FreepikDe-risking Indian residential real estate
Why fund managers now prefer structured debt over high-risk equity
November 14, 2025Real Estate
Written by:Jorge Aguinaga
Key Takeaways
- The biggest threat to real estate returns is not market demand but the project approval maze, where a delay of just six months can make fantastic on-paper IRRs evaporate.
- Investors are increasingly avoiding high-risk pure equity, preferring to let developers handle the initial land and approval stages while they enter later as strategic financiers.
- This new risk-averse model creates a clear tier of return expectations, with high-risk equity targeting 25% or more, approval-linked debt aiming for 19-21%, and safer post-approval NCDs targeting 14.5-15.5%.
In Indian residential real estate, the most attractive returns often hide the biggest risks. While sales are strong, experienced investors are focusing less on market highs and more on surviving operational lows. The single greatest threat to a project's profitability is not market demand, but the maze of approval risk.
This model is now seen as fundamentally challenged by many seasoned fund managers, with some funds having stopped pursuing pure equity in 2017 specifically because approval risk is the main destroyer of value.
Project timelines are the real enemy of returns. Investors might see fantastic IRRs on paper the day they sign, but those returns can evaporate quickly. A delay of just six months has the potential to wipe out the projected gains.
This long-term uncertainty, where revenues are locked in but costs are not, makes the old equity model a massive gamble.
This new playbook involves letting the developer take the initial high-risk gamble of land acquisition and approvals. The fund then enters as a more secure, strategic financier.
This approach changes the relationship from a high-risk partner to a finance provider, with returns directly linked to the project's actual stage of de-risking.
Industry-wide, a 10-11% post-tax return is the expectation that must be met. These structured debt positions are how funds can reliably deliver on that promise.
The new model creates a healthier, more aligned ecosystem. For capital to be secure, the developer must make money.
By stepping away from the high-risk equity bet, investors de-risk their own position while ensuring the project is properly financed to completion - a true win-win for a growing market.
These strategic insights were shared during the panel discussion on "Rethinking Residential Returns - Balancing Portfolios Across Ultra-Luxury, Aspirational, Mid-Income, and Affordable Housing," at India GRI 2025.
The session was moderated by Sandeep Kotak, MD & CEO at Mango Advisors, and featured reflections from leading experts including Atul Bohra, Group Chief Executive Officer at Kolte Patil Developers; Gopal Krishnan, Executive Director & CEO at Shriram Properties; Lakshmipathi Chockalingam, Senior Managing Partner at ASK Property Fund; Pavan Kumar, Founder & CEO at White Lotus Group; Roshan Banka, Managing Director at Ares Management; and Shailesh Puranik, Chairman & Managing Director at Puranik Builders Ltd..
Access all takeaways and C-level insights in the exclusive India GRI 2025 Spotlight report.
The approval risk problem
The traditional model for real estate investment was pure equity at the land acquisition stage, a simple model designed to capture maximum appreciation.This model is now seen as fundamentally challenged by many seasoned fund managers, with some funds having stopped pursuing pure equity in 2017 specifically because approval risk is the main destroyer of value.
Project timelines are the real enemy of returns. Investors might see fantastic IRRs on paper the day they sign, but those returns can evaporate quickly. A delay of just six months has the potential to wipe out the projected gains.
This long-term uncertainty, where revenues are locked in but costs are not, makes the old equity model a massive gamble.
The new investment playbook: Staged debt
With pure equity now looking so precarious, funds are shifting their strategy to get exposure to the booming residential market. The solution is to move down the risk curve by staging their capital.This new playbook involves letting the developer take the initial high-risk gamble of land acquisition and approvals. The fund then enters as a more secure, strategic financier.
This approach changes the relationship from a high-risk partner to a finance provider, with returns directly linked to the project's actual stage of de-risking.
How de-risking reshapes investor returns
This risk-averse playbook naturally comes with a different and more predictable set of return expectations. This shift creates a clear framework for what investors should realistically target:- Pure equity (the old way): This high-risk play historically targeted returns upwards of 25 percent, but this is the very number that funds have seen evaporate.
- Pure debt (approval-linked): When providing debt capital that is linked to project approvals, the target is now in the 19-21% range.
- NCD transaction (post-approval): This is seen as the safest and most preferred structure, where a non-convertible debenture (NCD) transaction post-approval targets a return between 14.5 and 15.5%.
Industry-wide, a 10-11% post-tax return is the expectation that must be met. These structured debt positions are how funds can reliably deliver on that promise.
A more mature and aligned market
This move away from chasing 25-percent-plus IRRs is not a sign of a less profitable market, but rather a sign of a more mature and stable one.The new model creates a healthier, more aligned ecosystem. For capital to be secure, the developer must make money.
By stepping away from the high-risk equity bet, investors de-risk their own position while ensuring the project is properly financed to completion - a true win-win for a growing market.
These strategic insights were shared during the panel discussion on "Rethinking Residential Returns - Balancing Portfolios Across Ultra-Luxury, Aspirational, Mid-Income, and Affordable Housing," at India GRI 2025.
The session was moderated by Sandeep Kotak, MD & CEO at Mango Advisors, and featured reflections from leading experts including Atul Bohra, Group Chief Executive Officer at Kolte Patil Developers; Gopal Krishnan, Executive Director & CEO at Shriram Properties; Lakshmipathi Chockalingam, Senior Managing Partner at ASK Property Fund; Pavan Kumar, Founder & CEO at White Lotus Group; Roshan Banka, Managing Director at Ares Management; and Shailesh Puranik, Chairman & Managing Director at Puranik Builders Ltd..
Access all takeaways and C-level insights in the exclusive India GRI 2025 Spotlight report.