Public Private Partnerships in
Housing for the Poor
National Workshop on Pro-poor Housing Finance
October 29, 2009 : IHC, New Delhi
HARISH KHARE
SR. MANAGER - DEVELOPMENT FINANCE
1
AGENDA
• Why have PPPs – Relevance to Housing
• PPP in Low-income / Affordable Housing
• PPP in Low-income Housing Finance
• Government’s role in encouraging PPP
• Opportunities and Challenges
• HDFC Snapshot
2
Why do PPPs Make Sense?
Public Private Partnerships let Public Sector and Business do what they do Best!
• Private Sector
– Innovation, Use of Technology
– Professional Management
– Quality Assurance
– Efficiency and Speed
– Maintenance Practices
– Financing linked to Viability
– Sustainability and Scalability
• Public Sector
– Policy Setting
– National Planning
– Regulation and Governance
– Looking after Public Interest
– Facilitating Economic Growth and Development
3
Affordable Housing: Relevance of PPPs
• PPP is emerging as an efficient model for delivery of services across sectors.
• A recent study conducted by Knight Frank / NAREDCO suggests that affordable
housing presents a commercial opportunity worth Rs. 5 lac crore.
• 11.8 m dwelling units have to be built by 2014 across 37 cities, 90% EWS / LIG
• Financial resources available to government are scarce and need to be optimised.
• PPP approach allows state agencies to overcome resource deficit, improve cost
recovery and increase supply of houses based on demand.
• The public sector owns, controls and regulates the use of land which is the most
valuable resource for any housing project.
• Land, Incentive FSI, TDR, JNNURM grant and Budgetary resources are all
elements controlled by govt. authorities and used judiciously for maximising the
contribution of the private developer under the PPP framework.
• Lower margins are compensated by huge volumes to derive profits.
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AGENDA
• Why have PPPs – Relevance in Housing
• PPP in Low-income / Affordable Housing
• PPP in Low-income Housing Finance
• Government’s role in encouraging PPP
• Opportunities and Challenges
• HDFC Snapshot
5
E.g.’s of PPP in Affordable Housing
• Bengal Ambuja Housing Development Ltd.
•
– A JV between Gujarat Ambuja Cements Ltd. and West Bengal Housing Board
– Township development in Kolkata suburbs, Asansol Durgapur and Bardhaman
– Houses priced at Rs. 2.5 lac to Rs. 6 lac for the benefit of LIG and MIG
Dharavi Slum Redevelopment, Mumbai
– Asia’s biggest in-situ slum rehabilitation scheme
– Private developer undertakes the scheme with incentives from SRA / BMC
• SEWA’s Parivartan Project, Ahmedabad
– Provision of basic infrastructure and linkages in Ahmedabad slums
– Tripartite arrangement involving SEWA Bank, Community and AMC
• JNNURM funded slum redevelopment schemes across India
– E.g. Pimpri Chinchwad, Nagpur, DDA Tehkhand etc.
• New Town, Rajarhat, Kolkata:
– Shapporji Pallonji and West Bengal Housing Infrastructure Devt. Corp. Ltd.
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Illustration of a PPP model - Rajasthan
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•
•
•
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New Housing Policy of the Govt. of Rajasthan promotes PPP
75,000 houses (60% of budgeted target) for EWS / LIG through PPP
Locations: Global city, Neemrana, Greater Bhiwadi and New Jaipur
(1) Private Developer on Private Land:
– Developer constructs G+3 EWS / LIG flats on 25-40% land owned by him
– The se flats handed over to Govt. at pre-determined price of Rs. 750 per sq. ft.
