Download - Low income housing in India

Deloitte Consulting LLP

July 2013

Privately built Low-income Housing in India:

Opportunity, challenges and potential interventions

- 2 -

Agenda

� Huge demand for low-income housing in India

� Low-income housing is an attractive business opportunity

� Current low-income housing activity in India

� Conducive policy required to scale the industry

- 3 -

� Published the first

data-driven reports

analyzing BoP-centric

business models in

India and Africa —

covering over 700

inclusive businesses

� Multiple white papers on

different sectors and articles

in journals like Harvard

Business Review

� Regular conference

addresses across U.S.,

Europe and Asia; significant

media coverage in India and

abroad

� Mobilized a new low-income housing

market in India — over 50,000 units sold

and mortgage financing provided to

previously unreached customers

� Developing the market for safe

drinking water on a pay-per-use basis in

urban slums

� Foundational work in potential new

areas for market-building

– Rural sanitation

– Impact sourcing / rural BPOs

Monitor Inclusive Markets – Focus on Market-based

solutions to improve the lives of low income households

A recognized thought-leader in the

global field of MBS

Working on the ground to mobilize

markets

ActionResearch

Working across India and Africa in Agribusiness, Health, Drinking

Water, Education, Housing, Financial Services, …

- 4 -

MIM has published a number of papers on topics

pertaining to the bottom of the pyramind

Emerging Markets,

Emerging Models

Is the Bottom of

the Pyramid

Really for You?

Stretching the

Fabric of

Microfinance

Micromortages: A

Macro Opportunity in

Low Income Housing

Finance

Promise and Progress

Market-Based

Solutions to Poverty

in Africa

Bridging the Gap: The

Business Case for

Financial Capability

From Blueprint to

Scale: The Role of

Philanthropy in

Impact Investing

Building Houses,

Financing Homes

Investing for Social

and Environmental

Impact

- 5 -

1 Monthly Household Income; 2 Affordability defined as households which have EMI / MHI Ratio of 40% of a Home loan which has a 20% down payment

on an Home value, EMI level of Rs 1,200 per Lac (at 12% interest for a 15 year loan); 3 Conservative estimates that 60% of total households in MHI of

Rs 5–20K (36Mn) are renting and looking to buy a house of their own.

Source: NHB Trends in Housing; CRIS Infac Report; Monitor Research

� Price of unit2 > Rs 25 Lakh

� Potential demand from ~2 M HHs with

estimated Market Size of ~Rs 500,000 Cr

� Various mortgage finance options

available for segment

Building ~22million homes an over Rs. 1,000,000 Cr

opportunity

The low-income housing segment (MHI of Rs 7,500 – 25,000) is estimated at 22 Million

households with an estimated opportunity size of Rs. 1,100,000 Cr (USD 245 Billion) and is

largely underserved

Urban Income Pyramid Offering & Supply of Housing

� Price of unit: Rs 10–25 Lakh

� Potential demand from ~5 M HHs with

estimated Market Size of ~Rs 900,000 Cr

� Mortgage finance available broadly

1%

(0.7MM)

5%

(3.4MM)

22%

(15.0MM)

33%

(22.4MM)

4%

(2.7MM)

10,000–20,000

>80,000

30,000–40,000

<5,000

40,000–80,000

31%

(21.1MM)

5%

(3.4MM)

5,000–10,000

20,000–30,000

MHI1

(Rs)

� Price of House: Rs 3–10 Lakh

� Potential demand from ~ 22 Mn3 HHs

with estimated Market Size

~Rs 1,100,000 Cr

Supply of Housing Finance

� Various mortgage finance options

available for segment

� Potential size of mortgage market ~ Rs

400,000 Cr

� Mortgage finance available broadly

� Potential size of mortgage market

~Rs 675,000 Cr

� Severely constrained supply of

housing finance for informal sector

� Finance available for MHI > Rs 12K in

the formal sector, limited availability

below MHI of Rs 12K for formal sector

and 20K for informal sector

� Potential size of mortgage market

~ Rs 8,80,000 Cr

- 6 -

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Customer Perspective: Social Need and Willingness to

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…trapped in poor and insecure

living conditions.

