Big PEs, NBFCs eye low-cost housing with government incentives

In order to realize its ‘Housing For All by 2022’ mission, the government is doing all it can to promote more and more projects in the affordable housing segment. Steps like grant of infrastructure status to affordable housing, faster approval process and other incentives are beginning to have their effect as a number of large private equity (PE) firms and non-banking finance companies (NBFCs) are now becoming interested in this segment of housing.


This is good news for affordable housing because as things existed till now, affordable housing projects were being financed by funds with smaller ticket size that specialized in affordable housing solely.  It makes sense to invest in affordable housing because this is where most of the demand lies. As per the figures, India currently faces a shortage of about 1.87 crore homes, with nearly 95% of this shortage lying in the affordable segment. Kotak Realty Fund, known mainly for its mid-income housing projects, is now evaluating the affordable home segment.


“It is a large market to address. It is a business of low margins and fast turnaround. Hence the approvals need to come fast to convert land quickly into cash flow to make decent returns and the developer should be able to control costs well,” said Vikas Chimakurthy, senior ED, Kotak Realty Fund.


“We like financing real estate projects when the inventory sells with high velocity and behaves like an FMCG product. We are in discussions with a few developers for financing their affordable housing projects and is quite flexible on the stage of financing,” said Amar Merani, CEO at Xander Finance, an Indian NBFC arm of multinational investment firm Xander Group.


The issue with most of the investors is that since the developers will need to work on low margins, the turnaround should be fast enough and getting approvals for affordable housing projects should be swift. They will need to use a different strategy for making investments in affordable housing. Investors have so far been quite conservative, financing only construction debt, last-mile funding and bundling receivables to ensure that their investments are protected.  But, they seem to be getting interested in providing long term capital to affordable housing.

Written by The Realty Paper

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