Low Income Housing: State of the Market
Deloitte Consulting LLP
April 2013
State of the Market – June 2013
OUTPUT
ACTIVITIES
Extensive ground research, effort of
more than 300 man-days, in 8 large
urban centers to scan for sub-10 lakh
housing

In-depth discussion with more than 25
developers spread across the country

In-depth discussion with all prominent
Housing Finance players in the LIH
ecosystem

Estimate and characteristics of sub-10
lakh supply in large urban centers

Benchmarking business practices
across players

Best practice case studies from the field

Customer insights from MIM’s
‘Unintended Consequences’ and
‘Demand Aggregator’ studies will be
integrated with this report
Key Objectives of the SOM Report
Increasing
Supply
Building a
Robust
Industry




Reduce the entry barriers for new players & Insights for existing
Provide government and other stakeholders with a fact base to define and
refine policy and strategy
Share best practices from the industry; rovide existing players with peer
comparisons
Feedback from the field on challenges and what is working
2
Copyright © 2013 Deloitte Development LLC. All rights reserved.
CAS-COD-Prez-Date-CTL

Good Performance of HFCs : High Growth & Low NPAs
Company/
Organization
Size of Loan
Book1
(FY 12, INR Cr)
% Portfolio
<10 lakhs
Average
Ticket Size
NPAs
Spreads
MHFC
40
100%
Rs. 4.2 lakhs
NIL
NA
MAS
30
100%
Rs. 4.5 lakhs
NA
NA
DHFL
19,355
67%
Rs. 12.84 lakhs
0.68%
2.78%3
Muthoot
23
70%
Rs. 6.45 lakhs
<0.1%
NA
Shubham
31
100%
Rs. 5.5 lakhs
<0.1%
4%
ISFC
40
100%
Rs 1.45 lakhs2
<0.1%
NA
Note: 1Outstanding Loan Portfolio as of March 2012. For Muthoot, MHFC the data is as of June 2012. An approximate figure has been used for
Shubham. 2As of Dec 2011. 3 Net Interest Margin as of Q3 FY12
Source: Annual Reports, Management Conversations, Monitor Analysis
3
Copyright © 2013 Deloitte Development LLC. All rights reserved.
CAS-COD-Prez-Date-CTL
Selected HFCs Serving Low-Income Customers
Key Insights
HFCs are serving different Market Segments
Type of Purchase
(INR 2-12 Lakhs)
Representative Low-income Housing Finance Market Map – India, 2013
New
Resale
Incremental
Self-construction
(Single units)
Small Developer
(Typically <20 units)
No Housing Activity Here
Mid-Large Dev.
(>50 units)
Type of
Developer
Note: This market map indicates primary activity of select housing finance companies
Source: Management Interviews, Monitor Analysis & Research
4
Copyright © 2013 Deloitte Development LLC. All rights reserved.
CAS-COD-Prez-Date-CTL
No Housing
Activity
Here
Key Insights
LIH Landscape
Market has become deeper with an increase in the number of developers building in existing
markets; LIH activity has sprung up in new cities as well, especially Indore.
May 2010
(27 Projects)
Jan 2013*
(103 Projects)
2
3
Delhi NCR3
Delhi NCR
Baroda
Ahmedabad 18
6
Ahmedabad
2
Mumbai 10
2
Nagpur
Surat
2
4
Jaipur
1
Lucknow
Indore
28
2
Nagpur2
8
Bhubaneswar
Mumbai1 25
5
Kolkata
4
Pune
1
Hyderabad
Bangalore
2
Coimbatore
1
1
Chennai
1
Chennai
Trichy
xx Number of active projects
Cities where detailed survey was conducted
* Initial results, the number here is an estimate of the number of projects which were launched post June 2011
Note: 1 Estimate for Mumbai based on initial results; 2 Nagpur includes one project from Amravati; 3 Delhi NCR includes Meerut
5
Copyright © 2013 Deloitte Development LLC. All rights reserved.
CAS-COD-Prez-Date-CTL
2
Key Insights
Sample Findings from Indore
Very active LIH market dominated by 1 BHK units. Industrial development activity in the
southern part of the city driving supply. Small developers are also quite active in Indore
4,4741 LIH Units
xx
# of projects
Manglia
Average PSF
1,573
3
2,251
Average Saleable Area and Product Mix
449 sq-ft
15%
1 RK
592 sq-ft
76%
1 BHK
Chhota
Bangarda
Kanadiya Rd.
4
2
806 sq-ft
Bicholi
Samvad Nagar
Betma Road
9%
2 BHK
6 “only LIH” projects
Rau
Pithampura
22 “mixed development” projects
6
1
2
Khandwa Rd.
5
5
Note: Indore: n = 28 (projects); 1 : Supply from large developers (>50 units in a projects) only, launched post June ‘11
Source: Survey conducted by Hansa Research; Monitor Analysis
6
Copyright © 2013 Deloitte Development LLC. All rights reserved.
CAS-COD-Prez-Date-CTL
1,150
Key Insights
Challenges in LIH Supply
Rising
Construction
Costs
Availability of
Affordable Land
Developers claim that for large projects it often takes anywhere between 9-24
months for the combined land and project approvals, which has an impact on
construction timelines, project IRRs and unit pricing

