HDFC real estate PE arm HDFC Capital to invest $2 billion in affordable housing ecosystem
HDFC Capital, the wholly owned subsidiary of HDFC Capital, India’s largest mortgage lender, plans to invest approximately $2 billion in affordable housing through its third fund focused on this segment.
The fund, HDFC Capital Affordable Real Estate Fund – 3 (H-CARE-3), is one of the world’s largest funds established for investing in the residential real estate sector. The fund has completed its first closing, with investors already committing over $1.22 billion.
The fund’s lead investor is a wholly owned subsidiary of the Abu Dhabi Investment Authority (ADIA). The total corpus of H-CARE-3 will be approximately $2 billion, including potential fund reinvestments.
“In India, housing will play an even more important role as a growth catalyst as demand for affordable and middle-income housing increases. Coupled with India’s growth prospects, I have never been more optimistic about the housing sector than I am today,” said Deepak Parekh, Chairman of HDFC.
According to him, while demand for affordable middle-income housing remains robust, the lack of flexible, long-term capital is one of the key challenges facing middle-income affordable housing developers in India.
Focused on providing developers with access to financing on flexible terms, HDFC Capital’s funds have supported the development of over 78 residential projects and 180,000 homes across India over the past six years.
Established in 2016, HDFC Capital is associated with the Government of India’s goal of increasing housing supply and supporting Pradhan Mantri Awas Yojana’s ‘Housing for All’ initiative.
“With this new fund, we are becoming a platform for the entire affordable housing ecosystem, supporting not only real estate projects through equity and mezzanine financing, but also vendors and technology companies that help increase the efficiency of such projects,” says Vipul Roongta. MD & CEO, HDFC Capital, to ET. “Our two previous funds have invested over $1.1 billion in 78 affordable, middle-income projects from 25 developers. While these two funds have a combined maturity of 12 years, we have managed to exit 25% of the investments with robust returns in four years.”
Through these funds, it has formed joint ventures and alliances with established developers including Runwal Group, Rustomjee Group, Shapoorji Pallonji Real Estate, Prestige Group, Arvind Smart Spaces and Ambuja Neotia.
H-CARE 3 combines with HDFC Capital Affordable Real Estate Funds – 1 and 2, which launched in 2016 and 2017, respectively, to create a $3 billion funding platform as one of the world’s largest private funding platforms dedicated focused on developing affordable housing.
“H-CARE 3 provides an opportunity to expand our existing relationship with HDFC while also meeting significant demand for affordable housing in India. This builds on the success of previous H-CARE funds, which have supported the development of new mid-market housing projects across the country, in line with the Indian Government’s priorities,” said Khadem Al Remeithi, Executive Director, Real Estate and Infrastructure Department, ADI .
The fund will provide long-term, flexible, lifecycle financing for affordable and middle-income housing projects, including early-stage financing. In addition, H-CARE 3 will also invest in technology companies including construction technology, fin-tech, clean-tech, etc. operating in the affordable housing ecosystem.
The Fund’s primary focus is to provide long-term, flexible debt financing across the full lifecycle of real estate projects, including land, permitting and last mile financing for the development of middle-income affordable housing across India.
HDFC Capital’s goal is to fund the development of 1 million affordable homes in India through a combination of innovative finance, partnerships and technology, with a focus on sustainability.
To achieve this goal, the Company is in active discussions with leading global investors to raise additional funds for affordable housing investments in India.
HDFC will be the sponsor and HDFC Capital will be the investment manager of H-CARE3, which will serve a 12-year term with the possibility of two one-year extensions.
The fund will be flexible enough to also finance real estate projects with equity. The fund is expected to make investments over the next 4-5 years. Its projected development area is estimated at 280 million square feet, spread across middle-income affordable housing projects in India’s leading cities.
The need for affordable housing is growing in the metropolitan areas of India and has attracted the attention of many developers and financial institutions. More than half of all Indian home launches in the eight largest cities over the past five years have been in the sub-Rs 50 lakh segment.
In recent years, the government has also introduced several affordable housing programs, including interest rate subsidies for poor and economically disadvantaged neighborhoods, additional tax benefits for developers and homebuyers, and has also given affordable housing infrastructure status to facilitate the availability of funds.