low-income housing: an attractive business...

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

2CAS-COD-Prez-Date-CTL Copyright © 2011 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

Monitor has worked for 5 years in catalyzing the low income

housing market

Developers

HFCs

3CAS-COD-Prez-Date-CTL Copyright © 2011 Monitor Company Group, L.P. — Confidential

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

4ZMK-IND-RIL LIH 2010 01 08 vGK-010910-SS Copyright © 2010 Monitor Company Group, L.P. — Confidential

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


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


Sample 1 BHK Unit Layout

Low income housing requires innovation in design to maximize efficient use of space andminimize cost


KITCHEN

Agenda




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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


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


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







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


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


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


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


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


Note: Projects represented are those that were selling units priced below Rs. 10 lakhsSource: Primary Research


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


Surat , Baroda and 11 other cities in Gujarat

Foliage Real Estate, Ankleshwar


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


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


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


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







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


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


Site Pictures


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


LIH Progress

Vasthushodh’s Anandgram projects are at different stages of completion; thedeveloper plans to launch phase-2 of its Talegaon project


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


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


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


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


Site PicturesFOLIAGE GROUP

Navjivan Vatva


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


LIH Progress

Foliage Group has successfully completed its first project; three more projects areat different stages of completion

FOLIAGE GROUP


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


Agenda







Thank you

Please feel free to contact us for more information

[email protected]

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low-income housing: an attractive business...

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