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South Asia Housing Finance Forum, January 27 th, 2010 A Market Based Approach to Low Income Housing : Commercial Viability of Supply Based on a Project.

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Presentation on theme: "South Asia Housing Finance Forum, January 27 th, 2010 A Market Based Approach to Low Income Housing : Commercial Viability of Supply Based on a Project."— Presentation transcript:

1 South Asia Housing Finance Forum, January 27 th, 2010 A Market Based Approach to Low Income Housing : Commercial Viability of Supply Based on a Project for National Housing Bank, with active support from World Bank and funded by FIRST Initiative Implementation support by IFC and Michael & Susan Dell Foundation Copyright © 2009 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 AMSTERDAM BEIJING CAMBRIDGE CHICAGO DELHI DUBAI FRANKFURT HONG KONG JOHANNESBURG LONDON LOS ANGELES MADRID MANILA MILAN MOSCOW MUMBAI MUNICH NEW YORK PALO ALTO PARIS SAN FRANCISCO SÃO PAULO SEOUL SHANGHAI SINGAPORE TOKYO TORONTO ZURICH

2 Confidential Copyright © 2008 Monitor Company Group, L.P. Confidential 2 Note: 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 payment on an Home value, EMI level of INR 1,200 per Lac (at 12% interest for a 15 year loan) Source: NHB Trends in Housing; CRIS Infac Report; Monitor Research Leading developers (DLF, Unitech) Highly competitive, slowing demand growth due to increasing prices and high interest costs Price of unit 2 > INR 25 Lakhs Potential demand from ~2 M HHs with estimated Market Size:of ~INR 500,000 Cr Various mortgage finance options available for segment Low Income Housing in India: A Rs 1,300,000 Cr Opportunity (USD 260 Billion) Urban Income PyramidCompetitive Highlights Mostly small / regional developers (Naik Navare) Major plans / announcements from many large players (e.g. Omaxe, Ansals, Lodha, MAYTAS, Purvankara, etc.) Offering & Market Potential Price of unit: INR 10–25 Lakhs Potential demand from ~5 M HHs with estimated Market Size of ~INR 900,000 Cr Mortgage finance available broadly 1% (0.7MM) 5% (3.4MM) 22% (15.0MM) 33% (22.4MM) 4% (2.7MM) 10000–20000 > –40000 < – % (21.1MM) 5% (3.4MM) 5000– –30000 MHI 1 (INR) Price of House: INR 3–10 Lacs Potential demand from ~21 M HHs with estimated Market Size ~INR 1300,000 Cr Finance available for MHI > INR 12K in the formal sector, limited availability below MHI of INR 12K; negligible availability to the informal sector Presence of urban development bodies (DDA, MHADA) Nascent presence of scale private developers (TMC, Tata, Homex)

3 Confidential Copyright © 2008 Monitor Company Group, L.P. Confidential MUM 3 Live in poorly constructed small cramped houses Poor sanitary conditions - shared toilets, bad drainage, water logging during monsoons Lack of facilities - properly planned access points, walkways, gardens, dedicated schools etc. Appalling conditions of Slum-Dwellers Customer Perspective: Social Need and Willingness to Pay (16 Focus Groups and over 2,000 potential customers) Many lower income households live in poor conditions and are dissatisfied with their housing situation; but their searches for affordable housing have been unsuccessful Steady job as a factory worker in a textile enterprise in Ahmedabad Monthly HH income ~ Rs 8,000, ($160) savings up to Rs 900 ($18) p.m. Profile - Nathubhai Source: Primary Research (n=2000), Monitor Analysis Self-employed Mechanic in Mumbai Monthly HH income ~ Rs 11,000 ($ 220), savings up to Rs 1000 ($ 20) p.m. Lives in 150 sq. ft. room in slums, Rent Rs 2,400 ($ 48) Married with 2 children Assets – Bank Account, LIC (Rs 1.5L), Refrigerator and PC Education: Both children attend English-medium school Rent: Has seen significant & frequent increases in rent, has moved house 5 times in 12 years Profile - Ganesh Both share a dream…A house of their own Can afford a sqft. house, willing to make 20% down payment & pay 35% of monthly income as EMIs to realize their dream Both share a dream…A house of their own Can afford a sqft. house, willing to make 20% down payment & pay 35% of monthly income as EMIs to realize their dream Lives in 1 RmK in low income neighborhood, Rent Rs 1800 ($ 36) Family size: 5 (mother, wife, 2 children) Assets – Bank Account, LIC (Rs 3L), TV Education: Both children attend private Gujarati medium schools Rent: Increased by 50% in past 3 years, has moved every 2 to 3 years

