low-income housing: an attractive business...
TRANSCRIPT
SAN FRANCISCO SÃO PAULO SEOUL SINGAPORE TOKYO TORONTO ZURICHSHANGHAI
BEIJING CHICAGO HONG KONGCAMBRIDGE DELHI DUBAI JOHANNESBURG
PARISLOS ANGELES MADRID MUMBAI MUNICH NEW YORKMOSCOW RIYADHLONDON
CASABLANCA
Copyright © 2011 by Monitor Company Group, L.P.
No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means — electronic, mechanical, photocopying,
recording, or otherwise — without the permission of Monitor Company Group, L.P.
This document provides an outline of a presentation and is incomplete without the accompanying oral commentary and discussion.
COMPANY CONFIDENTIAL
SAN FRANCISCO SÃO PAULO SEOUL SINGAPORE TOKYO TORONTO ZURICHSHANGHAI
Low-income Housing:
An attractive business opportunity
June 2012
Agenda
Huge demand for low-income housing in India
Low-income housing is an attractive business opportunity
Current low-income housing activity in India
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Case examples of 2 successful low-income housing developers
Conducive policy is being drafted to catalyze low-income housing
Monitor has worked for 5 years in catalyzing the low income
housing market
Developers
HFCs
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Government
Customers
• Ministry ofHousing &UrbanPovertyAlleviation
• Interviewed over 3,000 customers over the last six years in multiple cities acrossIndia
• Low income customer interviews focused on understanding housing demand,formality and variability of income, typical household expenditures, etc.
Price of unit2 > Rs 25 Lakh
Potential demand from ~2 M HHs withestimated Market Size of ~Rs 500,000 Cr
Various mortgage finance optionsavailable for segment
Over Rs. 1,000,000 Cr Opportunity
The low-income housing segment (MHI of Rs 7,500 – 25,000) is estimated at 22 Millionhouseholds with an estimated opportunity size of Rs. 1,100,000 Cr (USD 245 Billion) and islargely underserved
Urban Income Pyramid Offering & Supply of Housing
Price of unit: Rs 10–25 Lakh
Potential demand from ~5 M HHs with
1%(0.7MM)
5%(3.4MM)
4%
>80,000
30,000–40,000
40,000–80,000
MHI1(Rs)
Supply of Housing Finance
Various mortgage finance optionsavailable for segment
Potential size of mortgage market ~ Rs400,000 Cr
Mortgage finance available broadly
Potential size of mortgage market
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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 paymenton 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 ofRs 5–20K (36Mn) are renting and looking to buy a house of their own.Source: NHB Trends in Housing; CRIS Infac Report; Monitor Research
Potential demand from ~5 M HHs withestimated Market Size of ~Rs 900,000 Cr
Mortgage finance available broadly
22%(15.0MM)
33%(22.4MM)
4%(2.7MM)
10,000–20,000
30,000–40,000
<5,000
31%(21.1MM)
5%(3.4MM)
5,000–10,000
20,000–30,000
Price of House: Rs 5–10 Lakh
Potential demand from ~ 22 Mn3 HHswith estimated Market Size~Rs 1,100,000 Cr
Potential size of mortgage market~Rs 675,000 Cr
Severely constrained supply ofhousing finance for informal sector
Finance available for MHI > Rs 12K inthe formal sector, limited availabilitybelow MHI of Rs 12K for formal sectorand 20K for informal sector
Potential size of mortgage market~ Rs 8,80,000 Cr
Customer Perspective: Social Need and Willingness to Pay
(16 Focus Groups and over 2,000 potential customers)
Appalling conditionsof Slum-Dwellers
Profile — Nathubhai Profile — Ganesh
Many lower income households live in poor conditions and are dissatisfied with their housingsituation; but their searches for affordable housing have been unsuccessful
Live in poorlyconstructed smallcramped houses
Poor sanitaryconditions - sharedtoilets, baddrainage, water
Steady job as a factoryworker in a textileenterprise in Ahmedabad
Monthly HH income~Rs 13,000, savings up toRs 1300–1,800 p.m.