In addition, the cost of approvals can be as high Rs 50-100 psf in certain cases

Realizing the difficulty, we have seen certain developers build on gram
panchayat land or adopt G+3 structures to by-pass the lengthy approval
process

According to developers across cities, their construction costs have increased
by 15-20% on yearly basis

LIH is a ‘low-margin’ business and such high inflation has forced several
developers to book loss on their LIH projects
– High inflation also makes it difficult for developers to build their business
plans as there is uncertainty over the eventual project cost

Availability of well-connected affordable land still remains a concern in some
cities

However, in some cities, infrastructure development has opened up new
areas and developers in these cities don’t see land as their biggest problem
7
Copyright © 2013 Deloitte Development LLC. All rights reserved.
CAS-COD-Prez-Date-CTL
Long &
Expensive
Approval Process

Key Insights
Positive Developments
There have also been some positive developments on the government side which should
drive the field further forward
– Rajasthan Housing Board’s efforts to provide quality housing for EWS and
LIG segments in Jaipur
– Gujarat government’s recently announced intention to reserve 2km area in
peripheral areas of Ahmedabad for LIH
8
Copyright © 2013 Deloitte Development LLC. All rights reserved.
CAS-COD-Prez-Date-CTL
– Orissa government’s recent engagement with private developers to come
up with a policy for LIH that serves the needs of urban poor
Key Insights
Challenges and potential interventions
9
Potential interventions
1. Provide interest rate subsidy to lowincome customers
2. Waive VAT, stamp duty and registration
fees for low-income customers
3. Mandate zones for low-income
housing
4. Provide fast approvals for projects
5. Build infrastructure to increase
serviced land
6. Provide FSI of 1.6-2.2 for affordable
housing
7. Kick start privately built low-income
housing in new geographies
8. Increase availability of low-cost funds
to housing finance companies
Copyright © 2013 Deloitte Development LLC. All rights reserved.
CAS-COD-Prez-Date-CTL
Customer challenges
 Inadequate supply of low-income housing
 Customers’ lack of awareness on affordability,
payment terms, legal clearances, and rights
 Customers have limited access to legal recourse
 Delay in possession leading to payment of rent
and EMI simultaneously
Developer challenges
 Approval processes for developing projects are
time consuming
 Affordable land is often not well connected to
transportation and/or public services
 Construction finance/funding is not easily
accessible
Housing finance companies’ challenges
 High cost of debt
 Customers
Key Insights
Some Other Aspects
MIM is also studying the effectiveness of ‘Micromortgages – as a tool for financial inclusion’; we are
using a theory of change framework to evaluate its effectiveness
Theory of Change for Financial Inclusion
Appropriate design, easy
accessibility, and competitive
pricing are key product inputs
Access to suitable
financial services
Capability and
confidence in using
financial services
appropriately
Utilisation of financial
services to sustainably
meet life needs, build
assets, grow incomes
and manage risks
Improved life
situation facilitated by
financial inclusion
Source: Monitor Analysis
10
Copyright © 2013 Deloitte Development LLC. All rights reserved.
CAS-COD-Prez-Date-CTL
Capability is not a one-time input.
Usage can be increased by
providing for continuous capability
improvements of the user
Key Insights
Micromortgages as a Tool for Financial Inclusion
By improving access and building capability, micromortgages have improved customers live by
helping to create an asset and influencing positive financial behaviour
Theory of Change for Financial Inclusion – Micromortgages

