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PEs invested $34 bn mostly in commercial real estate since 2014: Knight Frank  |  July 31, 2019

Moneycontrol News

The Indian real estate sector attracted $34 billion worth of private equity investment since 2014, largely in the commercial segment, which comprises office, retail and warehousing, , said a report titled 'Brick by brick - Moving towards Housing for All' by Knight Frank and Royal Institute of Chartered Surveyors (RICS) on May 30.


Residential comes in second with a 31 percent share. This has shrunk over the years due to slowdown in the housing sector.


On rental housing


As per the report, nearly 10 million homes will be delivered by 2022 as targeted by the government. But an additional 25 million affordable homes will be required by 2030 to meet the requirements of rapid urbanisation.


With Census 2011 pegging urban households living in rented accommodation at over 21 million (27.5 percent), the rental housing market is projected to grow at a faster rate than rate of urbanisation over the next 20 years. The reason being that those renting have no willingness to own and landowners find rental housing unattractive due to low residential yields, high risk of property litigation and cost of transaction.


On affordable housing


Private equity investments into affordable housing projects has grown over the years and the segment witnessed investments of close to $2 billion since 2014, the report said.


It estimates that by 2030 more than 40 percent of the Indian population will live in urban India as against current figure of 34 percent, which is likely to create demand for 25 million additional affordable units. To address the huge demand, it feels a subsidy-based approach may not be enough for sustain growth.


“Going by the rate of urbanisation, demand for affordable homes will grow 2 ½ times to 25 million in urban areas. Hence, the sector has to devise sustainable growth model, with private and public development agencies collaborating to create an ideal ecosystem. The proposed mechanism should provide the ideal bridge between the crying demand for housing and the willingness of the developers to meet that in the regulated environment through professional practices,” Nimish Gupta, Managing Director, South Asia &ndash RICS, said.


Shishir Baijal, Chairman and Managing Director, Knight Frank India, feels that affordable housing is a high potential segment that private development companies are yet to explore to its potential. However, he was quick to caution that unlike other segments of housing, affordable housing poses an interesting challenge involving strategies at all levels.


"Given the requisite volume, this category may need to look at innovative solutions right across the stages of development including statutory clearance, design, building and construction management along with marketing and sale. We feel, a differentiated approach towards affordable housing will hold the key to its ultimate success and profitability,” he stated.


Strategies to boost rental housing


The report suggests three strategies that can adapted for developing rental housing in urban India: 1) Channelising government owned land for rental housing development  2) Pooling of resources by rental management companies and offering prospective tenants a choice in a property and 3) Explore the rent to own option. In the third option, prospective buyers not having sufficient funds to complete the equity component of a transaction can opt for a rent to own contract.