4 Confidential Copyright © 2008 Monitor Company Group, L.P. Confidential MUM 4 Low Income, not Low Cost or Low Quality

5 Confidential Copyright © 2008 Monitor Company Group, L.P. Confidential MUM 5 Project details UOM Key Numbers OptionWith Land Cost / No Revenue Share Total Land size10sq. ft. 435,600 FSI allowed 1.80 Total area available for constructionsq. ft. 784,080 Area for Commercial5%sq. ft. 39,204 Area for Residential95%sq. ft. 744,876 Land Cost FSIINR/sq. ft. 200 Construction CostINR/sq. ft. 800 Average size of flat (sq.ft.)sq. ft. 396 Number of flatsnos 1,883 Average realisation per flat (Rs) INR476,799 Mix of Houses - Area% of number 1 RMK29%sq. ft BHK – Type 132%sq. ft BHK – Type 240%sq. ft.400 Loading Factor for Saleable Value25% Mix of Houses - Base Price in Phase 1 1 RMKINR/sq. ft BHK – Type 1INR/sq. ft BHK – Type 2INR/sq. ft.1250 Price Rise between Phases0% Average Residential (Rs)INR/sq. ft. 1,205 Average Commercial Yield Factor 2 Commercial (Rs)INR/sq. ft. 2,410 Overall realization from project Revenue from different Sources Commercial (Rs)INR9.45 Residential (Rs)INR89.76 Overall Realization of the Project (Rs. Crores) Costs from different Sources Cost of land INR cr.15.7 Construction Cost INR cr.62.7 Sales and Marketing INR cr.3.0 Overall cost of project (Rs. Crores) INR cr Net realization (Rs) INR cr Margin 21.9% Return on Investment (IRR) 40% Assumptions: The project is constructed over 3 phases - each phase consists of approximately 600 flats Price is constant over the duration of the project The value of area per square feet is enhanced using two methods: Commercial space is valued more than residential space with an Average Yield Factor of 2 The mix of flats is such as to allow some area to be sold at a higher price point Cost of construction is Rs. 800 per square foot (comparable to other estimates for such projects based on our experience) Land is owned by the developer An Alternate Business Model – Land as Inventory Sample Project Economics: Margin – 22%, IRR – 40%

6 Confidential Copyright © 2008 Monitor Company Group, L.P. Confidential MUM 6 Conveying the opportunity Arranging customer financing Selecting land, Obtaining customers Sharing best practices (architectural designs, site layouts, etc.) Conveying the opportunity Arranging customer financing Selecting land, Obtaining customers Sharing best practices (architectural designs, site layouts, etc.) Making a Market: Phase 1: Facilitating supply using an ecosystem approach Government, regulatory bodies etc. Press (over 20 articles) Conferences and industry sessions One on one meetings with broad range of stakeholders (over 400) Government, regulatory bodies etc. Press (over 20 articles) Conferences and industry sessions One on one meetings with broad range of stakeholders (over 400) RAISING AWARENESS Existing and new players for mortgage finance (including incubating housing finance companies) PE and VC funds (incubated a USD 100 Million housing ecosystem fund) Research on optimal architectural designs, low cost construction technology, sustainability etc. Existing and new players for mortgage finance (including incubating housing finance companies) PE and VC funds (incubated a USD 100 Million housing ecosystem fund) Research on optimal architectural designs, low cost construction technology, sustainability etc. BUILDING THE ECOSYSTEM Two years, 600 developers, and downturn in the economy to: 1)Achieve a clear recognition in the market of the opportunity 2)Lead to a number of players in this space SMALL DEVELOPERS AND NEW PLAYERS END TO END SUPPORT

7 Confidential Copyright © 2008 Monitor Company Group, L.P. Confidential MUM 7 Market demonstration of Demand: Private sector projects across India Ahmedabad: Vatva Taral Bakeri Phase 1: 800 units Construction start: June 2009 Price: Rs 3.3 lakh– 5.6 lakh Mumbai :Ambivili Neptune Group 100 acres Phase 1: 1800 units; Sector 1: 600 flats sold out in 3 days 1-BHK and 2-BHK Rs 4.73 lakh and Rs 8.40 lakh Project launched on March 27 Maharashtra: Karjat TMC – Matheran Realty 15,000 units by June 2011; 3,000 units in Phase 1 – June 09 6,000 Rs 3 lakh Possession: June 2009 Maharashtra :Boisar Tata Housing 67 acres: Phase 1: 1300 units for LIH 1-RMK and 1BHK Rs 3.9 lakh and Rs 6.7 lakh Bangalore: Atibele Janadhar 11 acres: 1500 units 1BHK and 2 BHK; Rs 4 lakh and 6 lakh Bangalore: Value Budget Housing Rs 3-9 lakh townships on minimum 10 acre plots Ahmedabad: Vatva Foliage Developers Phase 1: 400 units Price: Rs 2.81 lakh upwards Potential demand from 21 Million Households with estimated Market Size ~INR 1,300,000 Cr (USD 260 Billion) Potential demand from 21 Million Households with estimated Market Size ~INR 1,300,000 Cr (USD 260 Billion)

