, supported by strong sectoral tailwinds and a more disciplined market environment.
Developers, too, are now more strategically aligned, actively exploring financing options across the entire project lifecycle and calibrating their capital sources to match the cost and risk profile at each stage.
On the commercial equity front, India’s REIT and InvIT ecosystems are scaling at an impressive pace, with REIT market capitalisation already surpassing the USD 10–12 billion range and ample runway for future growth.
For long-term institutional investors with patient capital, the market now offers a diverse spectrum of opportunities across asset classes, risk-return profiles, and investment horizons.
Complementing this is the rise of domestic AIFs with GIFT City feeder structures, co-investment platforms, and ESG-linked or green real-estate credit strategies—all contributing to a significantly more mature, institution-friendly product landscape than what existed even five years ago.
Q) What makes real estate one of the most attractive avenues for structured and opportunity-led investments in India today?
A) For structured and opportunity-led strategies, real estate in India offers a rare mix of yield, security and scale.
From a risk-return perspective, structured real-estate investments can offer higher yields with meaningful downside protection.
Investors can secure hard collateral, take ring-fenced project SPV exposure, embed strict covenants on leverage, cash sweeps and promoter equity, and align incentives through step-ups, convertibility or revenue-share mechanisms. That allows you to underwrite project-specific risk instead of taking broad market beta.
Real estate also offers scale. Ticket sizes can range from USD 20–25 million on smaller city-specific deals to USD 300–500+ million on platform or portfolio transactions. For global and large domestic LPs that need both yield and deployment velocity, that combination is very compelling.
Q) What role will private credit and institutional capital play in helping the Indian real estate market reach the projected $1 trillion milestone by 2030?
A) If real estate is to grow from roughly USD 200 billion in 2021 to around USD 1 trillion by 2030, it cannot be funded by bank balance sheets alone. Private credit and institutional capital – domestic and offshore – will be key enablers.
Bridging structural funding gaps. Long-tenor capital for land aggregation, last-mile completion, brownfield acquisition, refinancing and special situations is often constrained for banks due to regulatory caps, provisioning norms or concentration limits. Private credit can design bespoke structures for strong sponsors and keep viable projects moving.
Deepening and diversifying the capital stack. A mature market needs bank loans, NBFC funding, private credit, PE, REITs/InvITs and, over time, bond and capital-markets solutions. Private credit provides flexible senior or mezzanine capital that allows assets to move from “development risk” into the “stabilised yield” bucket where core equity and REIT investors are comfortable.
Scaling new-age and social infrastructure. Asset-heavy businesses like data centres, industrial & logistics, rental housing and social infrastructure (healthcare, education, urban infra) require significant upfront capital but often don’t fit neatly into legacy banking templates. Private credit is already playing an important role here and these segments will be meaningful contributors to the USD 1 trillion number.
Q) What opportunities and risks should global and domestic investors consider as India’s real estate sector becomes increasingly institutionalised?
A) On the opportunity side, three things stand out.
Consolidation and quality upgrade: A growing share of housing and Grade-A commercial is now with the top 10–15 developers and REIT-backed platforms, which lifts governance and execution standards.
Diversification of asset classes: Beyond traditional homes and offices, India offers high-growth opportunities in logistics & warehousing, data centres, GCC-led office ecosystems, retail, hospitality, student housing and managed residential. These are sectors where institutional capital can build large, scalable platforms.
Multiple ways to participate: Investors can now access the sector across the spectrum from private credit and opportunistic/value-add equity to core/core-plus REITs, InvITs and infra-adjacent assets; with much better regulatory clarity and taxation than a decade ago.
On the risk side:
Cyclicality and policy risk: Real estate remains cyclical and interest-rate sensitive. Changes in state-level regulations, environmental norms or taxation can impact project economics and timelines.
The way we look at it is simple: you need strong top-down conviction on India’s real-estate cycle, combined with very bottom-up discipline on structure, sponsor quality and security. That balance of macro optimism and micro conservatism is what will allow global and domestic investors to compound safely in this asset class.
(Disclaimer: Recommendations, suggestions, views, and opinions given by experts are their own. These do not represent the views of the Economic Times)