Self-employed Mechanic in Mumbai
Monthly HHincome ~ Rs 15,000,savings up toRs 1800 p.m.
Lives in 150 sq. ft.room in slums, Rent Rs 3,100
Married with 2 children Lives in 1 RmK in low income
neighborhood, Rent Rs 2700
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Source: Primary Research (n=2000), Monitor Analysis
Both share a dream . . . “A house of their own”Can afford a 250–350 sqft. house, willing to make 20% down payment and
pay 35% of monthly income as EMIs to realize their dream
drainage, waterlogging duringmonsoons
Lack of facilities —properly plannedaccess points,walkways, gardens,dedicated schoolsetc.
Married with 2 children
Assets – Bank Account, LIC (Rs 1.5L),Refrigerator and PC
Education: Both children attendEnglish-medium school
Rent: Has seen significant & frequentincreases in rent, has moved house 5times in 12 years
neighborhood, Rent Rs 2700
Family size: 5 (mother, wife, 2 children)
Assets – Bank Account, LIC (Rs 3L), TV
Education: Both children attend privateGujarati medium schools
Rent: Increased by 50% in past3 years, has moved every2 to 3 years
The Opportunity in LIH
Low Income, not Low Quality
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Sample 1 BHK Unit Layout
Low income housing requires innovation in design to maximize efficient use of space andminimize cost
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KITCHEN
Agenda
Huge demand for low-income housing in India
Low-income housing is an attractive business opportunity
Current low-income housing activity in India
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Case examples of 2 successful low-income housing developers
Conducive policy is being drafted to catalyze low-income housing
Innovative Business Model for Low Income Housing
Buy Land
Incremental Construction
The developers entering the low income housing market have different approaches thanthose used in the traditional real estate sector
Traditional Developer
gg
Buy Land
Sell All Units
Low Income Housing Developer
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Land as Inventory
Short life cycle
High IRR 20-40%
Good Margins ~20%
Land as Asset
Longer life cycle
Very high but uncertain returns
Construction is incidental
Sell Units
Wait for Land ValueAppreciation
ggSell All Units
Construct Completely
Source: Monitor Research, Monitor Analysis
A 5000 Cr LIH Business
A large scale player can grow exponentiallyinitially to about 55 projects by year 5 (assumingeach project of 10 acre size)
This can generate a year 5 revenue of aboutRs. 4,800 Cr
We made the following assumptions to remainconstant or at least negate each other over a 10year business duration
55
30
15
72
48
26
13
62
0
10
20
30
40
50
60
Year 5Year 4Year 3Year 2Year 1
Key Points and Assumptions
Revenue (Rs. ’00 Cr)
Number of Projects
With an overall revenue potential of ~Rs. 4,800 Cr in year 5, the estimated EBIDTA is at19% and project IRR is 40% using conservative assumptions and inputs
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year business duration
– Land Cost remains at ~Rs. 400
– Construction cost remains at ~Rs. 1200
– Selling Price remains at the average rate of~Rs. 2000 per sq. ft
Personnel and Admin cost have beenbenchmarked to a couple of listed real estatecompanies with similar level of revenue
EBIDTA (Year 5) 19.2%
Year 5Year 4Year 3Year 2Year 1
Overall Realization of Business (Rs. Cr) Year 3 Year 5
Revenue from different Sources
Residential 1,178 4,320
Commercial 124 255
Overall Realization of Business 1,302 4,774
Costs from different Sources
Cost of Land 400 719
Construction Cost 784 2,875
Sales and Marketing 33 119
Operating costs 50 143
Overall Cost of Business 1,063 3,856
EBITDA 239 918
Estimated IRR 20-30%
Source: Monitor Analysis
Agenda
Huge demand for low-income housing in India
Low-income housing is an attractive business opportunity
