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
Action Research
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 520K (36Mn) are renting and looking to buy a house of their own.
Source: NHB Trends in Housing; CRIS Infac Report; Monitor Research
Price of unit
2
> 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 1025 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)
10,00020,000
>80,000
30,00040,000
<5,000
40,00080,000
31%
(21.1MM)
5%
(3.4MM)
5,00010,000
20,00030,000
MHI
1
(Rs)
Price of House: Rs 310 Lakh
Potential demand from ~ 22 Mn
3
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 -
Saves ~30 every monLh afLer paylng for renL
and household expenses
Pas a bank accounL, 1v, moblle and a cycle
Customer Perspective: Social Need and Willingness to
Pay
Laxman had a dream, "4 house of his own"
but the market was not supp|y|ng th|s
Laxman had a dream, "4 house of his own"
Pe could afford a 230-330 sq.fL. house, was wllllng Lo make 20 downpaymenL
and pay up Lo 33 of monLhly lncome ln morLgage paymenLs Lo reallze hls dream -
but the market was not supp|y|ng th|s
Laxman is a potential low-income
house buyer
oorly consLrucLed, small
cramped houses
oor sanlLary condlLlons -
shabby LolleLs (ofLen
ouLdoors), bad dralnage,
waLer-logglng durlng
monsoons
Lack of faclllLles - no properly planned access polnLs,
walkways, dedlcaLed schools, eLc.
oor soclal envlronmenL for chlldren - nelghbours
wlLh bad hablLs, use foul language, glve low or no
lmporLance Lo educaLlon
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
Self employed as a barber
ln Ahmedabad
MonLhly PP lncome
8s.14,000 -17,000
Llves ln a 1 8oom-klLchen
wlLh hls wlfe and 2 chlldren
8enL lncreased from 8s. 300
Lo 8s. 2300 ln 7 years,
changed 3 houses ln 12
years
7 Z
G
D
-
G
E
N
-
H
o
u
s
in
g
a
n
d
W
a
te
r
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lid
e
s
f
o
r
A
D
-
2
-
2
8
-
1
3
-
D
A
Typical Low-Income Group
Living Conditions
Low-Income, High-Quality
Homes
Affordable Urban Housing
The Impact: High-quality, Affordable Homes
- 8 -
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
- 9 -
Sample 1 BHK Unit Layout
Low income housing requires innovation in design to maximize efficient use of space and
minimize cost
KITCHEN
10
Land as Inventory
ShorL llfe cycle
Plgh l88 20-40
Cood Marglns ~20
Land as Asset
Longer llfe cycle
very hlgh buL uncerLaln reLurns
ConsLrucLlon ls lncldenLal
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
Source: MonlLor 8esearch, MonlLor Analysls
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
L
o
a
n

s
i
z
e
Formal 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
AuLorlckshaw drlver wlLh monLhly
household lncome beLween ln8
8,000 Lo 9,000
no lncome proof, no salary sllps, no
lncome Lax reLurns
LlmlLed usage of bank accounL
Pas ln8 70,000 saved and needs ln8
2.3 lakh loan
13
MIM developed a business model and got companies to
finance informal low-income customers
1rad|t|ona| nous|ng I|nance
Customers: Low Income -
Iorma| & Informa|
Income documents (|f
ava||ab|e) + |ncome
surrogates
I|e|d based cred|t
appra|sa|
Loan sancLlon / re[ecL
1lckeL slze: <8s. 10L
M|cro-mortgages Lender
CusLomers: Mld - Plgh
lncome / lormal
CredlL Appralsal based
on lncome documenLs
& Lax forms
Loan sancLlon
13L +
Loan sancLlon
Average LlckeL slze: 8s.
13L +
8ranch based general
credlL appralsal
uocumenLaLlon led
Approach
I|e|d Ver|f|cat|on |ed
Approach
8reak-even by ear 3
koA - 2.S by ear S, koL - 17 by ear 7
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
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
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 June11
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
1 1 1 6 1 2 2 6 5 2 28 1 1 1 1 7 3 29 4 5 4 21
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
N
u
m
b
e
r

o
f

p
r
o
j
e
c
t
s
West India
MAH
#

o
f

u
n
i
t
s
285
6,726
C
h
e
n
n
a
i
30
H
y
d
e
r
a
b
a
d
200
C
o
i
m
b
a
t
o
r
e
998
J
a
i
p
u
r
309
D
e
l
h
i

