Corporates, funds home in on affordable housing

Affordable housing is showing buoyancy with investors, fund houses and developers joining hands to develop the segment. Industry analyst note that a promising return on investment on low-ticket housing is prompting corporate entities to form joint ventures with funds to develop projects.

Recently, Mahindra Lifespace Developers partnered with HDFC Capital Affordable Real Estate Fund-1 (HDFC Capital) to form a platform focussed on developing affordable housing projects. The fund has a investment commitment of ₹500 crore over the next three years.

Others like Brick Eagle Capital Advisory recently received ₹100crore anchor commitment for its Alternative Investment Fund. Similarly, Kohlberg Kravis Roberts & Co Ltd (KKR) has invested $31 million across affordable housing projects from Signature Global, a Gurgaon-based developer.

Mahindra said its platform will look to rapidly scale up in order to address the demand-supply gap in affordable housing in India, with an estimated development footprint of 5-10 million square feet, depending on the locations selected for its projects under the Happinest brand name.

The proposed developments will be undertaken through Mahindra Happinest Developers with a 51:49 equity share between MLDL and HDFC Capital. The first development to be undertaken by the joint platform will be ‘Happinest, Palghar’, expected to be launched in the the second half of the current fiscal year.

Anita Arjundas, MD Mahindra Lifespace, said, “Affordable housing is a critical component of quality urban infrastructure as also a growth driver for the real estate industry in India. We are delighted to partner with HDFC Capital in a venture that will leverage the experience and commitment of each organisation, to develop affordable homes that will create sustainable value for our customers, while also addressing the largely unmet demand in this segment.

Vipul Roongta, CEO, HDFC Capital Advisors says, “The objective of this platform is to invest in residential affordable housing projects by providing long-term equity. Lack of patient long-term capital is one of the key challenges facing growth and development of low and middle-income housing in India. HDFC Capital’s first fund is dedicated to addressing this funding gap by providing long-term equity-oriented capital for development in urban and semi urban peripheral areas.”

Amid increasing investor interest for affordable housing, Kirti Timmanagoudar, Managing Partner, Brick Eagle Capital Advisory said: “Our fund has been created with local developer requirements in mind and will make several small investments at early stages. We invest in developers that target end customers as home buyers and not investors. Hence the sales velocity, business profitability and ultimately IRRs are not dependent on economic cycles”.

Prior to this fund, Brick Eagle Capital Advisory raised ₹400 crore for project finance, which has been deployed across nine cities and eight developers.

Jagdeep Mallareddy, Head – Retail Lending, Axis Bank said: “There is a large, genuine and mostly unmet need for affordable housing and the government’s thrust and commitment towards this is noteworthy.”

“Logistics, warehousing and affordable housing is drawing the attention of both foreign and domestic investors who believe that these sectors can ensure healthy returns on investments”, said Gagan Randev, Director, Capital Markets and Investment Services, Colliers International India.

Recently, the Government had introduced eight PPP (Public Private Partnership) models to promote private investments in affordable housing.

Surendra Hiranandani, MD, House of Hiranandani says, “Regulations must be streamlined and made more effective to achieve the desired results. A major impediment to real estate development in India remains the approval process. The World Bank has ranked India 185 out of 187 countries in ‘Ease of Obtaining Construction Permits Index’, which indicates extreme difficulty in getting permissions. Similarly, legal reforms should in place to enable title insurance which will ensure that projects will not face delays in construction and delivery due to title disputes. We hope the PPP model will clear these issues.”

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