8 Confidential Copyright © 2008 Monitor Company Group, L.P. Confidential MUM 8 Entry by potential scale players Tata Housing Launched a low income housing township in Boisar, 98 kms from South Mumbai Spread over 67 acres and has 1,000 flats in the first phase 1 RMK 283 sq. ft and 1 RMK with 360 sq. ft. Flats priced between Rs. 3.9 lakh and Rs. 6.7 lakh Launched a low income housing township in Boisar, 98 kms from South Mumbai Spread over 67 acres and has 1,000 flats in the first phase 1 RMK 283 sq. ft and 1 RMK with 360 sq. ft. Flats priced between Rs. 3.9 lakh and Rs. 6.7 lakh Value Budget Housing Development Corporation Jerry Rao (founder, MphasiS) and P.S. Jayakumar (ex Citibank) set up housing development company Large business opportunity with significant social impact Goal: 1 Million homes in urban India in price range of Rs. 3-9 lakh in next decade The company has partnered with Monitor to test feasibility of vision, provide in-depth knowledge of the market and assist in building the organization structure Jerry Rao (founder, MphasiS) and P.S. Jayakumar (ex Citibank) set up housing development company Large business opportunity with significant social impact Goal: 1 Million homes in urban India in price range of Rs. 3-9 lakh in next decade The company has partnered with Monitor to test feasibility of vision, provide in-depth knowledge of the market and assist in building the organization structure Tanaji Malusare City Launched by Matheran Realty Pvt. Ltd. in Karjat Aims to create large scale commercially viable housing for low income households 66,000 applications for sale of 3,000 units in Phase 1. Will contain 15,000 flats 1 RMK 200 and 300 sq. ft. at 2.1 lakh and 3.15 lakh, 1 BHK 400 sq.ft. at 5.25 lakh and 2 BHK 500 sq.ft. at 7.35 lakh Launched by Matheran Realty Pvt. Ltd. in Karjat Aims to create large scale commercially viable housing for low income households 66,000 applications for sale of 3,000 units in Phase 1. Will contain 15,000 flats 1 RMK 200 and 300 sq. ft. at 2.1 lakh and 3.15 lakh, 1 BHK 400 sq.ft. at 5.25 lakh and 2 BHK 500 sq.ft. at 7.35 lakh

9 Copyright © 2009 Monitor Company Group, L.P. Confidential IND 9 Affordable Housing Low Income Housing as a Driver for Economic Growth Wide Range of Benefits Market based affordable housing can be part of a broader portfolio of solutions to housing for the poor and lower income groups Aiding Overall Economic Development Construction of low income housing provides disproportionate job creatiion Creates signficant economic value for state (taxes, anxiliary economic activity, source of labor potentially leading to industry, etc Provide alternative to Urban Slums ~40M people live in urban slums without basic facilities such as sanitation, water, schools, etc Renters disempowered. All power is w/ slum lords Slum lords own houses and benefit from Slum Rehabilitation Schemes Slums create high pressure on infrastructure within a city Benefits for families of Urban LIG Housing is essential for the well-being of a family Enhanced security and health through organized housing with access to sanitation Access to better services (schools, healthcare etc.) which are typically available to higher- income groups Creation of Low-Risk Asset for Families Long term wealth creation due to value of asset, saving on rent & collateral for loan A security net in crisis Low income houses typically built on land with low cost per sq. ft. Low likelihood of price depreciation, Hence downside risk is low Allows Government funds to focus on poor Limited government resources can be spent on rental and owned housing for poorer sections of society Sets benchmarks that can be used for housing for the poor

10 Copyright © 2009 Monitor Company Group, L.P. Confidential IND 10 Our path forward: Monitors plans for the next two years Attract players who can provide large scale low income housing at reasonable prices, including Facilitating entry of mid/large developers, Attracting international low income housing developers and new players into the field Formal Sector: Highlight opportunity for low income home financing to large banks and HFCs Informal Sector: Catalyzing housing finance through banks, dedicated HFCs, MFIs, etc. Facilitating access to low-cost, long-term debt Facilitating Consumer Finance Ensuring Supply of Housing (Distinct Business Model) In the next few years, we intend to facilitate the scaling up of a robust, commercially viable, and sustainable low income housing market in India Develop a list of options relevant in the Urban Indian Context, including the pros and cons of each option and the situations where it would be effective Working with the central Government and nodal agencies like NHB to transfer this knowledge to local decision makers. Supporting Government Scale up Low Income Housing Sustainability Elements in Low Income Housing Developing Consumer Education Modules Developing a Paradigm for Low Income Rental Housing Monitoring, Evaluating, and Spreading Best Practices/Addressing Unintended Consequences Developing Architectural Benchmarks and Low Cost Construction Technologies Working with financial institutions to lower cost of service for low income customers Including low income housing in SEZs Facilitating the flow of long term low cost debt to the sector, including warehouse facilities and securitization options. Facilitating Broader Market Innovations

