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Only 11% of private equity in residential sector goes to affordable housing, says study

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According to a report by Knight Frank India, India's affordable housing segment has attracted only 11 percent of the total private equity investment in the residential sector since 2011.

Only 11% of private equity in residential sector goes to affordable housing, says study
India's affordable housing segment has attracted only 11 percent of the total private equity (PE) investment in the residential sector since 2011, according to a report by Knight Frank India. These investments the property consultant says, total to approximately $2.6 billion, further noting that affordable housing was "is yet to become a major theme for funds in the country."
The report noted that the lacuna in funding for affordable housing comes at a time when India accounts for 11 percent of the global need for affordable homes. This demand translates to a figure of 35 million homes, which only amplifies the fact that few private equity funds are dedicated to investing in affordable homes.
What is more worrying for the Indian affordable housing segment is the fact that PE investments in low-cost residential projects have been on a decline since 2018. The decline is manifested both in terms of absolute investment numbers and the share these PT investments in affordable homes occupies in comparison to overall investments in residential real estate.
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In 2018, $831 million was invested in Indian affordable housing through the PE route — 40 percent of overall investments in the residential sector, which stood at $2.1 billion. In 2019, that share sharply declined to just 25 percent — only $343 million went into the sector of the $1.37 billion that went into the residential sector. In 2020, hardly $86 million out of $717 million went into Indian affordable housing, which is an abysmal 12 percent.
Thanks to initiatives like the PM Awas Yojana (PMAY), there is PE investment potential totalling $620 billion in Indian affordable housing, according to Knight Frank India. Further, the government’s focus on affordable housing — a target to build 11.22 million homes under PMAY has been set — has also given the sector a much-needed fillip.
In fact, the first three months of 2021 has already seen improving PE investments in affordable housing. Of the $368 million invested in Indian housing, $107 million (29%) has been set aside for the affordable segment.
"Private equity in affordable housing has increased since the introduction of reforms in the sector, and the presence of a few large funds that finance such projects signifies the potential of the segment," says Gulam Zia, senior executive director (Research), Knight Frank India, “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."
Some of the notable private equity investors in Indian affordable housing are HDFC Capital Advisors, Actis and the CDC Group.
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