N
C
R
66
M
e
e
r
u
t
824
L
u
c
k
n
o
w
1,752
B
h
u
b
a
n
e
s
h
w
a
r
760
K
o
l
k
a
t
a
634
B
h
o
p
a
l
I
n
d
o
r
e
4,474
C
h
a
n
d
r
a
p
u
r
96
R
a
t
n
a
g
i
r
i
100
A
m
r
a
v
a
t
i
100
N
a
s
i
k
500
N
a
g
p
u
r
1,651
P
u
n
e
1,796
M
u
m
b
a
i
4,270
B
a
r
o
d
a
1,075
R
a
j
k
o
t
1,529
S
u
r
a
t
2,493
A
h
m
e
d
a
b
a
d
At least ~30,500 units in 132 projects have been
launched between June11 and Jan 13 across India
18
Note: The two maps correspond to Dec 07-May 10 and June11-Jan13 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
Nagpur
1
29
1
28
1
5
6
21
8
1
6
4 Surat
4
Baroda
1
Coimbatore
2
Lucknow
LIH Projects
Jun11 Jan 13
(132 Projects, 30k units )
2
Bhopal
3 Pune
5
Rajkot
Mumbai
Delhi NCR
Chennai
Ahmedabad
Pune
Bangalore
Nagpur
10
1
1
6
2
1
3
Bhubaneswar
1
Indore
2
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 Price
1
Range for 8-Cities
Mumbai Indore Ahmedabad
Note:
1
Launch 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;
Source: Survey conducted by Hansa; Monitor Analysis
11,446
10 - 12 lacs 8 - 10 lakh
6,784
(44%)
6 - 8 lakh
3,995
(26%)
4 - 6 lakh
4,543
(29%)
< 4 lakh
2
168
(1%)
Supply numbers for the
INR 10-12 lac range
are not exhaustive as
survey didnt
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
Nagar
1
xx
# of projects
12Km
16 Km
Indore Indore
Note: Indore: n = 28 (projects)
Source: Survey conducted by Hansa; Monitor Analysis
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
3/4
th
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;
Source: Survey conducted by Hansa; Monitor Analysis
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-bank
15%
Saturation in
upmarket segment
26%
As a social cause 48%
Good / sizeable
demand
89%
Source: Interviews by Monitor Deloitte
n = 27
0 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
61
82
115
40
55
66
130
300
HFC - 4 HFC - 3 HFC - 2 HFC - 1 Gruh
5,438
DHFL
24,340
T
o
t
a
l

B
o
o
k

S
i
z
e

a
s

o
f

M
a
r
c
h

2
0
1
3
HFC - 8 HFC - 7 HFC - 6 HFC - 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 57
1
HFC - 5 80
1
HFC - 4
HFC - 3
HFC - 2
HFC - 9
HFC - 8 50
1
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)
13
23
42
45 45
50
70
200
HFC - 6 HFC - 5 HFC - 2 HFC - 4
1
HFC - 3 Aadhar Gruh
2,174
DHFL
7,158
HFC - 8 HFC - 7
F
Y

1
2
-
1
3

L
I
H

D
i
s
b
u
r
s
a
l
s

(
I
N
R

C
r
o
r
e
)
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
llfe. AoJ oftet oll tbls ls oot owo boose
we feel bettet bete. Oot llfe style bos
cbooqeJ, oow we ote expetleocloq clty
llfe. AoJ oftet oll tbls ls oot owo boose
5ense of upqrode
lee/inq of be/onqinq
Pride of ownership
5urqe in ospirotions
seose of belooqloq lo loJote.
lltst, l wos o lotJesl (oo ootslJet) bot
oow tbot l bove my owo boose, l feel o
seose of belooqloq lo loJote.
oot boose.
nete, we Joot feel ooy teosloo ot feot.
AoJ, lf someboJy vlslts os, tbey woolJ llke
tbe boose. we olso Joot feel osbomeJ of
oot boose.
l wlll look fot o plot. 1oJoy l om lo o
flot, tomottow lll bollJ o boose ooJ pot
o sbop tbete..
Source: Primary interviews at Ahmedabad, Pune and Indore LIH projects, Monitor Analysis
I|e|d kesearch
28
1700+
9
3S0+
Focus Group
Discussions
Quantitative
Interviews
Cities
Qualitative
Interviews
1100+
Customers
Feedback
- 27 -
Backup
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
28
Our engagement with the government
MonuP4
5urot
Municipo/
corporotion
6hotiobod
ueve/opment
4uthority
Nn8
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
Odisho
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
Nn8
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
Nn8
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
F
C
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
"contro//ed"
scenorio
"Morket"
scenorio
unlL prlce and beneflclary
deLermlned by developer
llnanclal beneflLs offered Lo developer may noL
be passed on Lo Lhe beneflclary
rovlde flnanclal beneflLs dlrecLly Lo beneflclary
(e.g. sLamp duLy walver, lnLeresL raLe subsldy)
rovlde non flnanclal beneflLs Lo developers (e.g.
fasL approvals, lSl up Lo 2, lncrease servlced land)
LWS famllles may noL geL served
Scenar|o descr|pt|on Imp||cat|on on subs|dy
unlL prlce and beneflclary
deLermlned by
CovernmenL
CovernmenL needs Lo
brldge Lhe gap beLween
markeL prlce and
mandaLed prlce
Cffer pro[ecL Lo developer wlLh Lhe lowesL bld of
vlablllLy gap
LoLs of overslghL requlred Lo ensure flnanclal
beneflL reach Lhe beneflclary
LWS famllles could be served ln Lhls scenarlo
Lhough Lhe subsldy requlred mlghL be large
- 31 -
Potential interventions by government to catalyze the
private sector low-income housing market
Create an enab||ng env|ronment
8educe approvals requlred and provlde fasL approvals for pro[ecLs
lncrease lSl on land up Lo 2
MandaLe zones for low-lncome houslng
8ulld lnfrasLrucLure Lo lncrease servlced land
8educe Lhe mlnlmum slze of aparLmenL Lo carpeL area of 21 sq. mL.
rov|de targeted subs|d|es to |ow-|ncome customers
rovlde lnLeresL raLe subsldy Lo low-lncome cusLomers
rovlde dlrecL Lax lncenLlves Lo cusLomers (e.g. walver ln sLamp duLy)
rov|de |ow cost cred|t to |ow-|ncome deve|opers and nICs
lncrease avallablllLy of low-cosL debL Lo houslng flnance companles
Lower norms for lul (vla debL or equlLy) ln low-lncome houslng pro[ecLs
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Thank you
Please feel free to contact us for more information
Vikram Jain (vikramjain2@deloitte.com)
Anand Raj (rajanand@deloitte.com)
Ashish Karamchandani
(akaramchandani@deloitte.com)