A policy aimed at lowering the cost of Indian affordable housing by labelling it as infrastructure has received mixed reviews from the investment community.
Earlier this month, as part of its budget announcement, the Indian government said it would give the sector “infrastructure status”, opening up a range of benefits to social housing projects. Among them, the new tag would allow affordable accommodation schemes to attract cheaper bank financing, its proponents argued.
Yet observers reckon the policy has not made real changes to the risk-return profiles of such housing investments.
“The government policy is moving forwards in the right direction but the market has a long way to go to be able to fill the housing gap,” Shirish Sankhe, a Mumbai-based senior partner at McKinsey, told Infrastructure Investor.
Comparing the combined cost of land, construction, infrastructure and maintenance with the average household income in India, he explained that the cost of building one affordable unit is high. An average Indian family living in metropolitan areas makes around 29,690 rupees ($446; €421) a month, according to a local household survey conducted last year.
The affordable housing gap requires substantial amounts of capital, part of which observers believe the government will need to source from private investors acting as partners in projects. The country will need 40 million affordable housing units by 2030 in order to help low and middle-income groups improve living standards, according to Sanhke.
The risk-return profile of such projects has not been very attractive to private investors so far, Sankhe said. These remain cautious about investing in the market – be it through PPP or other forms of participation – in part because the policy meant to support affordable housing is yet to be completely in place.
Still, India’s efforts to push the market has caught the eye of some foreign investors. Early this month, a subsidiary of the Qatar Investment Authority invested $250 million in an Indian affordable housing fund as the sole investor in the low-income housing strategy managed by Mumbai-based firm ArthVeda. The fund is seeking an internal rate of return in excess of 18 to 21 percent, according to a report by sister publication PERE.