The Indian real estate market is witnessing a significant shift in its financial landscape. As residential property sales experience a slowdown, developers are increasingly turning to private credit to maintain project momentum and manage cash flows. Lenders in the space are reporting a substantial 10–20% increase in their deal pipelines, signalling a structural change in how real estate projects are funded in the face of market moderation.
Decoding the Housing Sales Slowdown
According to data from Anarock Research, the top seven cities in India saw housing sales decline by 14% year-on-year in 2025. This trend was attributed to a combination of high property prices, layoffs in the IT sector, and prevailing global uncertainties. The slowdown has persisted into early 2026, with sales in the March quarter recording a 7% sequential drop. While overall buyer interest remains, converting inquiries into firm bookings has become more challenging.
“While site visits and enquiries remain stable, conversion rates have softened slightly, leading to slower sales velocity,” notes Karthik Athreya, managing director at Sundaram Alternates. This deceleration directly impacts developers’ collections from homebuyers, creating a pressing need for external funding to cover ongoing financial commitments.
Why Developers Are Turning to Private Credit
With internal accruals weakening, developers must find alternative capital sources to meet their obligations, which include land payments, regulatory approval costs, and construction expenses. This is where private credit, a form of non-bank lending, is stepping in to fill the void. It offers a more flexible and faster financing alternative compared to traditional banking channels.
Anand Lakhotia, managing director and co-head of real estate at Motilal Oswal Alternates, confirms this trend. “We are witnessing a healthy increase in deal pipelines and expect deployment in residential credit to see a meaningful uptick in the coming months,” he stated, revealing that his firm’s deal pipeline has swelled by 10–20% recently. He added, “This is typically the phase when good developers look for more flexible capital for land-linked obligations, approval costs, construction support, or refinancing of relatively expensive debt.”
This sentiment is echoed across the industry, with Sundaram Alternates also seeing a 10-15% rise in private credit demand, primarily for working capital and refinancing existing loans.
The Expanding Scale of Real Estate Private Credit
The private credit market in Indian real estate is no longer a niche segment. Industry estimates place the current annual deal value at approximately $1 billion, with 60–70% of this capital flowing into residential projects. As the property market moderates, experts predict this figure could skyrocket. According to a report from Knight Frank India, annual private credit deployment in real estate is expected to rise to $2–3 billion.
On a broader scale, India is positioned to become a major player in the regional private debt market. Projections suggest the country could account for 20–25% of the Asia-Pacific region’s estimated $90–110 billion private debt market by 2028, bolstered by favourable regulatory changes and a growing appetite for flexible financing solutions.
Lender Perspectives and Shifting Market Dynamics
The increased reliance on alternative financing is evident in how developers are managing their existing credit. “Earlier 40% of construction finance lines were lying unutilised as sales were good. Now they will use 80% of lines as sales are slow,” explained Amit Bagri, managing director and chief executive at Kotak Mahindra Investments. This highlights a clear shift from relying on sales-driven cash flow to proactively utilising sanctioned debt.
This trend is further compounded by tighter project finance norms from the Reserve Bank of India (RBI), which limit developers’ ability to secure top-up loans from banks. As discussed in a report by The Economic Times, these regulations are prompting developers to secure larger, more comprehensive funding lines upfront, often from private credit funds.
Vipul Roongta, CEO and managing director at HDFC Capital Advisors, observes that this proactive utilisation of funds is happening even at earlier project stages. “Even at 50–60% completion, developers are proactively utilising financing lines to ensure smooth execution of the remaining construction and timely delivery,” he said. This strategy helps mitigate construction delays, as reflected in data from Vestian, which showed a 36% quarter-on-quarter decline in new project completions in the March quarter—the lowest in four quarters.
Demand for this capital remains concentrated in tier-1 cities and established micro-markets, particularly for mid-income and upper mid-income housing, where end-user demand persists despite longer sales cycles.
What This Means for Real Estate Financing
The rise of private credit marks a crucial evolution in India’s real estate financing ecosystem. It is transitioning from a supplementary capital source to an essential tool for developers navigating market headwinds. By providing timely and flexible capital, private credit funds are enabling builders to sustain construction, meet deadlines, and weather the current sales slowdown. As the market continues to evolve, private credit is set to play an even more integral role in shaping the future of real estate development in India, supporting a more resilient and diversified financial foundation for the sector. This
influx of alternative capital is becoming critical for market stability and growth.
Frequently Asked Questions (FAQs)
- What exactly is private credit in the context of real estate?
Private credit refers to direct lending to real estate developers from non-banking financial institutions or specialized investment funds. Unlike traditional bank loans, it often provides more flexible terms, faster disbursement, and customized solutions to meet specific project needs like land acquisition, construction, or refinancing. - Are smaller real estate developers also able to access private credit?
While a significant portion of private credit is directed towards established, tier-1 developers with strong track records, the market is evolving. Some specialized funds and platforms are emerging to cater to smaller and mid-sized developers, especially those with viable projects in high-demand micro-markets. However, access is generally easier for larger, more experienced firms. - What are the risks for investors in the real estate private credit market?
Investors face several risks, including project execution delays, cost overruns, and market risk affecting the developer’s ability to sell units and repay the loan. The primary risk is developer default. These risks are typically mitigated through rigorous due diligence, strong collateral, and focusing on projects in well-established markets with proven demand. - How do RBI’s tighter norms influence this trend toward private credit?
The Reserve Bank of India’s stricter regulations on project finance from traditional banks, particularly concerning top-up loans for cost overruns, have made it more challenging for developers to secure additional bank funding. These rules indirectly fuel the demand for private credit, as developers seek alternative sources that offer the necessary flexibility to ensure project completion without delays. - Will this increased reliance on private credit affect home prices for buyers?
It is unlikely that the use of private credit will directly cause an increase in home prices. This type of financing is primarily used by developers to manage their cash flow and ensure timely project delivery, rather than to inflate final property values. Home prices remain predominantly influenced by market factors such as supply, demand, location, and overall economic conditions.
