Large private equity firms and non-banking finance companies are now getting interested in affordable housing, thanks to the government’s recent incentives for this segment, including infrastructure status and speedy approvals.

So far, this segment was financed by funds with smaller ticket size which specialized only in affordable housing.The government has been pushing affordable housing in its bid to achieve ‘Housing For All by 2022’ and the efforts are showing with money flowing into this segment.

Kotak Realty Fund, that focused more on mid-income housing projects, is now evaluating the affordable home segment. “It is a large market to address. It is a business of low margins and fast turnaround. Hence the approvals need to come fast to convert land quickly into cash flow to make decent returns and the developer should be able to control costs well,” said Vikas Chimakurthy, senior ED, Kotak Realty Fund.

According to JLL India, builders of budget housing now have access to cheaper sources of funds, thanks to the newly-granted infrastructure status. As per statistics, the shortage of housing currently stands at around 1.87 crore homes, and nearly 95% of the shortage is in the affordable segment. Now, developers can and will focus more on launching projects in this segment, where the demand is maximum.

Some investors believe that private equity firms need to deploy a differentiated strategy while investing in affordable housing.

Typically, private equity firms would like to invest in affordable housing on ‘last-in first-out’ basis. Private equity funds can finance lastmile land aggregation and statutory payments for which construction finance is not an option. Private equity funds can take periodic exits through early surplus and the developer can bring in cheaper construction finance lenders with the project up and running.

Interestingly, equity flows have reduced in the residential sector in the past four-five years and made way for largely debt and structured instruments. The relative slowdown that this asset class has seen over the past three-four years has made investors somewhat conservative and made them turn to construction debt, last-mile funding and bundling receivables to ensure that their investments are protected against the lien of the asset.
Source: Newsfeeds

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