11 Confidential Copyright © 2008 Monitor Company Group, L.P. Confidential MUM 11 Back-up

12 Confidential Copyright © 2008 Monitor Company Group, L.P. Confidential MUM 12 Key Challenges and Critical Success Factors Some traditional developers have expressed interest in low income housing because of the current economic downturn – once the market recovers, may move out of this space Most developers are building affordable homes that cost between Rs Lakhs, but the real need and business opportunity is houses costing Rs. 3-7 Lakhs The challenge is to ensure a sustained supply of housing in the Rs. 3-7 Lakhs price range Access to home financing for low income customers remains the major choke point to the scale development of this market There is a need for additional traditional financial institutions to serve the salaried low income market, since existing banks and HFCs are slow to process loans and charge high rates of interest New entrants are required to serve the low income informal customer segment - this group is currently un-served because they are perceived as being high risk and high cost to serve Facilitating Consumer Finance Ensuring Sustained Supply of Housing in the Rs. 3-7 Lakhs Range Several challenges will need to be addressed in order to enable the creation of a robust, commercially viable, and sustainable low income housing market in India While the government is interested in stimulating private sector led approaches to low income housing, they are unclear on effective enabling policy measures They are concerned that the private sector is largely profit driven and benefits will not percolate to customers State policies need to be customized to local situations on the ground to be effective Supporting Government Scale up Low Income Housing The low income housing market will also require the creation of an enabling ecosystem through interventions/projects such as: Introduction of Sustainability Elements, Development of Consumer Education Modules, Development of a Paradigm for Low Income Rental Housing, Monitoring, Evaluating, and Spreading Best Practices/Addressing Unintended Consequences, Developing Architectural Benchmarks and Low Cost Construction Technologies, Working with financial institutions to lower cost of service for low income customers, Including low income housing in SEZs, Facilitating the flow of long term low cost debt to the sector, including warehouse facilities and securitization options etc. Facilitating Broader Market Innovations

13 Confidential Copyright © 2008 Monitor Company Group, L.P. Confidential MUM 13 Facilitating Supply of Housing for Low Income Customers Due to the economic downturn, some traditional developers have expressed interest in low income housing because of the current economic downturn – once the market recovers, may move out of this space Most developers are building affordable homes that cost between Rs Lakhs, but the real need and business opportunity is houses costing Rs. 3-7 Lakhs The challenge is to ensure a sustained supply of housing in the Rs. 3-7 Lakhs price range There is broad awareness in the market of the business opportunity in Low Income Housing so our approach will be reactive For developers who are currently in (or interested in) this space, encourage them to build housing in the Rs. 3-7 Lakhs range –Focus on large and medium developers Facilitate the entry of new, scale players (such as corporates, successful entrepreneurs). Demonstrate commercial viability and sustained demand for homes costing between Rs. 3-7 Lakhs, and help them enter this market through provision of end-to-end support Monitor support varies from non-commercial sharing of information to light-touch customized delivery of existing information to traditional customized consulting. Monitor is also tracking the space and engaging with a broad group of developers (doing group sessions on areas like ways to lower cost of construction, sustainable elements, etc) Approach Challenge We would like to ensure a sustained supply of housing in the Rs. 3-7 Lakhs range, and facilitate the entry of new, scale players into this market

14 Confidential Copyright © 2008 Monitor Company Group, L.P. Confidential MUM 14 Facilitating Consumer Financing for Low Income Customers Access to home financing for low income customers remains the major choke point to the scale development of this market For low income formal sector customers: Large public sector banks are slow to process loan applications Small housing finance companies charge higher rates of interest to cover their cost of funds New entrants are required to serve the low income informal customer segment - this group is currently un-served because they are perceived as being high risk and high cost to serve Understanding real versus perceived credit risk and managing costs to serve are the key challenges for HFCs serving the informal sector Encourage a few traditional financial institutions to serve low income formal sector customers –Work with them on specific projects and ensure they see the value in the market –Work on policy aspects to encourage traditional Fis to serve this market Incubate new housing finance companies to serve the informal sector etc. –Dissemination of the opportunity through media, conferences & events, and group sessions –Highlight the opportunity to a shortlist of alternate financial institutions such as MFIs, NBFCs, cooperative banks etc. who have the reach and potential capabilities to effectively serve this market –Help them start an HFC. From designing the go-to-market strategy and configuration to deliver, to raising funds (helping them with the IM and using our network of capital providers), to connecting them to other service providers and players and helping them with their NHB application. Approach Challenge We would like to extend access to home financing to low income customers, especially informal sector workers

