MUMBAI: Some of the bulge-bracket global investors are betting on India's affordable housing story with the country's leading mortgage lender HDFC rolling out its $1-billion offshore fund to finance such projects. The world's second largest sovereign wealth fund the Abu Dhabi Investment Authority (ADIA), is one of the investors, according to two persons close to the development. Two European pension fund pools have also committed investments. The fund, according to a senior banker, has already completed its "first close" of $500 million — pooling a large share of it from the Gulf-based sovereign wealth fund (SWF).
The pool will invest in affordable housing projects across the country. "There's shortage of equity capital in the affordable housing space. This fund will solve that problem as it is being presented to potential investors as an equity fund with a 12-year investment horizon," said an industry source.
An email query sent to HDFC failed to elicit any response. The fund will follow RBI mandate while selecting affordable housing projects. The central bank stipulates that the cost of a house (in an affordable housing project) should not exceed Rs 65 lakh in metros and Rs 50 lakh in non-metros.
"There's a lot of demand from strategic investors in affordable projects, but there are not many investible options," said Anuj Puri, chairman & country head, JLL India, a property consultant. "Affordable housing, especially at the outskirts of towns and metros, becomes difficult for the developer because of high land pricing. Land has to be priced appropriately for any affordable housing project to succeed," Puri adds.
According to a study done by Brick Eagle, a financial services platform supporting the affordable housing industry, India needs close to 7 million houses every year; almost 75% of this demand is from the affordable housing segment. The country needs over 3 lakh acres of land to cater to the affordable housing segment demand. "Apart from partnering with builders, HDFC will have to buy land parcels away from the city to be profitable. If they manage a proper cost structure, the fund will be ableto yield 20-25% returns," adds Puri.
HDFC intends to start deploying the first tranche of the fund in three months' time. Fund-raising for the second tranche of the fund has commenced in overseas markets, sources said. It is not clear if ADIA would raise its exposure in the fund by investing the second tranche, too. This is not the first time ADIA has tied up with HDFC for its India-specific investments. The Indian financial services behemoth has been one of ADIA's most preferred onshore investment advisors for some time now. HDFC Asset Management, the lender's mutual fund subsidiary, is learnt to be advising the $800-billion SWF on its India investments.
ADIA has invested in InfosysBSE 0.29 %, L&T, HDFC, Dr Reddy's Labs and Reliance Industries, amongst a few other large and mid-caps companies. As per ETIG Database, ADIA has investments worth.
Rs 19,000 crore in Indian shares. HDFC is also known to have close ties with SWF like Singapore government's Temasek and Oman's State General Reserve Fund. However, it's not known whether these funds would invest in the proposed second tranche of HDFC's affordable housing fund. The billion-dollar 'affordable housing fund' also marks the launch of HDFC's ninth business vertical.
Apart from owning over 21% in HDFC Bank, the lender holds significant equity in its insurance, asset management, property funding, venture capital and education loan businesses. HDFC has logged profits worth Rs 8,762 crore last fiscal and its shares are trending at Rs 1,215 a piece.
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