Affordable housing offers $0.62 tn worth of investment opportunities in India in next 5 years: Knight Frank

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Updated: November 22, 2021 4:36 PM

Nearly US$1,662mn worth of funds have been invested with a focus on development of affordable homes in India in the last 3 years.

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.

Affordable housing in India offers US$0.62 trillion of funding opportunities for private funds in the next 5 years in the backdrop of the government’s push for this segment, reveals a Knight Frank report.

The report ‘Brick by Brick – Long term capital to fund affordable housing for all’ observes that 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% of the total PE investment in the residential segment in India in the last 10 years (since 2011). 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.

India constitutes 11% of the world’s housing need gap, translating to 35 mn homes:

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% of the country’s population and is witnessing unprecedented rates of migration leading to rapid urbanisation resulting in demand preceding the supply.

57% (4.5 bn) of the world’s total population lives in urban areas and almost a third of this population (1.3 bn) lives in substandard housing. This has translated to a housing need-gap of 325 mn 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.

Share of PE investments into affordable segment

Nearly US$1,662mn worth of funds have been invested with a focus on 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 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 USD 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.

Indian policy impact:

With the adaptation of PMAY policy in 2015, the 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.

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.”

As per Knight Frank Research, currently, over 50 per cent of all-India residential launches in the top eight cities in the last five years have been in the Rs 5 million segment.

The real estate sector has been suffering from a slowdown for quite some time now. The depressed market condition has impacted property sales and corresponding prices too. Amidst slowdown in the marketplace, affordable housing is one of the segments which are attracting attention of all stakeholders, viz. developers, financing companies, investors, policy makers as well as end customers, primarily due to the opportunity the segment presents on account of large unmet demand.

Commenting on the report, Rohit Poddar, Managing Director, Poddar Housing and Development Ltd, said, “The affordable housing industry is one of the most critical segments within the real estate sector in India. The government too is trying to address the issue of housing shortage in India by supplying affordable homes under ‘Housing for All’. Funding for affordable housing is critical for the success of this flagship scheme of the government. Several initiatives by the government to ensure ample liquidity for affordable home financiers have made it a lucrative investment opportunity.”

“Funding for affordable housing is important as most home buying in India is bank financed. The majority of the Indian population cannot afford luxury homes. Most are low to mid-income groups residing in affordable homes. The government has provided various incentives to home buyers, targeted at the affordable housing segment, which is expected to further augment the demand,” he added.

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