15 Confidential Copyright © 2008 Monitor Company Group, L.P. Confidential MUM 15 Supporting the Government to Scale Low Income Housing The government, at the central and state level, is interested in facilitating the supply of affordable housing through the private sector; but is unsure of effective ways to do so They are concerned that the private sector will enter this segment to make large profits, and benefits will not percolate to the customers The local situation on the ground and policies will define the appropriate low income housing solution on the ground Work with the central government to develop a portfolio of options to incentivize private players to provide low income housing Create a list of options relevant in the urban Indian context – identify the pros and cons of each option, and situations where they are applicable and/or likely to be misused. Shortlist a set of options that are effective in different environments Work with the central Government and nodal agencies like NHB transfer this knowledge to local decision makers Support a few ULBs on implementing these options and use this learning to refine the options Preferred Approach Challenge We would like to work with central and state governments to devise ways to incentivize the private sector to provide access to low income housing Leverage our networks to address Urban Local Bodies (ULBs) and state governments to raise awareness of the potential for private sector led approaches to low income housing Follow up with interested ULBs/States to raise awareness among developers in their geography Provide support in getting a few projects off the ground Tie-up with the local governments to deliver targeted pieces of support, e.g., customer education modules Short Term Approach

16 Confidential Copyright © 2008 Monitor Company Group, L.P. Confidential MUM 16 Development and Facilitation of Market Innovations The success of the affordable housing market in India will create a new group of home-owners that is unaware of the responsibilities of home ownership. We intend to: Communicate key information on home/developer selection, financing, maintenance, and long term value enhancement to this segment Create modules in a format that is easily accessible to target segments – i.e. in local languages, involving role-play and illustrations Disseminate this information through stakeholders that have aligned incentives (e.g., developers and housing finance companies on a financial education module). First module will be a customer finance module (in discussion with FMO about funding) The low income segments move from their current rental housing into the low income flats, they will be among the first home-owners in this income group. While we expect the impact of moving from tenements and slums into homes in good neighborhoods to be positive, there are also likely to be problems. If we can identify these early, we may be able. Therefore we intend to: –Assess the financial, socio-cultural, and broader (e.g., health, education levels) implications on the first sets of customers (about 200) moving into these low income houses –Follow a these customers over a 30 month period; this will also allow determining outcomes of areas like home ownership, maintenance, etc. –Develop approaches to reduce negative factors and spread best practices –Provide rapid feedback to developers, housing finance companies, the government, and other relevant stakeholders (RBI, NHB etc.) and engage relevant players in addressing the issues/opportunities (so these become the norm in the market Monitoring, Evaluating, and Spreading Best Practices/ Addressing Unintended Consequences Development and Dissemination of Customer Education Modules In addition to our core market making efforts, we intend to work on special projects that will help create an enabling ecosystem for the scalable growth of low income housing in India

17 Confidential Copyright © 2008 Monitor Company Group, L.P. Confidential MUM 17 Development and Facilitation of Market Innovations The creation of the low income housing market offers a rare opportunity to introduce a new set of environmentally sustainable elements in the market. If these elements are included in early projects that are commercially successful, they are likely to be replicated by future entrants in this space We have identified an initial set of feasible sustainability elements that are environmentally better than conventional practice without increasing cost. We would like to expand this list, quantify the benefit of these elements, include some of them in the new projects and propagate information about them. Sustainability Elements in Low Income Housing In addition to our core market making efforts, we intend to work on special projects that will help create an enabling ecosystem for the scalable growth of low income housing in India. These projects are pending funding from sponsors There is a clear need for more and better quality rental housing, and there may be a commercially viable opportunity to provide such housing We would like to understand the current living conditions of families such as recent migrants, young breadwinners etc. who cannot afford to buy homes of their own and their interest in rentals that the market can provide, regulatory issues, the potential of combining a rental model ownership housing, etc. This is likely to lead to a innovative models for rental housing and a clear articulation of a business opportunity which we could help implement and scale Developing a Paradigm for Low Income Rental Housing We are also interested in exploring broader market making efforts such as: Developing Architectural Benchmarks Developing Low Cost Construction Technologies Facilitating the flow of long-term and low-cost debt to the sector, including warehousing facilities and options for securitization Including Low Income Housing in SEZs Working with financial institutions to lower the cost of service for low income customers Facilitating Broader Market Making Innovations

