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PE Firms NBFCs Find Investment Opportunity in Affordabe Housing

Private equity and non-banking financial companies are looking afresh at affordable housing thanks to the government’s thrust on the segment and the recently accorded infrastructure status.

A few institutional investors have already put in money in affordable housing projects while many others are beefing up their corpora to do so, bringing in much-needed liquidity. This comes amid data pointing to robust demand, which has prompted developers to sharpen their focus on the segment.

“The activity in affordable housing segment is very high right now and is expected to continue for the next few years given the impetus provided by the government through various incentives and subventions,” said Pankaj Kapoor, managing director of Liases Foras Real Estate Rating & Research.

Sales figures bear this out, according to Kapoor. “On sequential basis, maximum sales growth of 31% was reported in the affordable segment, with properties priced below Rs 25 lakh, during the quarter ended March,” he said.

The government is offering incentives for affordable housing in a bid to achieve ‘Housing for All’ by 2022.

According to JLL India, builders now have access to cheaper sources of funds owing to infrastructure status for affordable housing. As per the real estate services firm, India has a shortage of about 1.87 crore houses, nearly 95% of which fall in the affordable segment. Hence the focus of builders on affordable houses.

Kotak Realty Fund, which raised $250 million last year for making equity investments in real estate projects across the country, is now raising a new fund worth $100 million to invest in affordable housing projects. While the $250-million fund will also be looking at making some investments in affordable housing projects, the new fund will specifically invest in this segment.

“While the demand for affordable housing is healthy, there has not been enough supply available in this segment, and hence, more funds need to flow towards this category,” said S Sriniwasan, managing director, Kotak Investment Advisors.

“There’s a good amount of push from the government in this segment. Realty business is getting cleaned up with RERA – Real Estate (Regulation and Development) Act – and that makes it more palatable for investors. Apart from this, approvals are getting more transparent and predictable.” Brick Eagle, which incubates affordable housing developers and funds their projects, is also in the process of raising up to `700 crore to invest in such projects. This will be the private equity firm’s third fund and it expects the category to continue to fetch healthy returns for a long time.

“Appetite is quite high for affordable housing and investors’ interest has picked up particularly after the Union Budget for 2017-18 accorded infrastructure status to this segment and other incentives,” said Brick Eagle CEO Rajesh Krishnan. “Although there is a risk of too much supply in middle income housing, the demand for low income housing, in `10-30 lakh price bracket, will continue to far exceed supply. This translates into superior risk adjusted returns for investors over the next decade.”