Affordable Housing in India Offers $ 0.62 Trillion Investment Opportunity over Next 5 Years

Affordable housing in India offers financing opportunities worth $ 0.62 trillion for private funds over the next five years against the backdrop of the government’s push for this segment. However, it has yet to become a major theme for funds in the country with very few private equity funds dedicated to financing affordable housing, industry experts have said.

The affordable housing segment in India has so far seen private equity (PE) investments worth nearly $ 2.60 billion, or 17% of total private equity investments in the residential real estate since 2011.

“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 for investors and global governments to achieve and there is no one-size-fits-all solution to the challenges of creating affordable housing, ”said Shishir Baijal, CMD, Knight Frank India at ‘a conference organized by Asia Pacific Real Assets. Association (APREA).

The Ministry of Housing and Urban Affairs demand-based assessment, which is based on an assessment of how many houses households will choose to occupy given their preferences and ability to pay (at given prices) , fixed the demand for affordable housing at around 11.22 million homes.

Urban India comprises 35% of the country’s population and is experiencing unprecedented migration rates leading to rapid urbanization driving demand ahead of supply.

“As early as 2014, we were convinced that the story of affordable housing was an attractive investment proposition. Furthermore, increasing the supply of affordable housing is the need of the moment, not only in India but around the world, and the positive social impact it creates cannot be quantified. Substandard housing / slums continue to increase as the supply of affordable housing has not kept pace with the migration of people seeking 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 these operating funds in India. It is mainly used for long-term financing of affordable housing projects in 20 cities across the country. The fund has pledged to finance 1.71 lakh of houses in India and develop 180 million square feet.

According to Roongta, the government’s positive policy interventions have encouraged private actors to participate in increasing the supply of affordable housing in India. Private equity funds have increasingly begun to focus on financing the development of affordable housing, resulting in a positive social impact, without losing sight of the stable risk-adjusted returns sought by sophisticated investors.

About 57% of the total world population lives in urban areas and nearly a third of this population of nearly 1.3 billion lives in substandard housing. This has resulted in a housing need gap of 325 million households worldwide, of which India contributes 11%.

It is estimated that by 2030, over 40% of India’s population will live in urban India, up from 35% currently, which will create additional demand for affordable units offering huge investment opportunities for capital players. investment.

Almost $ 1.66 billion of funds have been invested with a focus on the development of affordable housing in India over the past 3 years.

To deal with this housing crisis, various funds and institutes have entered the affordable housing segment. These funds have focused their investments on developing 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 Indian government set itself the goal of meeting a demand from 11.22 million households. Since the launch of the policy until March 31, 2021, 11.3 million homes have been sanctioned, of which 4.8 million have been completed to date.

The need for affordable housing in India’s growing urban sprawls has caught the attention of many developers, who are looking to tap this growing demand. Over 50% of all residential launches in India in the top eight cities over the past 5 years have been in the below Rs 50 lakh segment.