Low Income Housing: State of the Market April 2013 Deloitte Consulting LLP.
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Transcript of Low Income Housing: State of the Market April 2013 Deloitte Consulting LLP.
Low Income Housing: State of the Market
April 2013
Deloitte Consulting LLP
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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
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Copyright © 2013 Deloitte Development LLC. All rights reserved.
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
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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
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Copyright © 2013 Deloitte Development LLC. All rights reserved.
* 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
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Copyright © 2013 Deloitte Development LLC. All rights reserved.
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%
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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
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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
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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
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Copyright © 2013 Deloitte Development LLC. All rights reserved.
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
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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
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Copyright © 2013 Deloitte Development LLC. All rights reserved.
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]
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Copyright © 2013 Deloitte Development LLC. All rights reserved.
Backup
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Copyright © 2013 Deloitte Development LLC. All rights reserved.
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
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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
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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