– Developer gets additional FAR, twice the permissible limit on entire plot
– Additional FAR can be utilised on remaining plot area or exchanged for TDR
– Waiver of EDC, Plan approval fees, Conversion charges; lower stamp uty
(2) Private Developer on Govt. Land / Acquired Land
– 50% of the land earmarked for construction of EWS / LIG flats
– Bids invited, Developer offering maximum no. of (free) EWS / LIG flats selected
– Developer free to construct and sell MIG / HIG flats on remaining 50% land
• (3) Slum Redevelopment with participation of Private Developer
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Slum Rehab. in Mumbai under PPP f/w
• 60% of Mumbai’s population lives in slums
• Slum Rehabilitation Authority was established in 1990
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•
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– Slum lands treated as a resource offered by SRA / MCGM / MMRDA
– Developer provides free homes to ‘eligible’ slum dwellers
– A slum structure existing before 1995 is eligible for redevelopment;
tenement size: 269 sq ft
– Developers need approval of 70% of slum dwellers and submits the
proposal to the Slum Rehabilitation Authority
– Either in-situ development or slums are relocated if land is required
for infrastructure purposes
– Incentive FSI and TDRs given to developer, slum resettled, balance
land developed and sold commercially
– Profits from open market sale cross subsidises free housing
Over 400 slum rehabilitation schemes in progress in Mumbai
Slum resettlement initiatives need community involvement
Commercial viability of SRS projects varies between slums at prime
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locations to those that are in “difficult areas”.
Funding of Slum Upgrading Projects
• HDFC has financed rehabilitation housing, Infrastructure
and basic services for slum communities and pavement
dwellers through urban NGOs and CBOs.
• Construction Finance / Project Finance amounting to
over Rs. 300 crore disbursed for SRA schemes being
implemented by private developers in Mumbai
• Project financing of EWS / LIG housing projects (e.g.
VAMBAY schemes) of urban development authorities
and municipal corporations.
• Mixed experiences and concerns regarding scaling up.
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AGENDA
• Why have PPPs – Relevance in Housing
• PPP in Low-income / Affordable Housing
• PPP in Low-income Housing Finance
• Government’s role in encouraging PPP
• Opportunities and Challenges
• HDFC Snapshot
10
Scope for PPP in Housing Finance
PUBLIC - PRIVATE PARTNERSHIP as against:
• PUBLIC – PUBLIC PARTNERSHIPS
– GOI’s Housing Subsidies through Urban Bodies / Dist.Auth. / Panchayats
– HUDCO’s Loan Schemes for EWS / LIG (e.g. VAMBAY)
– NHB’s Refinance to PSU Banks / RRBs (GJRHFS, Rural Housing Fund)
– NABARD’s Refinance to RRBs, Co-operative Banks
• PRIVATE – PRIVATE PARTNERSHIPS
– HFCs / Pvt. Sector Banks Lending to MFIs / NGOs / CBOs
– Housing Microfinance Product of Leading MFIs (SKS, UJJIVAN, BASIX)
– HFCs offering low-income housing finance (e.g. MHFC, GRUH, DHFL)
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Public v/s Pvt. – Anomalies in HF
Traditionally the scope for PPP has been restricted to:
• Channeling funds from Apex Banks / FIs in public domain to Credit
Intermediaries in Private domain i.e. NGOs / MFIs etc.
• The funding mechanisms deployed under public-public initiatives are
not market based and hence may not be sustainable in long term.
• Conflicts between Public - Public approaches vis-à-vis Private - Private
approaches: Market linked v/s Subsidy oriented. This may create
disparities at the ground level leading to delinquencies.
• Outreach and quantum through Govt. / Public sector interventions far
exceeds the presence of formal private sector financing.
• However, given the huge shortage in housing stock, multiple and
diverse approaches from different stakeholders need to be encouraged.
• Worth exploring Govt. as a facilitator by leveraging subsidies with
private capital to increase outreach and supply.