Current low-income housing activity in India
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Case examples of 2 successful low-income housing developers
Conducive policy is being drafted to catalyze low-income housing
Ahmedabad, Gujarat Om Shanti Nagar - 2, Santosh Associates Navjivan Housing, Foliage Gokul Galaxy, Galaxy Developer New Maninagar Apartments, Dharmadev Builders Umang Lambha, DBS Affordable Home Strategy Ltd. Karnavati Apartment, Shree Ram Developers
Bhiwadi, Rajasthan Avalon Homes, Avalon Group Dev City, Arun Dev Builders
Bawal, Haryana Ashray Homes, Surefin Builders
World Bank / NHB Study
Supply of Formal Housing – Activity Across India Upto May 2010
Concentration of LIH activity was in Ahmedabad and Mumbai upto May 2010
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Mumbai, Maharashtra Swarajya, Neptune Group Samruddhi Complex, Poddar Housing TMC, Matheran Realty Pink City and Star City, Rashmi Housing Shubh Griha, Tata Housing Karjat Land Developers Sathya Nagar, Conglome Techno Construction Pvt. Ltd, Lok Amber, Lok Group Vaishnavi Sai Complex, Shubh Aangan Realty Valram Vatika and Valram Ashish, Valram Constructions
Bangalore, Karnataka Shubha, Janaadhar VBHC
Chennai, Tamil Nadu Atulya, Annai Builders Large Chennai Conglomerate
Pune, Maharashtra Anandgram, Vastushodh Project Private Ltd. Shalini Lakeview, Trishul Builders
Nagpur, Maharashtra Shridhar Empire AC, Shridhar Buildcon
Note: Projects represented are those that were selling units priced between Rs. 3 – 7 lakhs; VBHC & Large Chennai Conglomerate have since raised their pricesSource: Primary Research
World Bank / NHB Study
Supply of Formal Housing – Current Activity Across India (1/2)
Supply of LIH units has grown but is still concentrated in the same regions as in 2010…
Meerut, UP
Spice Homes, Spice Group
Delhi NCR
Dineshnagar, Garg Group
Jaipur
3 projects from largebuilders and 7 fromLocal Builders
Ahmedabad
Umang Narol, DBS
Aakruti Township, Aakruti Apartmentsand Naiyya, Aroma Realty
Shreenath Residency, ShreenathDevelopers
Foliage Real Estate, Geratpur
Satva II, Satva Galaxy Group
15 projects from large builders and 7from local builders
Surat , Baroda and 11 other cities in Gujarat
Foliage Real Estate, Ankleshwar
Natraj Township, Surat
Indore, MP
Dream City, Goyal and Singhal Infra
Karol Bagh Grand, KBG Life Infra
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Mumbai
Samruddhi Complex (Badlapur), PoddarHousing
Shubh Griha, Tata Housing
6 projects from large builders
Pune
Anandgram Talegaon,Vastushodh Pvt. Ltd.
Chennai
Aayush, Marg Properties
4 local builders
Bangalore
Janaadhar
Nagpur
Kanchan Ganga, Vishal Infrastructure
7 Local Builders
Kolkata
Pushpakalay, Pushpak Infrastructure
Fortune Township, Fortune Group
Trichy
SRR Township (Trichy), Malar Group
Natraj Township, Surat
Shri Tirupati Balaji Town, Jeetu Builders, Surat
Priyanka City Gold, Surat
Suryam Residency, Shree Ayojan Developers,Surat
Navkar Agam, Navkar Builders, Surat
Akash Prithvi, Jayveer Builders, Surat
Shantivan Residency, Surat
Rajdeep Society, Surat
73 projects from large builders and 213 fromlocal builders, operating across the entire pricespectrum
Nasik and 3 other cities in Maharashtra
2 projects from large builders and 10from local builders
Note: Projects represented are those that were selling units priced below Rs. 10 lakhsSource: Primary Research
World Bank / NHB Study
Supply of Formal Housing – Current Activity Across India (2/2)
…however the price point has moved up from Rs. 3 – 7 lakhs to Rs. 5 – 10 lakhs
Meerut, UP
Spice Homes, Spice Group
Delhi NCR
Dineshnagar, Garg Group
Jaipur
3 projects from largebuilders and 7 fromLocal Builders
Ahmedabad
Umang Narol, DBS
Aakruti Township, Aakruti Apartmentsand Naiyya, Aroma Realty
Shreenath Residency, ShreenathDevelopers