18 Confidential Copyright © 2008 Monitor Company Group, L.P. Confidential MUM 18 Monitor Group: An Introduction Michael Porter, Harvard Business School Director and Co-Founder of the Monitor Group Founded by renowned academics, the Monitor Group has grown rapidly to become a leading global management consulting and merchant banking firm We believe that Ideas can create impact. Founded by Michael Porter and other HBS faculty in 1983 Renowned for focus on strategy and cutting-edge ideas that help clients grow With over 25 offices across the globe, we go the last mile… Corporates Governments Non Profits Growth Strategies Leadership & Innovation Private Equity Funds City Strategies Cluster Development Country Competitiveness Social Venture Funds Impact Investing Education Ecosystem

19 Confidential Copyright © 2008 Monitor Company Group, L.P. Confidential MUM 19 Monitor Inclusive Markets in India An autonomous unit that is actively facilitating scaling of market based solutions Customers Developers Financial Institutions Construction Technology Identifying and refining business models at scale Making the market for low income housing in India

20 Confidential Copyright © 2008 Monitor Company Group, L.P. Confidential MUM 20 Urban Housing Market 2007 Smallest house costs ~ Rs. 5 Lakhs (~ USD 10,000) Source: NHB Trends in Housing; CRIS Infac Report; Monitor Research Urban India Expenditure & Income Pyramid 16% (10MM) 37% (~23MM) 33% (~21MM) 14% (~9MM) MHE: Rs 9,625 pm Monthly Income Rs. 11,000 USD 220 Rs. 2,500 USD 50 Rs. 5,000 USD 100 LESS THAN TOP 16% of Urban Indian Households can afford to own houses LESS THAN TOP 16% of Urban Indian Households can afford to own houses Current segment served Ahmedabad / Vadodara Mumbai Jaipur Hyderabad Multiple builders: Three room Rs 950 / sq. ft. –Vatwa, 12 km from city centre; 40 minutes travel, Naroda Land rate of 80L to 1.1 Cr per acre available 45 minutes to 1 hour from city center, FSI of 1.8 given for 60% of the plot size Multiple builders: Three room Rs 950 / sq. ft. –Vatwa, 12 km from city centre; 40 minutes travel, Naroda Land rate of 80L to 1.1 Cr per acre available 45 minutes to 1 hour from city center, FSI of 1.8 given for 60% of the plot size 1RK flat at Karjat, (Mumbai suburb) being sold at Rs 999 per sqft Land rate of Cr per acre available in Titwala, FSI norm of 1 1RK flat at Karjat, (Mumbai suburb) being sold at Rs 999 per sqft Land rate of Cr per acre available in Titwala, FSI norm of 1 Potential to provide housing at Rs 800–Rs 1000 per sq.ft. However, overriding concern is financing of these houses 1BHK flats (450–500 sq. ft.) being sold at Rs 900– 1,200 per sq. ft. in areas such as Uppal, L B Nagar, Kuthapet, Kukatpalli etc. but not on a large scale.

21 Confidential Copyright © 2008 Monitor Company Group, L.P. Confidential MUM 21 The opportunity: Smaller houses using current private sector construction practices Source: NHB Trends in Housing; CRIS Infac Report; Monitor Research Urban India Expenditure Pyramid 16% (10MM) 37% (~23MM) 33% (~21MM) 14% (~9MM) MHE: Rs 9,625 pm Monthly Income Rs. 11,000 USD 220 Rs. 2,500 USD 50 Rs. 5,000 USD 100 Target segment for this project sq ft. houses Potential to provide housing for 15–21 Million urban households Cost Structure : Project IRR of 30 – 40% Rs Land & LegalLand & LegalLand & LegalLand & Legal Rs 25 Design Rs Construction Costs Rs Rs Infrastructure Costs Marketing Rs 15 Salaries Rs Interest Rs PBT Rs Total Operating Profitability Project IRR 30-40%

22 Confidential Copyright © 2008 Monitor Company Group, L.P. Confidential MUM 22 Efficient Use of Space – Sample Unit Layout