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GOI Initiatives in Rural EWS Housing
– Majority government initiatives have been targeted at very low income / below poverty line
• Indira Awas Yojana (IAY) is a subsidy based program targeted at BPL households for new unit
construction, subsidy being Rs. 35,000/- (over 15M units financed since 1985–1986)
• Varied State based housing schemes initiated to augment central government schemes
– Gujarat under Sardar Awas Yojana has increased outlay per housing unit under the IAY to Rs. 40,000
– Andhra Pradesh and Karnataka have independent housing schemes targeted at specific rural communities
– Additional funds for such schemes are drawn as loans from HUDCO; typically low recovery rates
– NHB administered Golden Jubilee Rural Housing Scheme provides refinance to banks / HFCs
– NABARD’s refinance scheme under ‘Non-Farm Sector’ for Banks, Co-op. Banks, RRBs, ADFCs
– =>
Refinancing schemes of NHB & NABARD have the following eligibility criteria:
NABARD’s Refinance
NHB’s Refinance (GJRHFS)
Type of PLI
Net NPAs (ceiling)
Type of PLI
Net NPAs (ceiling)
SCBs
5%
HFCs
5%
RRBs
8%
RRBs
7.5%
Coop. Banks
10%
SCBs & Coop. Banks
10%
– Scheduled Commercial Banks lending for rural housing is approx. 10% of total mortgage lending
Sl. No.
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3
4*
5*
Particulars
Total housing loans outstanding
Rural housing loans outstanding
% of rural housing loans to total
No. of dwelling units (rural)
Loan Amount disbursed (rural)
Source: NHB, Media Reports, World Bank Report
2002
32,826
3,160
9.6%
1,87,268
3,246
(Rs. in crore)
2003
2004
2005
46,470
85,346
1,26797
5,387
7,712
13,024
11.6%
9.0%
10.3%
1,78,200
2,43,753
2,58,562
3,816
6,354
6,441
2006
1,82,167
18,213
10.0%
2,98,651
8,368
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HDFC’s Tie-up with KfW / GOI for
Rural Housing Micro-finance
• In the early eighties HDFC had a limited focus on low-income
and informal sector households.
• Attempts were made to finance weaker-section housing projects
on an experimental basis across regions.
• HDFC launched a new product: Home Savings Plan (1988).
• In 1989, HDFC accessed low-cost loan funds from KfW,
Germany with a focus on EWS housing. KfW emphasised on
‘financial sector intervention’ more than housing promotion.
• GOI provided sovereign guarantee to KfW under bilateral co-op.
• HDFC has assisted over 1.05 lac EWS households under 200
schemes by disbursing loan funds of Rs. 150 crore.
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Lending Methodology:
Intermediation By MFI / NGO
HDFC --- Intermediary Agency --- CBO/ Federation/ SHG --- End Borrower
The NGO-intermediary identifies the borrowing households with genuine need, checks on
their socio-economic profile and furnishes relevant project information
Prepares plans for the construction activity with the participation of borrowers and offers
appropriate technical assistance during construction based on internal capabilities
Concludes loan documentation with HDFC, outlines specific project parameters
The loan disbursement from HDFC is split into smaller amounts and on-lent to the individual
borrowers based on stage-wise progress of construction
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Role Of The NGO / MFI...
The owner is made fully responsible with the loan funds – to purchase building materials,
use technology of his choice, and to hire masons and other skilled and unskilled workers
Generally, construction is carried out without the engagement of private contractors.
Technical guidance is made available through local building centers wherever possible.
Ensures a minimum self-help contribution from the borrowers as equity into the housing
process, by way of labour, cash, use of salvaged building materials etc.
Monitors the construction work regularly – HDFC carries out a technical review by way of
field visits prior to each disbursement.
Facilitates the repayment of loan from the individual borrowers and makes a consolidated
payment to HDFC; provides HDFC with progress and loan recovery reports.
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Typical Loan Terms 
Gross household income of the borrower
< Rs. 4000/- p.m. – or as per EWS definition

Cost per dwelling unit < Rs. 90,000

Size of the house < 400 sq. ft.

