Shapoorji Pallonji bags US$ 200 mn FDI deal, to build 20,000 affordable homes

Shapoorji Pallonji Group, the Mumbai-based business conglomerate with diverse interests spanning  construction, real estate, textiles, engineering goods, home appliances, shipping, publications, power, and biotechnology has attracted one of the largest foreign direct investments in India's affordable housing segment.

In a major boost to the fortunes of the limping affordable housing segment in the country, the US$ 3.5 bn (INR 22,400 crore ) group has inked a JV with Standard Chartered Private Equity, World Bank member IFC and the Asian Development Bank committing US$200 million or about INR 1,280 crore.

Further, the multilateral funding agencies will also provide a US$50 million (Rs 320 crore) buffer fund which can be used by the JV that signals the company's entry into the affordable housing segment and aims to create approx 20,000 affordable homes across the country.

The joint venture plans to develop about 20 million sq ft of affordable home space in Mumbai, Pune, NCR, Chennai, Kolkata, Bengaluru and Ahmedabad in the next eight years.

As per the agreement, Standard Chartered Private Equity, IFC and the Asian Development Bank will together hold approx 70 percent stake in the JV while the rest will be with Shapoorji Pallonji Group.

The investment assumes added significance given its sheer size and in light of the lukewarm FDI inflows into the country's affordable housing segment, notwithstanding the government's efforts to lure foreign investments by relaxing some of the stringent stipulations for foreign investment.

It may be recalled that the new BJP government at the centre had reduced the minimum built-up area required in projects as well as capital requirement and eased the exit norms in October last year in its bid to draw overseas capital into the country's floundering real estate sector.

However inspite of some far-reaching measures that included reducing the minimum built-up area to 20,000 sq metres from 50,000 sq metres and halving the minimum capital requirement to US$5 million, the FDI inflows into the realty segment and affordable housing have been tepid at the most, barring a few completed project acquisitions.

The new joint venture which is focusing on new developments on the outskirts of cities, will offer 1BHK (500-600 sq.ft) and 2BHK (800-900 sq.ft) apartments priced in the bracket of INR 15-50 lakhs per unit.

The company plans to focus on projects in the range of approx 1.2 mn to 5 mn sq.ft spread across Tier-1 and Tier-2 cities. Further, it will be helmed by a separate team which will launch these projects under a new brand name that is to be announced soon.

As per the terms of the JV, the Shapoorji Pallonji group will be responsible for identifying land parcels, acquisitions, approvals, execution and development. The board of the new entity will have four members from the three foreign investors while representatives from Shapoorji Pallonji will be allotted two seats.

The first affordable housing project from this new company is expected to be launched in the next three months. This latest initiative is in line with the Asian Development Bank's country-partnership strategy for India 2013-2017, which calls for increased private sector involvement in urban development, including affordable housing.

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 post approval from investors. Moving forward the company plans to look at five more land acquisitions over the next two years.
 
According to informed sources, the company's pure equity capital will be used for acquisition of zoned and aggregated land parcels within municipal limits of various selected cities. The company aims to complete the land acquisition in two years and execute these projects in eight years from now.

In the light of this latest development industry experts are optimistic that FDI inflows into the country's troubled real estate sector and the affordable housing segment in particular will improve in the months ahead.

Globally the interest in real estate as an asset class is also on the rise and much of the funds are expected to flow into India, with affordable housing being touted as one of the major beneficiaries.