International Finance Corporation (IFC), an international financial institution offering investment, advisory, and asset-management services for the growth of private sector in developing countries and a member of the World Bank Group, is soon going to enter into an agreement with PNB Housing Finance to form an $800-million platform for supporting construction of environment-friendly affordable houses across the country.
This would be the second such platform to be formed by IFC in the country. The first was formed by partnering with HDFC in November. This platform set up with India’s largest mortgage lender was also worth $800 million for supporting construction of affordable homes.
According to the alliance with PNB Housing Finance, IFC will make $400 million available for the new facility, of which $150 million will be its own money and the rest will be mobilised from other sources. However, IFC will not underwrite the balance amount. This $400 million will come through an issue of Masala Bonds, which will be PNB Housing Finance’s first such issue. The other $400 million will be provided by PNB Housing Finance.
“We are keen to demonstrate that affordable homes can be a sustainable business venture. That will encourage the private sector to come in and help achieve the country’s goal of ‘housing for all by 2022’. In the near term, we also want to align affordable homes with green homes, so that this leads to green growth,” said Mengistu Alemayehu, South Asia director, IFC.
The entire $800 million will be used to finance retail home buyers and developers of affordable homes as per the Pradhan Mantri Awas Yojana and to developers of environment-friendly green buildings. This proposal will now go to the IFC board for approval. Housing finance companies will help in creating demand through their lending to home loan borrowers, while developers will create supply.
Apart from the PNB Housing Finance platform, IFC has so far invested $550 million in six affordable housing finance and construction companies, with high mobilization effects. It has a number of other partnerships in the pipeline as well. Once all of them are released, these are expected to create a robust ripple impact in the affordable housing market to encourage others to also participate. These investments are in line with IFC’s agenda of paving the way for the private sector into newer areas.
Affordable housing has been a key strategic priority for the Indian government as also for IFC. Prime Minister Narendra Modi has set the goal for ‘Housing for All by 2022’. According to industry estimates, the demand and supply gap in affordable housing segment is pegged at around 11 million units. Through its various initiatives, IFC is hoping to help with delivery of more than one-tenth, or 11%, of this housing gap.
In 2010, IFC formed Aadhar Housing Finance, India’s first private sector institution focused exclusively on housing finance needs of low-income segments.
Affordable housing has been attracting attention from private developers and financiers over the past few quarters. The government’s decision to grant infrastructure status to affordable housing in the 2017 Budget revived the Indian real estate industry in a significant way.
The government’s efforts to augment the supply of affordable housing units by offering tax incentives and sops to realtors have started yielding results. More developers and bigger brands, hitherto known for their premium projects, have also forayed into this segment, while existing players are scaling up their plans. This is evident from the remarkable rise in the number of affordable housing project launches in the past one year.