Affordable housing now a major theme among private equities

Private equity firms’ interest towards affordable housing is on the rise and is expected to increase in the backdrop of the government’s push for this segment and housing for all.

“Affordable housing has emerged as a significant theme among PE-RE (private equity) 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.

Driven by the demand and government incentives, 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 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 gone by, private equity real estate firms made 67 investments with an announced value of $6.1billion in India, data from Venture Intelligence showed. Around 57% of this 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 increase incentives for the sector by augmentation of the current schemes and relaxing eligibility criteria for the same.