Shapoorji Pallonji enters the affordable housing segment with a FDI deal worth Rs $200 mn in its kitty

Shapoorji Pallonji Group has bagged one of the largest foreign direct investments worth Rs $200 million or about Rs 1,280 crore in India's affordable housing segment, with Standard Chartered Private Equity, World Bank member IFC and the Asian Development Bank (ADB).

This will be a joint venture (JV) between the Mumbai-based conglomerate and Standard Chartered Private Equity, IFC and the ADB. They would together hold 70% stake in the JV while the rest will be with Shapoorji Pallonji Group, an official told the Economic Times.

The multi-lateral funding agencies will provide a $50 million (Rs 320 crore) buffer fund which can be used by the JV; this marks the $3.5 billion (Rs 22,400 crore) Shapoorji Pallonji Group's entry into the affordable housing segment.

According to the deal, the JV will develop about 20 million sq. ft. of affordable home space in the next 8 years in Mumbai, Pune, National Capital Region, Chennai, Kolkata, Bengaluru and Ahmedabad.

Venkatesh Gopalkrishnan, chief investment officer and president business development, Shapoorji Pallonji Real Estate, said: "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."

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 built-in 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.

According to experts, the FDI inflow will improve in coming days. "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.

The Mumbai-based company would 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.

(Image: Indiatimes)