23 Confidential Copyright © 2008 Monitor Company Group, L.P. Confidential MUM 23 Interest in Housing: Focus Groups Household Income – Rs. 6,700- 7,700/month ($ 140) Housing Concept 3 Tested with Respondents Area: Housing is within 1 hour of the city centre 4 Complex would comprise 6 buildings with 32 flats in each building ( 8 flats/ floor and 4 floors ) –Regular water and electricity –No lifts and single set of staircases –Complex would have a compound wall with shared open spaces including garden and play area for kids –Close to primary, secondary schools, healthcare centre and market place –Well connected to city by bus linkages Each flat would have a built up area of ~ 300 sq.ft. (large cities) or 400 sq. ft. (small cities) –1 BHK with an attached toilet and bathroom –Well painted walls and well ventilated –Rs 300 per month as maintenance charges All respondents were very interested in this concept Area: Housing is within 1 hour of the city centre 4 Complex would comprise 6 buildings with 32 flats in each building ( 8 flats/ floor and 4 floors ) –Regular water and electricity –No lifts and single set of staircases –Complex would have a compound wall with shared open spaces including garden and play area for kids –Close to primary, secondary schools, healthcare centre and market place –Well connected to city by bus linkages Each flat would have a built up area of ~ 300 sq.ft. (large cities) or 400 sq. ft. (small cities) –1 BHK with an attached toilet and bathroom –Well painted walls and well ventilated –Rs 300 per month as maintenance charges All respondents were very interested in this concept Key is strong interest, proximity to facilities (e.g. schools, market places), connectivity via public transport and shared open spaces Note: 1 Interest rate assumed to be 12%; 2 Rent excludes electricity and water payments; 3 Price for lower-income segment housing estimated at Rs. 900/sq ft 3 Housing concept tested is based on examples of larger ( sq. ft) flats constructed in cities like Ahmedabad; 4 The project team identified areas in the various cities where apartments could be constructed at property rates of Rs ,000 / sq. ft and these specific locations were tested with respondents Maximum Affordable EMI Payments Rs. 2,450 / month (35% of monthly income) Maximum Affordable Housing Unit (Super Built Up) 292 sq ft Rs. 2,92,000 Customer Profile: Income: Rs. 7,000/month Maximum Affordable Down Payment Rs. 70,000 Housing Loan Tenure 1 20 years Current Rent (Large City) Rs. 1,500 – 1,800 per month 2 Current Average Savings Rs. 700 – 1,000 per month

24 Confidential Copyright © 2008 Monitor Company Group, L.P. Confidential 24 A Low Income Housing Finance Business: Outline Geography: The need for low income housing and home loan financing is especially acute in urban areas, which are seeing rapid population expansion through migration from rural areas Reach: The HFC will have an urban focus and will establish presence in Metros and surrounding Tier I/II/III cities Branch: Hub and Spoke model with 55 branches by Year 10 Target Monthly Household Income range: Rs. 5,000 – 20,000 Customer groups: Both salaried customers who are unable to access home loans and informal sector customers, i.e. self-employed and salaried unorganized individuals Customer Profile and Focus Product Offerings and Pricing Structure Primary Product: Loan for home purchase Loan Amount: 2 – 8 Lakhs: Families earning between Rs. 5,000 and 20,000 can afford homes costing up to 40 times their monthly income, i.e. Rs. 3 – 10 Lakhs Loan to Value: 50 – 80%: A minimum of 20% equity from the customer will help mitigate the financiers risk, while ensuring that the loan is not sub-prime Installment-Income Ratio (IIR): %: This income group typically pays between % of their monthly incomes as rent, so a % EMI is feasible Loan Tenure: 6 – 15 years: Will vary based on the customers income Pricing Structure Adjustable Rate Mortgages with typical interest rates between % based on down-payment amount, IIRs, loan Tenure, and perceived risk profile of customer; and allowing approximately a 3-4% spread Processing fee of 1% of loan value to re-cover loan origination and credit check costs The business will primarily focus on the urban customer in the Income Group Rs. 5,000-20,000 who does not currently have access to a home loan

25 Copyright © 2009 Monitor Company Group, L.P. Confidential IND 25 Per Customer Cost Analysis A Low Income Housing Finance Business Customer Level Economics: Branch Level Revenue & Costs The average cost to acquire a customer is Rs. 8,000 and cost to service their loan over the loan term is Rs. 20,000, while the net income earned per customer is Rs. 88,000 Cost to Serve Per Customer (Rs.) Income Earned Per Customer (Rs.) AssumptionsAssumptions Average Loan Size: Rs. 4 Lakhs Interest Rate Charged: 14% Loan Processing Fee: 1% NPA: 1.0% 1 A 0.5% of loan value bonus is provided to the branch sales force as an incentive fee for each loan generated These assumptions are typical for most HFCs (our data is based on inputs from Dewan, GRUH, HDFC and MHFC) Average Loan Size: Rs. 4 Lakhs Interest Rate Charged: 14% Loan Processing Fee: 1% NPA: 1.0% 1 A 0.5% of loan value bonus is provided to the branch sales force as an incentive fee for each loan generated These assumptions are typical for most HFCs (our data is based on inputs from Dewan, GRUH, HDFC and MHFC) ObservationsObservations It costs approximately Rs. 32,000 to serve each customer, i.e. cost to serve is about 8% of loan size, The HFC would earn approximately Rs. 88,000 in net income from each customer Net Profit Per Customer Over 8 years (not including other costs) is approximately Rs. 56,000 It costs approximately Rs. 32,000 to serve each customer, i.e. cost to serve is about 8% of loan size, The HFC would earn approximately Rs. 88,000 in net income from each customer Net Profit Per Customer Over 8 years (not including other costs) is approximately Rs. 56,000 Note: 1 DHFC and Gruh NPAs are less than 1% Sales IncentiveOffice OverheadsAverage NPA Documentation, Storage & RetrievalDocumentation, Storage & RetrievalDocumentation, Storage & RetrievalLegal & Technical clearanceLegal & Technical clearanceLegal & Technical clearanceTotal Cost to ServeOperating Overheads Processing FeeNet Interest IncomeTotal Per Customer Revenue Analysis

