Shobhit Agarwal, CEO, Anarock Capital

Real estate financing in India has significantly transformed over the last decade, becoming more institutional and regulated. However, the success of the next phase will not depend on just volume growth, but on how it spreads out to meet the needs of underfunded smaller cities, smaller developers and mass segment of affordable housing.

India’s real estate sector will absorb roughly ₹50 Lakh crore of capital over the next decade. The question is no longer about demand —speedy urbanisation, rising household incomes, and a generational shift toward formal housing are driving demand. The moot question is whether the capital that funds this demand will be efficient, accountable, and broad-based, or whether the sector will repeat the structural failures of the 2018–19 NBFC cycle. The decisions of the next three years on capital allocation, regulatory design, and product innovation will determine whether real estate reaches its trillion-dollar potential or stalls at half way.

The past decade re-engineered the sector quietly but completely. Demonetisation in 2016 cut through informal capital. RERA reset the developer–buyer contract. GST forced formalisation. The collapse of IL&FS in 2018 and DHFL in 2019 exposed the fragility of an NBFC-led financing model that had been the sector’s primary growth engine.

COVID-19 stress-tested every balance sheet that survived. Subsequently, the sector that emerged is smaller in player count, more institutional in ownership, and structurally more disciplined— though that discipline has come at the cost of access for almost everyone outside the top thirty developers. Housing finance is the elephant in the room.

At over ₹38 Lakh Cr, mortgage credit is by far the largest component of real estate financing in India, dwarfing every other vehicle combined. Around it, a more complex financing stack has emerged: five listed REITs with a combined market capitalisation of roughly ₹2.1 Lakh Cr, a maturing Alternative Investment Fund (AIF)industry filling the mid-risk gap vacated by NBFCs, and a growing GIFT City IFSC channel through which sovereign wealth and pension capital is beginning to enter Indian real estate at scale.Banks have re-entered selectively. NBFCs have recalibrated. Institutional capital, both domestic and foreign, is now doing what NBFC retail lending used to do — only with longer holding periods and tighter underwriting.

The structural gaps are now harder to ignore. Affordable housing — the segment with the largest demand–supply gap and the highest social return — remains chronically underfunded by formal capital. Tier II & Tier III developers are still locked out of institutional lending. Capital concentrates in the same five cities and the same fifteen sponsors. The SWAMIH Fund was a meaningful intervention for stalled projects, but it does not address the upstream problem: institutional capital still treats most of the Indian real estate market as un-bankable. This is no longer a capital availability problem. It is a capital architecture problem.

Real estate financing in India today looks fundamentally different from what it was a decade ago. It is more institutional, more regulated, and more accountable. But the next phase will not be won by adding more vehicles for the same set of borrowers. It will be won by extending the financing stack— to the affordable segment, to the smaller developer, to the cities outside the top five.Whether Indian real estate becomes a  trillion-dollar industry will depend less on how much capital enters it, and far more on  how far that capital is willing to travel.