Access to suitable
financial services
Capability and
confidence in using
financial services
appropriately


Educative product information by loan
agents helps build awareness
However, experience based learning
through micromortgages is more effective
in building long-term capability
Flexible customer assessment model
that addresses accessibility issues
Increased awareness of options due to:
– Prevalence of specialist HFCs
– Developer tie-ups with HFCs
Utilisation of financial
services to sustainably
meet life needs, build
assets, grow incomes
and manage risks


Monthly EMI payments
promotes financial
discipline
Increased confidence in
navigating formal
institutions to fund major
needs
11
Improved life
situation facilitated by
financial inclusion


Enables building of
asset base through
house ownership
Openness to formal
loans reduces
exposure to informal
lending and its risks
Copyright © 2013 Deloitte Development LLC. All rights reserved.
CAS-COD-Prez-Date-CTL

State of the Market Report – JUNE 2013
‘.
For any questions, please contact any one of us
 Vikram
Jain – vikramjain2@deloitte.com
 Namrata
Maheshwari – darshm@deloitte.com
 Ashish
 Aditya
Karamchandani – akaramchandani@deloitte.com
Agarwal – adiagarwal1@deloitte.com
12
Copyright © 2013 Deloitte Development LLC. All rights reserved.
CAS-COD-Prez-Date-CTL
 Darsh
Kapoor – knamrata@deloitte.com
13
Copyright © 2013 Deloitte Development LLC. All rights reserved.
CAS-COD-Prez-Date-CTL
Backup
Key Insights
Sample Findings from Ahmedabad
Presence of a highly evolved LIH market with supply being driven by 1 RKs; Presence of
sophisticated developers who have a deep understanding of the segment.
4,7131 LIH Units
xx
# of projects
Average PSF
1,542
Nikol
1,889
1,200
4
Average Saleable Area and Product Mix
400 sq-ft
647 sq-ft
855 sq-ft
50%
45%
5%
Vastral
1
Juhapura
1
Hathijan
Narol
1 BHK
2 BHK
1
Moraiya Gam
5 “only LIH” projects
2
2
Bavla
12 “mixed development” projects
5
Note: Ahmedabad: n = 17 (projects); Supply from large developers (>50 units in a projects) only, launched post June ‘11
Source: Survey conducted by Hansa; Monitor Analysis
14
Copyright © 2013 Deloitte Development LLC. All rights reserved.
CAS-COD-Prez-Date-CTL
1 RK
Key Insights
Challenges in LIH Supply
Despite the increase in LIH activity, the supply still remains a challenge and several
fundamental barriers remain for this market to scale at rapid pace
Rising
Construction
Costs
Availability of
Affordable Land
Developers claim that for large projects it often takes anywhere between 9-24
months for the combined land and project approvals, which has an impact on
construction timelines, project IRRs and unit pricing

In addition, the cost of approvals can be as high Rs 50-100 psf in certain cases

Realizing the difficulty, we have seen certain developers build on gram
panchayat land or adopt G+3 structures to by-pass the lengthy approval
process

According to developers across cities, their construction costs have inflated by
15-20% on yearly basis

LIH is a ‘low-margin’ business and such high inflation has forced several
developers to book loss on their LIH projects
– High inflation also makes it difficult for developers to build their business
plans as there is uncertainty over the eventual project cost

Availability of well-connected affordable land still remains a concern in some
cities

However, in some cities, infrastructure development has opened up new areas
and developers in these cities don’t see land as their biggest problem
15
Copyright © 2013 Deloitte Development LLC. All rights reserved.
CAS-COD-Prez-Date-CTL
Long &
Expensive
Approval Process

Key Insights
Potential interventions
16
Copyright © 2013 Deloitte Development LLC. All rights reserved.
CAS-COD-Prez-Date-CTL
Demand interventions
• Provide interest rate subsidy to low-income customers
• Waive VAT, stamp duty and registration fees for lowincome customers
Supply interventions
• Mandate zones for low-income housing
• Provide fast approvals for projects
• Build infrastructure to increase serviced land
• Provide FSI of 1.6-2.2 for affordable housing
• Kick start privately built low-income housing in new
geographies
• Increase availability of low-cost funds to housing finance
companies