Shapoorji Pallonji forms joint venture to build 20,000 affordable homes

Bengaluru: Mumbai-based Shapoorji Pallonji Group has joined hands with Standard Chartered Private Equity, International Finance Corporation (IFC)—an arm of the World Bank—and the Asian Development Bank (ADB) to tap demand for affordable homes in India amid a downturn in the broader real estate market.

The partnership will invest about $200 million (around ₹ 1,280 crore today) to build 20,000 homes across the country. Standard Chartered, along with IFC and ADB, will invest 70% of the $200 million, and the remaining 30% will come from Shapoorji Pallonji.

The new venture plans to develop about 20 million sq. ft of affordable housing in cities including Mumbai, Pune, the National Capital Region (NCR) centred around Delhi, Chennai, Kolkata, Bengaluru and Ahmedabad in the next eight years. The business plan will focus on both tier-I and tier-II cities with project sizes in the range of 1.2-5 million sq. ft.

“The capital will be primarily used to buy residential zoned and aggregated land, and to meet project approval and initial infrastructure expenses. For the actual construction, we will raise loans,” said Venkatesh Gopalkrishnan, president (business development) and chief investment officer of Shapoorji Pallonji Real Estate.

“This venture marks the beginning of a journey of the Shapoorji Pallonji Group to realize the dreams of the growing middle class by building homes in the affordable housing space,” he said.

The new entity will have a dedicated team to build on the business plan and will launch these projects under a new brand, the company said.

India’s real estate developers are struggling with a two-year downturn as speculators, spooked by high borrowing costs and project delays, stay away from the property market and genuine homebuyers find apartment prices unaffordable. That’s prompting developers to turn to affordable housing for the middle class.

In 2009-10, affordable housing in India saw a clutch of non-mainstream developers such as VBHC Value Homes Pvt. Ltd and Ramesh Ramanathan’s Janaadhar (India) Pvt. Ltd venturing into the affordable housing space.

Tata Housing Development Co. Ltd has built low-cost homes in Mumbai’s outskirts, in areas such as Boisar. It has pre-launched two projects this year—in Bahadurgarh in NCR and on Kolkata’s B.T. Road—under its New Haven brand, with homes priced at ₹ 27 lakh onwards.

India faces a housing shortage of around 18.4 million units, according to government estimates. In June, Prime Minister Narendra Modi launched a “housing for all” scheme with the aim of providing at least 20 million homes to low-income earners over the next seven years. The project is expected to cost around ₹ 3 trillion.

Shapoorji Pallonji Group and its partners in the new venture plan to build projects offering one-bedroom-hall-kitchen apartments of 500-600 sq. ft and two-bedroom apartments of 800-900 sq. ft, priced at ₹ 15-50 lakh.

The projects will be constructed by Shapoorji Pallonji Engineering and Construction, and will target aspirational and middle-class homebuyers.

“Through this venture, we are also privileged to meaningfully contribute to the Prime Minister’s vision of providing 20 million houses by 2020,” said Jai Mavani, executive director of Shapoorji Pallonji Group.

The first housing project under the joint venture platform will be launched in Kolkata in the next three months.

Shapoorji Pallonji Real Estate is already developing a large mass housing project, Shukhobrishti, in Rajarhat New Town, Kolkata, which started a few years ago. But this will be its first effort to build affordable homes on a pan-India scale.

Vikram Jain, associate director at consulting firm FSG Inc., said while affordable housing is a rather loosely used term, demand in the low-income housing segment remains strong. “Houses of 350-500 sq. ft in this price segment would cost about ₹ 10-12 lakh and there are a number of regional developers who are developing such projects. But there is a huge opportunity for larger, organized developers to come into this housing segment,” Jain said.

In August 2014, real estate firm Mahindra Lifespace Developers Ltd launched its first “Happinest” project in Avadi, Chennai. In October, it launched its second such project in Boisar, near Mumbai. Homes are priced between ₹ 9-18 lakh.