Affordable housing now on radar of PE funds

Affordable housing now on radar of PE funds
The Hindu Business Line, August 17, 2009, Page 3

New Delhi: Builders are not the only ones climbing onto the 'affordable housing' bandwagon. With premium housing and commercial realty market still in near comatose, the affordable housing projects are now catching the eye of dedicated real estate funds and private equity (PE) firms which are chasing opportunities in this emerging space.

"There is a strong PE interest in the affordable housing category. We are open to such investments in individual projects, but we will not dilute stake at the corporate level," said Jayakar Jerome, Managing Director of Provident Housing.

Jerome indicated that Provident (a wholly-owned subsidiary of Puravankara focusing on affordable housing) is open to offering up to 20-25 per cent equity in project level Special Purpose Vehicles (SPVs) to interested players.

The trend is visible even among large players. Unitech, for instance, is in talks with PE players for investment into its low-cost affordable housing initiative - Uni Home. A spokesperson for the company said that apart from PE funds, Unitech is also negotiating with a large international affordable housing player, for investment in 'Uni Home' projects.

Real Estate Investment Fund-Millennium Spire, anticipates maximum demand to come at the Rs 20-30 lakh housing space. "We have signed-up a few transactions and are close to announcing a new deal involving a project where the base price per unit is Rs 21 lakh onwards," said Ashish Bhalla, the Managing Director of Millennium Spire.

A top official of a large realty fund, who did not wish to be named, said that the sweet-spot for his fund are the Rs 20-50 lakh ticket-size units. "We see huge unsatisfied demand in the top 10 cities in this segment," the official said while adding that although his fund had not yet taken equity position in such projects, it was "closely evaluating" them.

The property market had gone into a near tailspin in the aftermath of global economic slowdown and weak consumer sentiments, but builders have lately re-oriented their strategy by focusing on affordable housing - a space that is posting strong demand despite the relatively subdued market conditions.

A latest report on affordable housing by Knight Frank has projected a market size of over Rs 3,00,000 crore by 2011. The scope of this sector is expected to arise from housing requirement of over 2 million units by 2011. The report also revealed that over 32 per cent of the potential buyers surveyed are looking at making a purchase in the next 6-12 months.

However, while affordable housing offers low-risk from demand perspective, there could be challenges on project execution side, cautions a PE expert. "On the positive side, there is a large demand which is not met by the current supply. But there can be execution issues pertaining to time and cost overruns on such projects - all these aspects have to be considered by potential investors," said the expert.