Shapoorji Pallonji bags FDI deal in affordable housing from StanChart, IFC and ADB

MUMBAI: Shapoorji Pallonji Group has attracted one of the largest foreign direct investments in India’s affordable housing segment, with Standard Chartered Private Equity, World Bank member IFC and the Asian Development Bank committing $200 million or about Rs 1,280 crore in a joint venture with the Mumbai-based conglomerate.

In addition, the multilateral funding agencies will provide a $50 million (Rs 320 crore) buffer fund which can be used by the JV that marks the $3.5 billion (Rs 22,400 crore) Shapoorji Pallonji Group’s entry into affordable housing segment. The JV will develop about 20 million sq ft of affordable home space in Mumbai, Pune, National Capital Region, Chennai, Kolkata, Bengaluru and Ahmedabad in the next eight years.

"For the last two years, we have been strategising our group’s foray into affordable housing segment with a long-term perspective and therefore wanted to join hands with partners with a similar view," said Venkatesh Gopalkrishnan, chief investment officer and presidentbusiness development, Shapoorji Pallonji Real Estate. Standard Chartered Private Equity, IFC and the Asian Development Bank will together hold 70 per cent stake in the JV while the rest will be with Shapoorji Pallonji Group, he said.

The investment assumes significance given its size and tepid FDI flow into affordable housing segment even after the government relaxed rules last year to draw overseas capital for real estate. In October, the government reduced the minimum builtin area required in projects as well as capital requirement and eased the exit norms. It reduced the minimum built-up area to 20,000 sq metres from 50,000 sq metres while halving the minimum capital requirement to $5 million. However, barring a few completed project acquisitions, FDI inflow into real estate, including affordable housing segment, remained weak.



Experts expect FDI inflows to improve in the days ahead, though. "Interest for real estate as an asset class is rising globally and this capital will also flow into India. We expect the deal activity to pick up here on and affordable housing will be one of the key beneficiaries as fundamental demand drivers for this segment are robust," said Mona Chhabra, executive director, EY.

Under the terms of the JV, Shapoorji Pallonji Group will be responsible for identifying land parcels, acquisitions, approvals, execution and development. The JV company aims to create 20,000 affordable homes across the country. Its board will have four members from the three foreign investors while Shapoorji Pallonji will get two board seats. "With our group’s strong engineering, execution capability and trust the brand enjoys, we are ideally equipped to handle projects like these," said Jai Mavani, executive director, Shapoorji Pallonji Group.

"With the government’s push to ‘Housing For All’, we are hopeful that players like us will get support from the government in terms of approval processes as it will serve larger needs." The group has already identified three land parcels for projects under this alliance. Of these, it has already acquired two land parcels which will be financed through the joint venture capital following approval from investors. "We will look at five more land acquisitions over the next two years. This is pure equity capital and will be used for acquisition of zoned and aggregated land parcels within municipal limits of cities. Our aim is to complete the land acquisition in two years and execute these projects in eight years from now," Gopalkrishnan said.

The JV company will come up with developments on the outskirts of cities, offering 1BHK apartments of 500-600 sq ft and 2BHK apartments of 800-900 sq ft, priced at Rs 15-50 lakh per unit. The company will focus on tier-1 and tier-2 cities with project sizes in the range of 1.2 million sq ft to 5 million sq ft. The new entity will have a separate team to undertake the business and will launch these projects under a new brand to be created soon.

The first affordable housing project under this entity will be launched in the next three months. The initiative is in line with Asian Development Bank’s country partnership strategy for India 2013-2017, which calls for increased private sector involvement in urban development, including affordable housing.