Loan amount not to exceed Rs. 100,000; or 90% of the
cost of the house, whichever is lower

Repayment term: Up to 15 years

Rate of Interest: Fixed or Linked to HDFC’s RPLR

Security: Equitable mortgage of dwelling units financed
and any other security as acceptable
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AGENDA
• Why have PPPs – Relevance in Housing
• PPP in Low-income / Affordable Housing
• PPP in Low-income Housing Finance
• Government’s role in encouraging PPP
• Opportunities and Challenges
• HDFC Snapshot
18
Land Policy for Affordable Housing
• Simplifying processes for land acquisition, Reviewing processes of
master planning and treat affordable housing as a ‘public purpose’
• Land related issues i.e. bringing in additional lands, allowing higher
FSI / FAR and in-situ development of slums, all need to be
implemented in an integrated manner
• Formal recognition of ‘security of tenure’ by the Government. Several
forms of providing security can be explored
– Ensure that there is no threat of eviction
– Tenurial security to facilitate access to market funds
• Improve the speed of transactions through cadastrals, computerised land
records and application of e-governance to land transactions
• Need to foster an environment that will make rental housing for
EWS/LIG categories a worthwhile investment
• Set up a Regulator for real estate which has a mandate for affordable
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housing, enact model laws in states
Fiscal and Financial Framework
Funding of Affordable Housing through:
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Allocation of additional budgetary resources (JNNURM)
Creation of a pool of resources called ‘Shelter Fund’ (0.5% cess on taxes)
Incentivise HFCs and Banks to encourage investment flows
Allow HFIs to access long-term External Commercial Borrowings (ECB)
Role of State Housing Boards (SHBs)
– The role of SHBs needs to be revamped
– Focus on playing a more active role in the provision of affordable housing
through Public Private Partnerships
– Funds raised through sale of land transactions by SHBs must be ring
fenced, with a defined proportion to be deployed for affordable housing
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Fiscal and Financial Framework
Tax Related Incentives
• Tax incentives for developers and HFIs engaged in affordable housing
• Reduction in stamp duty rates and registration fee for affordable housing to
2% ad valorem uniformly in all states. Levy a flat charge of Rs 1,000/- on
registration of equitable mortgages.
• Bring ‘affordable housing’ under the infrastructure definition.
Financial Institutional Recommendations
• Establish a national HFC focusing only on housing micro-finance.
• Promote household savings: allow financial institutions lending to the poor
employed in the informal sector to accept deposits:
– Savings can enable a down payment for a loan.
– Will enable the lender to assess the savings pattern of the customer.
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AGENDA
• Why have PPPs – Relevance in Housing
• PPP in Low-income / Affordable Housing
• PPP in Low-income Housing Finance
• Government’s role in encouraging PPP
• Opportunities and Challenges
• HDFC Snapshot
22
Upcoming Projects in the Pvt. Sector
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Janadhar Construction Pvt. Ltd. – Attibele, Bangalore
CSC Constructions at Attibele and Devanahalli, Bangalore
Provident Housing – a subsidiary of Purvankara Projects
Santosh Associates – Batwa near Ahmedabad
Matheran Realty Co. – Tanaji Malasure City, Karjat, Mumbai
Shapporji Pallonji – New Town Rajarhat, Kolkata
Tata Housing – Nano Housing Project at Boisar, Mumbai
Omaxe Ltd. Subsidiary – National Affordable Housing Co.
DLF and UNITECH have announced their forays
Micro Housing Finance Corporation, a new HFC at Mumbai
Aarusha Homes – Dormitory / Hostel Acco. for workers in AP
Emkay Group, Malaysia – likely to partner with Embassy
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MFIs/NGOs in Housing Microfinance
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SEWA BANK and Mahila Housing Trust
SKS Microfinance, Andhra Pradesh
BASIX / BSFL (Individual Lending)
RGVN (Individual Lending thru’ NGOs in NER)
ASA (Grameen Model, Tamil Nadu)
BWDA (SHG approach, Tamil Nadu)
DHAN Foundation (SHG Federations, Southern India)
FREED, GSGSK, WWA, KIDS (Kerala)
SPARC, Slum Rehabilitation Society, Mumbai
AVAS, a housing rights NGO at Bangalore
Janalakshmi Social Services, Bangalore
IASC, an HDFC promoted MFI
UJJIVAN, an urban MFI at Bangalore
MIMO Finance, Uttarakhand
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Prospects and Challenges
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Include low-income housing under Priority Sector lending (loan < 10 lac)
Promote a credit bureau dedicated for micro-finance clientele.
