The New Frontier of Real Estate Investing

Globally, the market for alternative investment funds (AIFs) is expected to nearly double to $25.8 trillion by 2032, growing at a robust CAGR of 7.9% between 2023 and 20321. In 2024, real estate represented approximately 17% of the total alternative investment2 market, a notable increase from its 10% share in 20203, highlighting its significant role within the broader landscape of non-traditional assets. This share reflects the growing preference for real estate as a stable, income-generating asset class. From developed economies like the US, Europe, and the Asia-Pacific region (APAC) to rapidly growing markets like India, real estate AIFs are redefining how capital is deployed, managed, and exited.

Particularly institutional investors, such as pension funds, sovereign wealth funds, and family offices are increasingly seeking structured exposure to real estate.

The sector's relative stability, potential for capital appreciation, and consistent income streams from rental yields have made it an attractive option. Additionally, real estate offers an array of investment strategies, from core assets to opportunistic ventures, catering to different risk appetites. As institutional capital continues to flow into real estate, the sector's share of alternative investments is expected to grow, driven by increasing demand for both physical assets and real estate-focused funds like AIFs. This trend is further bolstered by the global rise in urbanization, infrastructure development, and emerging markets' growing appeal.

India’s Real Estate Opportunity: A Multi-Trillion-Dollar Market

India’s growing real estate market is increasingly integrated with global investment trends due to its rapid economic growth, urbanization, digital adoption, innovative technological solutions and evolving investment opportunities. The Indian real estate market is projected to catapult from $350 billion in 2023 to a staggering $1 trillion by 2030 . Several key segments within the Indian real estate market are capturing the attention of investors, particularly through AIFs. The residential sector, with its booming demand in major cities like Delhi, Mumbai, Pune, Hyderabad and Bengaluru, continues to attract significant capital. Since the pandemic, the real estate industry has rebounded across all segments, with the residential market witnessing the fastest and most significant resurgence.

Unlocking India's Real Estate Growth Potential: Through Alternative Investment Funds (AIFs)

AIFs in India have seen substantial increase in the number of funds available for investment. Between FY2013 to FY2024, the commitment raised in the AIF sector has maintained an impressive 83.4% compound annual growth rate (CAGR), signalling its growing importance in the broader investment landscape . In the case of Category II AIFs, traditionally, domestic investors have been the primary source of AIF funding, however, foreign portfolio investors (FPIs) are also stepping up.

A total of Rs 5,06,176 crore AIF investments made across sectors till Q3, FY2025. Over the last five years, Category II AIFs have been responsible for nearly 60 per cent of total AIF commitments and real estate’s share was the highest at 14 per cent- totalling nearly Rs 73,903 crore. This highlights the dominance of these flexible and tailored investment vehicles.

The key reasons are listed below

1. Strategic Diversification Across Asset Classes and Geographies
   AIFs construct well-diversified real estate portfolios, mitigating risks associated with market fluctuations. This strategic diversification is particularly critical for institutional investors operating in dynamic markets like India, where regional economic conditions can significantly impact asset performance.
2. Institutional-Grade Management and Expertise
   Managed by seasoned professionals, real estate AIFs leverage deep market insights, rigorous asset selection, and advanced risk mitigation strategies. In emerging markets such as India, where regulatory and operational complexities pose significant challenges, this institutional expertise enhances investor confidence and optimises portfolio performance.
3. Access to Exclusive, High-Quality Assets
   AIFs provide investors with entry into premium, institutional-grade real estate assets—opportunities traditionally limited to large institutional investors. This structured access enhances return potential while mitigating inherent risks associated with direct property ownership.
4. Robust Risk Management Framework
   Through strategic diversification, active portfolio management, and hedging mechanisms, AIFs employ sophisticated risk mitigation strategies to safeguard capital and enhance long-term value creation.
5. Integrated Developer-Fund Manager Model
   The evolving synergy between real estate development and fund management platforms fosters long-term alignment of interests. Co-investment structures ensure a shared commitment to project success, driving superior execution and sustainable value creation.
6. Tax Efficiency and Regulatory Oversight
   AIFs offer significant tax advantages, including exemptions on specific capital gains, making them more tax-efficient than direct property holdings. In India, SEBI’s regulatory framework ensures robust compliance, transparency, and investor protection, further enhancing the credibility of AIF-driven real estate investments.

The Evolution of Real Estate Investing in India

Real estate has long been a cornerstone of Indian society, traditionally dominated by direct ownership with high capital needs and regulatory complexities. However, the rise of institutional-grade real estate funds, particularly Alternative Investment Funds (AIFs), has transformed the landscape by offering professionally managed, structured investment opportunities. AIFs provide investors, including HNIs and family offices, access to high-quality assets without the risks of direct ownership, while also addressing funding gaps for developers.

Many project developers face challenges in completing projects due to funding gaps, with traditional financing routes becoming increasingly difficult. Alternative Investment Funds (AIFs) provide a flexible, non-traditional financing solution, offering customization through “side letters” that allow fund terms to be adjusted to meet specific investor needs. This makes AIFs particularly attractive to High Net-Worth Individuals (HNIs) seeking long-term growth and portfolio diversification.

As the market matures, AIFs are emerging as the preferred investment route, driven by flexibility, diversification, and a transparent regulatory framework.