Real estate consultancy Knight Frank in its latest report “Brick by Brick – Long term capital to fund affordable housing for all” – observes that India’s affordable housing offers $ 0.62 trillion of funding opportunities for private funds in the backdrop of the government’s push for this segment.
The affordable housing sector in India has witnessed private equity (PE) investments to the tune of $2,597 mn since 2011. The investment in affordable housing has been 17 percent of the total PE investment in the residential segment in India in the last 10 years (since 2011), mentioned the report. However, it is yet to become a major theme for the funds in the country with a very few private equity funds dedicated to funding affordable homes.
The report was launched during the ongoing APREA - Asia Pacific Real Estate Leaders Congress 2021 currently being held (November 22 – 26, 2021) during the session - Affordable Housing - Long Term investment.
Share of PE investments into affordable segment | Knight Frank Research
India constitutes 11% of world’s housing need gap
The Ministry of Housing and Urban Affairs demand-based assessment, which is based on an assessment of the number of houses which the households will choose to occupy given their preferences and ability to pay (at given prices), has pegged the affordable housing demand at approximately 11.22 million houses. Urban India comprises 35 percent of the country’s population and is witnessing unprecedented rates of migration leading to rapid urbanisation resulting in demand preceding the supply.
Aound 57 percent (4.5 billion) of the world’s total population lives in urban areas and almost a third of this population (1.3 billion) lives in substandard housing. This has translated to a housing need-gap of 325 mn homes globally, of which India contributes to 11 percent. It’s estimated that by the year 2030 more than 40 percent of the Indian population will live in urban India as against the current figure of 35 percent, which will create additional demand for affordable units with huge investment opportunities for private equity players.
Development of affordable homes in India
To address this housing crisis, various funds and institutes have stepped into affordable housing segment. These funds have focused their entire investments into development of affordable housing, while providing liquidity/credit to credible developers, while using asset management to hedge risks. The largest of these funds operational in India is the HDFC Capital Advisors (HCARE fund) which has raised $1.1 billion which is primarily used for long term financing of affordable housing projects across 20 cities India. The fund is committed to finance 1,71,000 homes in India and develop 180 mn sq.ft.
Three of the largest funds with focus on development of affordable homes | Knight Frank Research
Indian policy impact
The adaptation of PMAY policy in 2015, Government of India has targeted to meet a demand of 11.22 mn homes. Since the launch of the policy to 31st March 2021, 11.3 mn houses have been sanctioned, out of which, 4.8 mn have been completed till date. The figures indicate that the policy is close to achieving its set target.
The need for affordable housing in the growing urban sprawls of India has caught the attention of many developers, who are seeking to exploit this growing demand. Over 50% of all India residential launches in the top eight cities in the last 5 years have been in the sub-Rs 50 Lakh segment.
Share of new launches in the affordable segment | Knight Frank Research
Gulam Zia, Senior Executive Director – Research, Advisory, Infrastructure and Valuation, Knight Frank India said, “The PE investments into affordable homes has increased since the introduction of reforms in the sector. The presence of a few large funds dedicated to financing the affordable housing projects signifies the potential of the segment. However, a significant portion of this investment into affordable housing segments is in projects for the mid-income segment and very little has been invested in constructing of the EWS and LIG segments, where the actual housing shortfall is.”
India Inc reacts
Dhaval Ajmera, Director, Ajmera Realty and Infra India Ltd. said, "Affordable housing shortage exists across the globe and various policy level interventions are a key way to resolve the issue. From Maharashtra standpoint, the nature of policy intervention is getting close to the degree of maturity of the economy to impact land development. Unavailability of affordable land is a big barrier. Once the regularity concerns such as restricted development regulations are eased, it is likely to progress.
"Affordable housing projects become unviable because there is a mismatch between land value and income affordability, therefore the asset class that is likely to give better return becomes priority, other than fulfilling the need gap. Affordable housing in Maharashtra specifically in Mumbai, to make it a reality, there should be incentive to be given to developer from the government where cost of premiums are waived, also certain property tax needs to be rebate for land under construction GST waiver which should be given to developer for incentivizing the developer to make more affordable houses in Mumbai, Maharashtra and MMR. As, MMR Mumbai contributes 30 percent in real estate market in all over India so this needs to be prioritised.”
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