Many lower income households live in poor conditions and are dissatisfied with their housing

situation; but their searches for affordable housing have been unsuccessful

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Typical Low-Income Group

Living Conditions

Low-Income, High-Quality

Homes

Affordable Urban Housing

The Impact: High-quality, Affordable Homes

- 8 -

Agenda





- 9 -

Sample 1 BHK Unit Layout

Low income housing requires innovation in design to maximize efficient use of space and

minimize cost

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MIM developed a new business model and got

companies to leverage it to build low-income homes

Buy Land

Incremental Construction

Sell Units

Wait for Land Value

Appreciation

Traditional Developer

gg

Buy Land

Sell All Units

Construct Completely

Low Income Housing Developer

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Helped launch new

companies

Helped launch new

companies

Santosh

Associates

Santosh

Associates

- 11 -

Vastushodh Projects Pvt. Ltd., Pune

Site Pictures

Anandgram

Yavat

Source: Company Website, News Prints

12

70% of low-income customers have informal income but

need access to loans to buy a house

High

Low

Lo

an

siz

eFormal‘Semi-formal’Informal

Income type

Traditional Players

New opportunity

Kumar needs a loan to finance

his low-income home…

…but traditional players not

serving this segment

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MIM developed a business model and got companies to

finance informal low-income customers

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Helped launch new

companies

National Housing Bank has been proactively supporting housing finance companies that are

catering to low income housing customers

Today over 12 companies

are serving the informal

sector low income

customer

14

Only 2 focused

private players

Entry of ~5 additional

private players

Entry of new entities and

established FIs

Source: Press reports, Company websites, Monitor Analysis

Year Pre-2008 2011-2012

Growing realization of untapped opportunity and validation of business model has led to

entry of a number of established FIs as well as new entities in the low income housing

finance market

Overview of the Sector

Current – Growing Interest in Low-Income Housing

Finance

2008-2010

- 15 -

Agenda





16

Contacts

2,288

Qualifying LIH

Projects*

96

Overview of “State of the Market” study

Contacts

� Team physically scouted each potential LIH project in the city

� Geographical area in a city included peripheral areas of the city

� Potential areas identified through local HFC network, secondary

research and resident knowledge

Qualification Criteria

� # of units: Total number of units in the project greater than 50

� Launch date: project/phase must have been launched after June’11

� Price: affordable for a customer earning INR 25,000/month as of Jan

2012 – i.e. not more than INR 10 lakh (ex-taxes & duties) as of Jan 2012

Only ~4%

Qualified for

Survey

Note: *We did not get complete information for 7 projects (4 from AHD, 3 from MUM). Only 89 have been used for in-depth analysis

In-depth

Survey

Cities

Quick

Survey

Cities

� Qualification criteria used for LIH projects was the same as in the in-

depth survey

� Contacts were obtained through HFC network, secondary research and

quick targeted trips to cities of Hyderabad, Bhubaneswar & Pune

8

14

Additional 36

LIH projects

from quick

survey

17

1116122652281111732945421

City-wise Breakdown of LIH Supply (June ‘11 – Jan ‘13)

Source: Survey conducted by Hansa; Monitor Analysis

Total supply – 30,668

West India

GUJ

Central India

MP

East India

WB, ORR

North India

DLI, UP, RAJ

South India

TN, AP

Nu

mb

er

of

pro

jects

West India

MAH

# o

f u

nit

s

285

6,726

Ch

en

nai

30

Hyd

era

bad

200

Co

imb

ato

re

998

Jaip

ur

309

Delh

i NC

R

66

Meeru

t

824

Lu

ckn

ow

1,752

Bh

ub

an

esh

war

760

Ko

lkata

634B

ho

pal

Ind

ore

4,474

Ch

an

dra

pu

r

96

Ratn

ag

iri

100

Am

ravati

100

Nasik

500

Nag

pu

r

1,651

Pu

ne

1,796

Mu

mb

ai

4,270

Baro

da

1,075

Rajk

ot

1,529

Su

rat

2,493

Ah

med

ab

ad

At least ~30,500 units in 132 projects have been

launched between June’11 and Jan ’13 across India

18

Note: The two maps correspond to Dec ’07-May 10 and June’11-Jan’13 periods respectively. 1 Nagpur includes one project from Amravati

Source: Building Houses, Financing Homes, World Bank Study by MIM, Eight City LIH Scan and State of the Market Study by MIM

Market has gained depth in existing hotspots and activity

has sprung up in new cities as well

xx Total number of LIH projects

Mumbai

Delhi NCR

Jaipur

Indore

Chennai

Ahmedabad

Kolkata

Hyderabad

Bhubaneswar

Nagpur1

29

1

28

1

5

6

21

8

1

6

4Surat

4

Baroda

1Coimbatore

2

Lucknow

LIH Projects

Jun’11 – Jan’ 13

(132 Projects, 30k units )