Foliage Real Estate, Geratpur
Satva II, Satva Galaxy Group
15 projects from large builders and 7from local builders
Surat , Baroda and 11 other cities in Gujarat
Foliage Real Estate, Ankleshwar
Natraj Township, Surat
Indore, MP
Dream City, Goyal and Singhal Infra
Karol Bagh Grand, KBG Life Infra
No. of LIH Units Launched(From developers MIM contacted)
Key Highlights
Increasing supply of low income housing compared to the
earlier study for NHB and World Bank in 2010 (~25,000 units
launched from June 2010 – November 2011 as compared to
~14,500 over the preceding 30 months)
– An additional ~11,500 may also have launched during that
time period, though MIM has been unable to contact those
developers in the current timeframe
– ~4,600 further units are expected to launch by March 2012
and over ~6,500 units through the remaining of 2012 that
25,000
14,500
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Mumbai
Samruddhi Complex (Badlapur), PoddarHousing
Shubh Griha, Tata Housing
6 projects from large builders
Pune
Anandgram Talegaon,Vastushodh Pvt. Ltd.
Chennai
Aayush, Marg Properties
4 local builders
Bangalore
Janaadhar
Nagpur
Kanchan Ganga, Vishal Infrastructure
7 Local Builders
Kolkata
Pushpakalay, Pushpak Infrastructure
Fortune Township, Fortune Group
Trichy
SRR Township (Trichy), Malar Group
Natraj Township, Surat
Shri Tirupati Balaji Town, Jeetu Builders, Surat
Priyanka City Gold, Surat
Suryam Residency, Shree Ayojan Developers,Surat
Navkar Agam, Navkar Builders, Surat
Akash Prithvi, Jayveer Builders, Surat
Shantivan Residency, Surat
Rajdeep Society, Surat
73 projects from large builders and 213 fromlocal builders, operating across the entire pricespectrum
Nasik and 3 other cities in Maharashtra
2 projects from large builders and 10from local builders
1 LIH Price Range defined as projects with units selling for under Rs. 7 lakhs2 LIH Price Range defined as projects with units selling for under Rs. 10 lakhsSource: Primary Research
and over ~6,500 units through the remaining of 2012 that
MIM is aware of
A significant amount of supply is focused in the same
geographies (with extensions to surrounding smaller towns) and
at an increasing price point (shift from Rs. 3 – 7 lakhs to Rs. 5
– 10 lakhs and higher)
13 out of 21 developers who began in LIH have continued with
further projects beyond their pilots
Activity reported is primarily driven by large developers
though in many small cities local developers have sprouted,
building complexes with less than 100 units – they are however
difficult to mapJune 2010 -
November 2011(18 months)2
Dec 2007 -May 2010
(30 months) 1
Agenda
Huge demand for low-income housing in India
Low-income housing is an attractive business opportunity
Current low-income housing activity in India
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Case examples of 2 successful low-income housing developers
Conducive policy is being drafted to catalyze low-income housing
Vastushodh Projects Pvt. Ltd., Pune
Developer Overview
Vastushodh, active in the real estate business for last 12 years operates acrossthree different segments in the city’s real-estate market. Anandgram & Urbangramare its affordable housing offerings
Developer Operations Details
Housingfor LowIncomeGroup
All LIH developments are marketed as ‘Anandgram’
Priced in the range of INR 4-15 lakhs for lower-income families
Ongoing 2 Anandgram projects are at different stages of completion
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Group
Housingfor Middle
IncomeGroup
Premium & LuxuryHousing
Ongoing 2 Anandgram projects are at different stages of completion
Source: Developer Meeting, Company Website, News Prints
Together with ‘Anandgram’, ‘UrbanGram’ completes Vastushodh’soffering in affordable housing sector
Priced in the range of INR 15-30 lakhs for middle-income group offamilies
