CDC, Kotak Realty in talks for affordable housing fund

CDC Group, an investment entity owned by the British government, is in talks with Kotak Realty Fund to float a fund for investing in affordable housing projects, said a source in the know.

The fund would have a corpus of around $100 million (Rs 650 crore), in the form of a managed account, said the source. In such an account, a single Limited Partner commits money to a fund manager and the latter invests on behalf of the former. As opposed to a ‘blind pool’, where the fund manager raises money from different investors and has the discretion to invest wherever it wants.

When asked, a CDC spokesperson said they were not able to comment on the matter. A spokesperson for Kotak Mahindra Group said: “We are in discussion with a number of investors for an affordable housing investment strategy. CDC is an important and existing investor in our real estate and private equity (PE) funds. Nothing has been finalised.” 

The talks come when Actis, the PE arm of CDC Group, is set to acquire the Asian real estate portfolio of Standard Chartered PE for $500 million. StanChart PE has a joint venture with Shapoorji Pallonji for affordable housing, with Mahindra Lifespaces for residential projects and with Tata Realty & Infrastructure for buying commercial assets. 

CDC Group’s portfolio of investments, valued at £4.8 billion, comprises 1,245 investee businesses.

There is rising interest in affordable housing from both foreign and domestic entities. Recently, IFC and HDFC collaborated to create an $800-million corpus to invest in such projects. Mahindra Lifespace Developers has partnered with HDFC Capital Affordable Real Estate Fund-1 of HDFC Capital Advisors to form a platform focused on developing of affordable housing. The fund has an investment commitment of Rs 500 crore over the next three years.

IIFL Investment Managers, wealth and asset management business of IIFL Holdings, is also launching a real estate debt fund with a target of $500 millon to invest in affordable housing.

Ajay Jain, joint managing director at Sun Capital Advisory Services, said the government’s recent initiatives on demonetisation, the goods and services tax, targeting of benami property and the new real estate regulatory law had brought a lot of transparency. Realty companies are moving into an era of better corporate governance. 

“With a large population to cater to in the affordable space, coupled with the PMAY (the government scheme in this regard) and tax sops, both buyers and developers benefit; it results in improved sale velocity and profitability. Partnering with domestic lenders/investors like Kotak, a global player fully mitigates the risk associated with the real estate business,” Jain added.

According to estimates, India needs to build 19.6 million affordable homes, 11 million in urban areas.