2Bhopal

3 Pune

5Rajkot

Mumbai

Delhi NCR

Chennai

Ahmedabad

Pune

Bangalore

Nagpur

10

1

1

6

2

1

3Bhubaneswar

1

Indore2

Kolkata

2

LIH Projects

Dec’ 07 – May’ 10

(29 Projects, 26k units)

1

Nasik

1

Ratnagiri

2 Meerut

1 Chandrapur

LIH Projects

Jun’ 10 – May’ 11

(37 Projects, 21k units)

19

Nearly ~30% of the total supply falls under the INR 6 lakh

price point. Large number of units in 10-12 lakh price

4,723

10 - 12

lacs

8 - 10

lakh

48%

(1,742)

6 - 8

lakh

13%

(485)

4 - 6

lakh

39%

(1,412)

< 4

lakh

3,172

8 - 10

lakh

2,767

(62%)

6 - 8

lakh

1,392

(31%)

4 - 6

lakh

315

(7%)

< 4

lakh

10 - 12

lacs

2,118

10 - 12

lacs

8 - 10

lakh

41%

(1,932)

6 - 8

lakh

14%

(668)

4 - 6

lakh

42%

(1,993)

< 4

lakh

3%

(120)

Available Supply by Price1 Range for 8-Cities

MumbaiIndoreAhmedabad

Note: 1Launch price ex-taxes & duty indexed to January 2012; 2 Three projects in < 4lacs category, including 1,500 unit project from Kolkata; This

analysis does not include a few projects in Ahmedabad (4) & Mumbai (3) where complete data was not available;


11,446

10 - 12 lacs8 - 10 lakh

6,784

(44%)

6 - 8 lakh

3,995

(26%)

4 - 6 lakh

4,543

(29%)

< 4 lakh2

168

(1%)

Supply numbers for the

INR 10-12 lac range

are not exhaustive as

survey didn’t

exhaustively cover

such supply

n = 17 n = 28 n = 26

Significant activity in Mumbai in INR 10-12 lakh price range; combined with lack of activity in

last year in sub-10 lakh segment suggests that market has moved upwards

20

In depth analyses conducted on the 8 cities to identify

the product mix, pricing and geographic spread

Like Ahmedabad, development is also being seen near industrial areas

Rau

Pithampua

Chhota

Bangarda

Khandwa Road

Talawali Chanda /

Manglia

Samvad

Nagar

1 project

Kanadia Road

Bicholi

Mardana

Betma Road

2 projects

3.5 KM

12 KM

15 KM

Betma Road

2

Bicholi

6

Kanadiya Rd.

2

Khandwa Rd.

5

Rau

Pithampura

5

Chhota

Bangarda

4

Manglia

3

Samvad

Nagar1

xx # of projects

12Km

16 Km

IndoreIndore

Note: Indore: n = 28 (projects)


Average Current Basic PSF

1,573

1,150 2,251

449 sq-ft 592 sq-ft 806 sq-ft

Average Saleable Area

4,474 LIH Units

6 “only LIH” projects

22 “Mixed Income” projects

1 RK 1 BHK 2 BHK

3/4th supply between 1,300- 1,700

21

83%

40%

53%

76%

45%

27%

15%

60%

46%

9%

6%

1%

2%

0%

1%

15%

50%

72%

JPR

NAG

KOL

IDR

AHD

MUM

1 RK 1 BHK 2 BHK

Only projects in mature geographies have 1 RK format

even though they sell much quicker

Product Mix Across Cities

Note: Absorption data is basis stated response on number of units sold by the officer/executive at the project site

Ahmedabad: n = 18; Indore: n = 31; Mumbai: n = 27; Kolkata: n = 6; Nagpur: n = 11; Jaipur: n = 4; (Phases). Insufficient number of data points in

Delhi and Chennai; This analysis does not include a few projects in Ahmedabad (4) & Mumbai (3) where complete data was not available;


68% 53% 55%% Units Sold by

Product-type

22

89% developers are building LIH because of the size of

the opportunity and are managing to sell quickly

Motivation for Creating LIH

% of Developers selecting Reason

Wanted to use

existing land-bank15%

Saturation in

upmarket segment26%

As a social cause 48%

Good / sizeable

demand89%

Source: Interviews by Monitor Deloitte

n = 270 5 10 15 20 25 30 35 40 45

Months

Time taken to Sell 80% Inventory by City

IDR

CHE

AHD

JPR

KOL

MUM

DEL

BAN

RAJ

*

Significantly, 90% of the interviewed developers plan to continue building in the LIH space

