Private equity firms can be seen gravitating towards affordable housing and their interest is expected to increase further in the backdrop of the government’s push for this segment and the mission of housing for all by 2022.
“Affordable housing has emerged as a significant theme among PE-RE (private equity real estate) investors, especially in the second half of 2017, with both domestic investors as well as international firms placing special focus on this segment,” said Arun Natarajan, founder of research firm Venture Intelligence.
On account of the huge demand for affordable houses and government incentives for this segment, the majority of residential project launches in 2017 were in the affordable and mid-range price segments, with the affordable segment alone accounting for around 45% of the overall residential supply.
With the trend expected to continue, experts see more private investments in this space. “Despite the blurring focus on private equity players on residential in general, the affordable housing segment — one of the most-discussed topics of 2017 — is expected to attract more private equity investors in 2018,” said Anuj Puri, chairman at ANAROCK Property Consultants. “In a bid to capture the substantial market potential of this segment, many PE funds and developers will seek to upgrade their participation in it,” he said.
In the year 2017, private equity real estate firms made 67 investments with an announced value of $6.1billion in India, data from Venture Intelligence showed. Approximately 57% of this investment went into residential projects with affordable housing grabbing a significant part.
In the largest fund raising for housing so far in the country, HDFC Capital Advisors, a wholly-owned real estate investment advisory arm of HDFC Ltd, recently raised $550 million under the initial close of its second affordable housing fund called HDFC Capital Affordable Real Estate Fund-2 (HCARE-2). With this and another fund raised in 2016, it has created a $1-billion platform to invest in affordable and mid-income residential projects in the country’s top 15 cities. The joint platform, where Abu Dhabi’s sovereign wealth fund Abu Dhabi Investment Authority (ADIA) is the primary investor, is expected to commit more than $500 million by March.
Several such funds are betting on affordable housing driven by macro data points that indicate pent-up demand and government incentives.
According to estimates, the current shortfall of homes in the affordable and lower-toi -mid income categories is around 18 million, so the demand is huge — especially in larger cities. In addition to granting infrastructure status to affordable housing, the government has expanded the Pradhan Mantri Awas Yojana (PMAY) benefits to push its vision of ‘Housing for All by 2022’. The government’s decision to offer credit-linked subsidy scheme (CLSS) under the PMAY (Urban) has been helping middle-income group homebuyers significantly.
Industry insiders are hopeful that the upcoming Union Budget for 2018-19 will further increase incentives for the sector and also relax the eligibility criteria for the same.