HDFC Capital Advisors looks to raise $1 billion in affordable housing fund

After raising over US$ 1 billion for its affordable funds earlier, HDFC Capital Advisors — the property fund management company of HDFC — could raise a similar amount for its third affordable housing fund, said sources familiar with the issue.

The fund manager is in talks with the Abu Dhabi Investment Authority (ADIA) to raise funds, said sources, adding India’s National Investment and Infrastructure Fund (NIIF) could also put fresh money into the fund.

HDFC Capital Advisors guides HDFC Capital Affordable Real Estate Fund 1 (H-CARE 1) and H-CARE 2, in which the ADIA is an anchor investor. The NIIF last year invested Rs 660 crore (US$ 94.43 million) in H-CARE 2.

Collectively, H-CARE 1 and H-CARE 2 form a US$ 1.1 billion investment platform targeting affordable and mid-income residential projects in 20 cities in the country.

"They have got a good response from investors. Global investors have realised that affordable housing is selling well in the country and presents them with a good opportunity," said a source.

When contacted, neither HDFC nor the NIIF spokesperson responded. The ADIA spokesperson did not offer any comment.

HDFC Capital invested Rs 500 crore (US$ 71.54 million) in the Runwal Group's housing project in Dombivli near Mumbai early this year from its H-CARE funds.

It also formed investment platforms with developers to co-invest in other affordable projects such as with Prestige Estates Projects, Mahindra LifeSpaces, and ATS Homekraft and has been in talks with a few more developers to float such platforms.

According to sources, global investors such as the International Finance Corporation (IFC) and the CDC Group plc of the UK government are also looking to invest in affordable housing projects, especially in tier II cities.

ADIA has already made significant investments in India, partnering with Kotak Investment Advisors in the latter's stressed assets fund. Kotak handles the managed account of ADIA. ADIA has tied up with Shapoorji Pallonji to invest in rent-yielding assets and with Shapoorji Pallonji Real Estate to float a US$ 1 billion logistics fund to invest in logistics parks in the country.
HDFC's other property fund management firm, HDFC Property Fund, is raising a US$ 500 million fund, which plans to invest in the ready inventory of property developers, give properties on rent, and sell when the market recovers.

Private equity investors have bet big on the affordable housing space. The Asian Development Bank and the IFC have formed a joint venture with Shapoorji Pallonji to develop mid-income housing projects. Further, Blackstone has acquired affordable housing finance company Aadhar Housing Finance from Dewan Housing Finance Corporation.

Recently, the government announced a Rs 20,000 crore (US$ 2.86 billion) fund to lend to affordable housing projects which are stuck as a way of helping distressed middle-class homebuyers. Finance Minister Nirmala Sitharaman said both the government and financial institutions, such as Life Insurance Corporation of India, will contribute equally to the fund.

HDFC Chairman Deepak Parekh recently said the Rs 20,000 crore (US$ 2.86 billion) fund will help the real estate sector to finish pending housing projects and that HDFC was very keen to contribute to it.

Disclaimer: This information has been collected through secondary research and IBEF is not responsible for any errors in the same.