23

A thriving HFC ecosystem has played a very important

role in making supply affordable for the customer

Book Size of Active HFCs

Source: Interviews and analysis conducted by Monitor

6182

115

405566

130

300

HFC - 4HFC - 3HFC - 2HFC - 1Gruh

5,438

DHFL

24,340

To

tal B

oo

k S

ize

as o

f M

arc

h 2

01

3

HFC - 8HFC - 7HFC - 6HFC - 5

Pre 1990 2007-2010 2011 & beyond

24

HFCs are serving the target segment and majority

portfolio of HFCs comprises loans for less than 10 lakhs

HFCs are making finance available to a previously underserved segment

Note: 1 Data for % loans less than INR 8 lacs

Source: Interviews and analysis conducted by Monitor

53

100

100

100

39

100

HFC - 6 571

HFC - 5 801

HFC - 4

HFC - 3

HFC - 2

HFC - 9

HFC - 8 501

HFC - 7

HFC - 1

% Loans less than

INR 10 lakhs

60

55

46

80

75

60

60

10

67

61

100

50

100

% Customers less

than 25,000 MHI% Informal customers

Data not available

Composition of HFC Loan Portfolio

Data not available Data not available

Data not available

Data not available

25

Access and cost of debt are the biggest challenges faced

by HFCs but most are very bullish of the future

xx Y-o-Y growth in disbursal

(FY12-13 over FY 11-12)

1323

4245455070

200

HFC - 6HFC - 5HFC - 2 HFC - 41HFC - 3AadharGruh

2,174

DHFL

7,158

HFC - 8HFC - 7

FY

12

-13

LIH

Dis

bu

rsa

ls

(IN

R C

rore

)

49% 200% 350% 175%2,351% 300% 125%

Housing Finance Disbursals and Growth

354% 60%46%

Most HFCs plan to grow 3x in 3 years

26

New housing has a very positive sociological impact on

the low-income customers

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Source: Primary interviews at Ahmedabad, Pune and Indore LIH projects, Monitor Analysis

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Qualitative

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- 27 -

Backup





28

Our engagement with the government

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Objective: To create low-income housing supply in Ghaziabad

Approach: Convinced developers of the opportunity in this space, advised VC GDA on

giving faster approvals, introduced Mahindra and VBHC to GDA

Impact: VC,GDA has promised faster approvals;VBHC scouting for land to start project

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Objective: To create low-income housing supply in Surat

Approach: Convinced developers of the opportunity in this space based on

demand and promise of fast approvals as an incentive

Impact: ~4000 houses delivered

Objective: Feedback on the policy, identify implementation challenges and suggest

improvements to stimulate LIH in Odisha including a workshop to launch the program

Approach: Interacted with developers& HFCs to understand their concerns with the

policy so they could be addressed before the workshop being held to launch the policy

Objective: Estimate effective demand and supply of low income housing

Approach: Identified and sized key segments. Assessed potential of finance for the

segments and mapped supply.

Objective: Provide feedback on recommendations from AHTF

Approach: Summarized policy, collected feedback from practitioners, prepared

models to estimate cost to serve and provided feedback on policy in terms of

effectiveness and ease of implementation of the policy

$�%Objective: Develop a viable model for low income housing and facilitate pilots

Approach: Understood customers and value chain to develop innovative models.

Implemented these models through pilots in Ahmedabad and Mumbai

$�%Objective: Estimate Supply of private sector led LIH and understand challenges

Approach: Mapped supply. Interviewed developers & HFCs to understand challenges.

- 29 -

Access and cost of debt are the biggest challenges faced

by HFCs but most are very bullish of the future

Top Two Challenges* as Stated by Housing Finance Companies

29%

Housing Supply Delay in Delivery

% o

f H

FC

s

14%

14%14%

14%

Cost of Debt

71%

14%

57%

Access to Debt

57%

57%

# 1 challenge# 2 challenge

15%

44%

% of developers

Customer

Management

4%

4%

Lack of

Ecosystem

11%

4%7%

Rising costs

63%

15%

48%

Land

52%

26%

26%

Approvals

59% # 2 challenge

# 1 challenge

Top Two Challenges* as Stated by LIH Developers

- 30 -

Different subsidies are effective and required for the two

scenarios – “Market” and “Controlled”

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Potential interventions by government to catalyze the

private sector low-income housing market

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- 32 -

Thank you

� Please feel free to contact us for more information

� Vikram Jain ([email protected])

� Anand Raj ([email protected])

� Ashish Karamchandani

([email protected])