Low Income Housing: State of the Market April 2013 Deloitte Consulting LLP.

Low Income Housing: State of the Market

April 2013

Deloitte Consulting LLP

2 CA

S-C

OD

-Pre

z-D

ate-

CT

L

Copyright © 2013 Deloitte Development LLC. All rights reserved.

State of the Market – June 2013

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

OUTPUT 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

Increasing Supply

Building a Robust Industry

Key Objectives of the SOM Report

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

3 CA

S-C

OD

-Pre

z-D

ate-

CT

L


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

Selected HFCs Serving Low-Income Customers

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 FY12Source: Annual Reports, Management Conversations, Monitor Analysis

4 CA

S-C

OD

-Pre

z-D

ate-

CT

L


Key Insights

HFCs are serving different Market Segments

Note: This market map indicates primary activity of select housing finance companiesSource: Management Interviews, Monitor Analysis & Research

New

Resale

Incremental

Self-construction(Single units)

Small Developer(Typically <20 units)

Mid-Large Dev.(>50 units)

Type of Purchase(INR 2-12 Lakhs)

Type of Developer

No Housing Activity Here

Representative Low-income Housing Finance Market Map – India, 2013

No Housing Activity

Here

5 CA

S-C

OD

-Pre

z-D

ate-

CT

L


* Initial results, the number here is an estimate of the number of projects which were launched post June 2011Note: 1 Estimate for Mumbai based on initial results; 2 Nagpur includes one project from Amravati; 3 Delhi NCR includes Meerut

Mumbai

Delhi NCR

Chennai

Ahmedabad

Pune

Bangalore

Nagpur

10

3

2

6

2

2

2

Key Insights

LIH LandscapeMarket 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.

xx Number of active projects

Mumbai1

Delhi NCR3

Jaipur

Indore

Chennai

Ahmedabad

Kolkata

Hyderabad

BhubaneswarNagpur2

25

2

28

1

5

4

18

8

1

4

2Surat

2

Baroda

1Coimbatore

1Lucknow

1 Trichy

May 2010

(27 Projects)

Jan 2013*

(103 Projects)

Cities where detailed survey was conducted

6 CA

S-C

OD

-Pre

z-D

ate-

CT

L


Key Insights

Sample Findings from IndoreVery 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

Average PSF

1,573

1,150 2,251

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

Average Saleable Area and Product Mix

Note: Indore: n = 28 (projects); 1 : Supply from large developers (>50 units in a projects) only, launched post June ‘11Source: Survey conducted by Hansa Research; Monitor Analysis

4,4741 LIH Units

6 “only LIH” projects

22 “mixed development” projects

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

1 RK 1 BHK 2 BHK

15% 76% 9%

7 CA

S-C

OD

-Pre

z-D

ate-

CT

L


Key Insights

Challenges in LIH Supply

Long & Expensive

Approval Process

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 casesRealizing the difficulty, we have seen certain developers build on gram

panchayat land or adopt G+3 structures to by-pass the lengthy approval process

Rising Construction

Costs

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 Affordable Land

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

8 CA

S-C

OD

-Pre

z-D

ate-

CT

L


Key Insights

Positive DevelopmentsThere 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

– Orissa government’s recent engagement with private developers to come up with a policy for LIH that serves the needs of urban poor

9 CA

S-C

OD

-Pre

z-D

ate-

CT

L


Key Insights

Challenges and potential interventions

Customer challenges Inadequate supply of low-income housingCustomers’ 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 simultaneouslyDeveloper challengesApproval processes for developing projects are

time consumingAffordable land is often not well connected to

transportation and/or public servicesConstruction finance/funding is not easily

accessibleHousing finance companies’ challengesHigh cost of debtCustomers

Potential interventions1. Provide interest rate subsidy to low-

income customers 2. Waive VAT, stamp duty and registration

fees for low-income customers3. Mandate zones for low-income

housing4. Provide fast approvals for projects5. Build infrastructure to increase

serviced land6. Provide FSI of 1.6-2.2 for affordable

housing7. Kick start privately built low-income

housing in new geographies8. Increase availability of low-cost funds

to housing finance companies

10 CA

S-C

OD

-Pre

z-D

ate-

CT

L


Theory of Change for Financial Inclusion

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

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

Appropriate design, easy accessibility, and competitive pricing are key product inputs

Capability is not a one-time input. Usage can be increased by

providing for continuous capability improvements of the user

Source: Monitor Analysis

Key Insights

Some Other Aspects

11 CA

S-C

OD

-Pre

z-D

ate-

CT

L


By improving access and building capability, micromortgages have improved customers live by helping to create an asset and influencing positive financial behaviour

Monthly EMI payments promotes financial discipline

Increased confidence in navigating formal institutions to fund major needs

Theory of Change for Financial Inclusion – Micromortgages

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

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

Enables building of asset base through house ownership

Openness to formal loans reduces exposure to informal lending and its risks

Key Insights

Micromortgages as a Tool for Financial Inclusion

12 CA

S-C

OD

-Pre

z-D

ate-

CT

L


State of the Market Report – JUNE 2013‘.

For any questions, please contact any one of us

Vikram Jain – [email protected]

Namrata Kapoor – [email protected]

Darsh Maheshwari – [email protected]

Ashish Karamchandani – [email protected]

Aditya Agarwal – [email protected]

13 CA

S-C

OD

-Pre

z-D

ate-

CT

L


Backup

14 CA

S-C

OD

-Pre

z-D

ate-

CT

L


Key Insights

Sample Findings from Ahmedabad

Note: Ahmedabad: n = 17 (projects); Supply from large developers (>50 units in a projects) only, launched post June ‘11Source: Survey conducted by Hansa; Monitor Analysis

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.

Average PSF

1,542

1,200 1,889

400 sq-ft 647 sq-ft 855 sq-ft

Average Saleable Area and Product Mix

4,7131 LIH Units

5 “only LIH” projects

12 “mixed development” projects

1 RK 1 BHK 2 BHK

50% 45% 5%

Nikol

4

Vastral

1

Hathijan

1

Narol

2Moraiya Gam

2

Bavla

5

Juhapura

1

xx # of projects

15 CA

S-C

OD

-Pre

z-D

ate-

CT

L


Key Insights

Challenges in LIH SupplyDespite the increase in LIH activity, the supply still remains a challenge and several fundamental barriers remain for this market to scale at rapid pace

Long & Expensive

Approval Process

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 casesRealizing the difficulty, we have seen certain developers build on gram

panchayat land or adopt G+3 structures to by-pass the lengthy approval process

Rising Construction

Costs

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 Affordable Land

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

16 CA

S-C

OD

-Pre

z-D

ate-

CT

L


Key Insights

Potential interventions

Demand interventions• Provide interest rate subsidy to low-income customers • Waive VAT, stamp duty and registration fees for low-

income customersSupply 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

Date post:	30-Mar-2015
Category:	Documents
Upload:	kurtis-pillman
View:	217 times
Download:	1 times

Low Income Housing: State of the Market April 2013 Deloitte Consulting LLP.

Documents