Corporate Entities to form JV with funds to Develop Affordable Housing
To develop affordable housing fund houses and developers joining hands. Industry analyst note that a promising return on investment on low-ticket housing is prompting corporate entities to form joint ventures with funds to develop projects.
Recently, Mahindra Lifespace Developers partnered with HDFC Capital Affordable Real Estate Fund-1 (HDFC Capital) to form a platform focussed on developing affordable housing projects. The fund house has an investment commitment of Rs 500 crore over the next three years.
Others like Brick Eagle Capital Advisory recently received Rs 100 crore anchor commitment for its Alternative Investment Fund. Similarly, Kohlberg Kravis Roberts & Co Ltd (KKR) has invested $31 million across affordable housing projects from Signature Global, a Gurgaon-based developer.
Mahindra said its platform will look to rapidly scale up in order to address the demand-supply gap in affordable housing in India, with an estimated development footprint of 5-10 million square feet, depending on the locations selected for its projects under the Happinest brand name.
The proposed developments will be undertaken through Mahindra Happinest Developers with a 51:49 equity share between MLDL and HDFC Capital. The first development to be undertaken by the joint platform will be ‘Happinest, Palghar’, expected to be launched in the the second half of the current fiscal year.
The objective of this platform is to invest in residential affordable housing projects by providing long-term equity. Lack of patient long-term capital is one of the key challenges facing growth and development of low and middle-income housing in India. HDFC Capital’s first fund is dedicated to addressing this funding gap by providing long-term equity-oriented capital for development in urban and semi urban peripheral areas.
Amid increasing investor interest for affordable housing, Managing Partner, Brick Eagle Capital Advisory said their fund has been created with local developer requirements in mind and will make several small investments at early stages. They invest in developers that target end customers as home buyers and not investors. Hence the sales velocity, business profitability and ultimately IRRs are not dependent on economic cycles.
Prior to this fund, Brick Eagle Capital Advisory raised Rs 400 crore for project finance, which has been deployed across nine cities and eight developers.
A major impediment to real estate development in India remains the approval process. The World Bank has ranked India 185 out of 187 countries in ‘Ease of Obtaining Construction Permits Index’, which indicates extreme difficulty in getting permissions.
Source Link- http://www.thehindubusinessline.com/news/real-estate/affordable-housing/article9932691.ece