Facilitate security enforcement – recovery of EWS housing loans.
Proposed introduction of a mortgage repository.
Need to attract private capital and foreign direct investment.
Access to long-term funding such as pension funds.
Deepening the secondary mortgage market.
Access to mortgage insurance.
Need for a real estate regulator:
– Consumer protection and transparency
– Serve as a single window for overseeing affordable housing agenda
– Promote real estate reforms
• Increased investment in low-cost, eco-friendly construction technologies.
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AGENDA
• Why have PPPs – Relevance in Housing
• PPP in Low-income / Affordable Housing
• PPP in Low-income Housing Finance
• Government’s role in encouraging PPP
• Opportunities and Challenges
• HDFC Snapshot
26
AN OVERVIEW OF HDFC
•
Incorporated in 1977 as the first specialised mortgage company in India
•
Objectives:
– Enhance residential housing stock through the provision of housing finance
on a systematic and professional basis and to promote home-ownership;
– Increase the flow of resources for ‘housing’ through an integration of the
housing finance sector with the overall domestic financial markets.
•
Now a Financial Conglomerate with interests beyond mortgages:
HDFC
72.4%
HDFC
Standard Life
•
60%
HDFC
Asset
Management
22.7%
HDFC Bank
(inclusive of
warrants)
74%
HDFC ERGO
General
Insurance
100%
HDFC
Property
Ventures
80.5%
HDFC
Venture
Capital
90% of initial shareholding in the hands of domestic institutions and retail
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investors and currently 75% shares held by Foreign Investors
HDFC Snapshot
MORTGAGE BUSINESS SUMMARY
• Mortgage Loan Assets
(As of March 2009)
:
:
Rs 851.98 bn
US$ 16.9 bn
• Cumulative Loan Disbursements
(Inception to March 2009)
:
:
Rs 1918.06 b
US$ 38 bn
• Loan Disbursements
:
Rs 396.50 bn
(FY March 2009)
:
US$ 7.9 bn
• Cumulative Housing Units Financed
:
3.3 million
• Mortgage Loans CAGR (5 years)
:
25%
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HDFC Snapshot
NATIONAL SPREAD
No. of Outlets
Regional office
Branch office
Outreach Programmes to 90 locations
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
–
–
–
–
–
–
–
–
–
–
–
49
67
87
118
142
173
203*
219*
234*
250*
267*
Deposit & loan products offered
to individuals in over 2400 towns and cities.
* Inclusive of 56 outlets of wholly owned distribution co.
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BUSINESS MODEL & PERFORMANCE
HDFC – The Business Model
• Backing of visionaries
• Adopted the philosophy of “learning by doing”
• Strong corporate values and culture with emphasis on transparency,
integrity and commitment
• High service standards
• Emphasis on training and technology
• Low administrative costs
• Empowering line managers
HDFC – Performance Indicators (FY 2009)
• Cost to income ratio: 8.8% (amongst lowest in financial services in Asia)
• Non-performing loans: under 1% (Total loan write offs since inception
are only 4 basis points of cumulative disbursements)
• 99% of HDFC’s assets are Loans (89%) and Investments (10%)
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DEVELOPMENT INITIATIVES
• HDFC offers consultancy, technical services and residential training
programmes dedicated to housing finance
• Another method of outreach – helps spread our expertise
• Participants from various countries – facilitates sharing of best practices
• Trainers are staff members of HDFC
• Focus on practical aspects of housing finance
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Thank You
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