India’s affordable housing offers funding opportunities worth $0.62 trillion for private funds over the next five years in the backdrop of the government’s push for this segment. However, it is yet to become a major theme for the funds in the country with very few private equity funds dedicated to financing affordable homes, said industry experts.
“The total investment required globally to meet the current demand for affordable housing is $5.8 Trillion of which my country India needs about $0.62 Trillion. These are by no means easy numbers to achieve for global investors and governments and there is no single solution to the challenges of creating affordable housing,” said Shishir Baijal, CMD, Knight Frank India while speaking at a conference organized by the Asia Pacific Real Assets Association (APREA).
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 around 11.22 million houses.
Urban India comprises 35% of the country’s population and is witnessing unprecedented rates of migration leading to rapid urbanisation resulting in demand preceding the supply.
“As early as 2014, we were convinced of the affordable housing story as an attractive investment proposition. Further, increasing the supply of affordable housing is the need of the hour, not only in India but across the globe, and the positive social impact it creates cannot be quantified. Substandard housing/slums continue to rise as the supply of affordable housing has failed to keep pace with the migration of people in search of economic opportunities,” said Vipul Roongta, MD and CEO of HDFC Capital Advisors.
HDFC Capital Advisors (HCARE fund) has raised $1.1 billion and is the largest of such funds operational in India. It is primarily used for long-term financing of affordable housing projects across 20 cities in the country. The fund is committed to financing 1.71 lakh homes in India and developing 180 million sq ft.
According to Roongta, the positive government policy interventions have encouraged private players to participate in increasing the supply of affordable homes in India. Private equity funds have increasingly started to focus on financing the development of affordable housing, leading to positive social impact, without losing sight of stable risk-adjusted returns sought by sophisticated investors.
Around 57% of the world’s total population lives in urban areas and almost a third of this population of nearly 1.3 billion lives in substandard housing. This has translated to a housing need-gap of 325 million homes globally, of which India contributes to 11%.
It’s estimated that by the year 2030 more than 40% of the Indian population will live in urban India as against the current figure of 35%, which will create additional demand for affordable units with huge investment opportunities for private equity players.
Nearly $1.66 billion worth of funds have been invested with a focus on the development of affordable homes in India in the last 3 years.
To address this housing crisis, various funds and institutes have stepped into the affordable housing segment. These funds have focused their investments on the development of affordable housing while providing liquidity and credit to credible developers while using asset management to hedge risks.
With the adoption of the PMAY policy in 2015, the government of India has targeted to meet a demand of 11.22 million homes. Since the launch of the policy to 31st March 2021, 11.3 million houses have been sanctioned, out of which, 4.8 million have been completed to date.
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.