Developer has so-far developed 3 million square feet and plans tofurther develop 10 million square feet under its two umbrella brands
Vastushodh, continues to develop premium properties – terracehomes, designer bungalows, row-houses – in city-centre locations
Vastushodh Projects Pvt. Ltd., Pune
Site Pictures
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AnandgramYavat
Source: Company Website, News Prints
Name of theProject
Launch DateTotal # of
UnitsProduct Mix
Price/persquare foot
Unit PriceRange
CurrentStatus
ANANDGRAMYavat
Jan-2012 7201RK - 29%
1BHK - 29%2BHK - 42%
1,600-1,800INR 4 -11
LAKHPossession
Handed Over
Under
Vastushodh Projects Pvt. Ltd., Pune
LIH Progress
Vasthushodh’s Anandgram projects are at different stages of completion; thedeveloper plans to launch phase-2 of its Talegaon project
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ANANDGRAMTalegaon
Dhamdhere (phase2)
1 June 2012 3101RK – 16%
1BHK – 35%2BHK – 49%
1,600-1,950INR 5-9.75
LAKH
Underconstruction;possessionplanned forJune 2013
ANANDGRAMVakhri (Chaufula)
1st July 2012
1RK1BHK2BHK
INR 4-15 LAKH
Source: Developer Meeting, Company Website, News Prints
Developer is keen to expand its Anandgram offering across India in states like Gujarat,Andhra Pradesh, Orissa and Madhya Pradesh
Foliage Developers, Ahmedabad
Developer Overview
Foliage, a known player in Ahmedabad real-estate market, has evolved a distinctlegal, operational and organizational structure to address the LIH opportunity in asustainable and profitable manner
Developer Operations Details
Housing
Navjivan brand setup as a separate SBU in 2008 after Foliage’srecognition of LIH as a long-term strategic opportunity
Making housing available in the range of INR 5-10 lakhs
FOLIAGE GROUP
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Housingfor LowIncomeGroup
Premium& LuxuryHousing
Making housing available in the range of INR 5-10 lakhs
Has successfully completed the first project; two projects are inconstruction phase and one more is in launch stage
Source: Developer Meeting, Company Website, News Prints
Setup in 2006; works as a separate SBU
Focused on traditional construction & development of high-endresidential properties
Both SBUs kept operationally distinct and financially ring-fenced fromeach other
NAVJIVAN
ORANGE
Foliage Developers, Ahmedabad
Site PicturesFOLIAGE GROUP
Navjivan Vatva
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Source: Company Website, News Prints
Name of theProject
Launch DateTotal # of
UnitsProduct Mix
Price/persquare foot
Unit PriceRange
CurrentStatus
Navjivan Flats,Vatva
Oct. 2009 4251RK – 35%
1BHK – 56%2BHK – 9%
1005INR 3 -10
LAKH(at launch)
Handing overof possession
Foliage Developers, Ahmedabad
LIH Progress
Foliage Group has successfully completed its first project; three more projects areat different stages of completion
FOLIAGE GROUP
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Navjivan Park,Bavla
Dec 2010 226
1 BHK – 20%2BHK – 68%Commercial –
12%
1300 INR 7-12 LAKH
Underconstruction;possessionplanned forSept 2012
Navjivan Vihar,Geratpur
Feb/March 2012 3601RK – 27%
1BHK – 73%1406 INR 5-10 LAKH
Underconstruction
Navjivan Homes,Ankleshwar
5251RK – 41%
1BHK – 51%2BHK – 8%
Constructionhasn’t started
Source: Developer Meeting, Company Website, News Prints
Agenda
Huge demand for low-income housing in India
Low-income housing is an attractive business opportunity
Current low-income housing activity in India
22ZMK-IND-RIL LIH 2010 01 08 vGK-010910-SS Copyright © 2010 Monitor Company Group, L.P. — Confidential
Case examples of 2 successful low-income housing developers
Conducive policy is being drafted to catalyze low-income housing
Thank you
Please feel free to contact us for more information
23ZMK-IND-RIL LIH 2010 01 08 vGK-010910-SS Copyright © 2010 Monitor Company Group, L.P. — Confidential