26 Copyright © 2009 Monitor Company Group, L.P. Confidential IND 26 Profitability over a 10 year time period A Low Income Housing Finance Business Profitability over a 10 year time frame The HFC will turn profitable after 3 years of operations, and it is anticipated that margins will grow sequentially in progressive years Net Profit/(Loss) (Rs. crores) Percentage Return Note: 1 Based on conversations with HFC Industry Experts and existing HFCs Assumptions 1 Average Loan Tenure: 8 years Cost of debt: 10% Debt Equity ratio: Year 5- 4: 1 Year 10- 6: 1 Capex in Years 1 to 3- Rs 3 Cr (towards software and hardware) NPA of 1 % provided on all loans disbursed from Year 4 Net Profit/Loss = Post Tax (Income – Expenses) ROE = Net Profit/Loss / Average Equity ROA = Net Profit/Loss / Average Assets Average Loan Tenure: 8 years Cost of debt: 10% Debt Equity ratio: Year 5- 4: 1 Year 10- 6: 1 Capex in Years 1 to 3- Rs 3 Cr (towards software and hardware) NPA of 1 % provided on all loans disbursed from Year 4 Net Profit/Loss = Post Tax (Income – Expenses) ROE = Net Profit/Loss / Average Equity ROA = Net Profit/Loss / Average Assets Observations The HFC will operate at a loss for the first few years, but will turn profitable by year 3 ROE of 23% in year 10 is very robust by the Indian financial industry standards ROA of 3% in year 10 is comparable to HFC industry standards The HFC will operate at a loss for the first few years, but will turn profitable by year 3 ROE of 23% in year 10 is very robust by the Indian financial industry standards ROA of 3% in year 10 is comparable to HFC industry standards Y5Y3Y4Y2Y1Y7Y8Y6Y Y Y5Y6Y3Y4 2.2 Y2Y Y1Y10Y9Y8 Return On Equity Return On Assets

27 Confidential Copyright © 2008 Monitor Company Group, L.P. Confidential MUM 27 Low Income Segments as Target Market Untested Risk Profiles, different from Sub-prime in USA 75-80% LTV – significant individual contribution required; EMIs tend to be 35% of Monthly Income Target customers have regular employment, albeit with low income – with an unproven credit record which needs to be tested In the low income segment, relatively low cost of land (esp. in peri-urban areas) leads to high correlation between cost of asset and replacement cost; and hence lower risk of asset bubbles 75-80% LTV – significant individual contribution required; EMIs tend to be 35% of Monthly Income Target customers have regular employment, albeit with low income – with an unproven credit record which needs to be tested In the low income segment, relatively low cost of land (esp. in peri-urban areas) leads to high correlation between cost of asset and replacement cost; and hence lower risk of asset bubbles Low-Income Housing in India Outcome: Untested, relatively low-risk segment with significant business potential Very high LTV; creative structures developed to reduce EMIs Loans extended without due consideration to ability to pay (basis employment history) – financing provided to those with questionable employment record Cost of asset disproportionately high compared to replacement cost; this is attributed to the real estate asset bubble in the US – hence high risk of payment default Very high LTV; creative structures developed to reduce EMIs Loans extended without due consideration to ability to pay (basis employment history) – financing provided to those with questionable employment record Cost of asset disproportionately high compared to replacement cost; this is attributed to the real estate asset bubble in the US – hence high risk of payment default Sub-prime Experience in USA Outcome: Sub-prime Defaults and Foreclosures

28 Confidential Copyright © 2008 Monitor Company Group, L.P. Confidential MUM 28 Construction Laborer in India Low Income Housing as a Driver for Economic Growth Significant Employment Potential to Lower-Income Segments 1,300 Capital Raw MaterialRaw Material Gross Margin Labor 3, Total 250 LaborCapital Gross MarginRaw Material 1, Total Low Income Housing Project Traditional Housing Project Note: 2 Includes land costs, design expenses and equipment costs; 3 Includes cost for steel, cement, tiles etc; Source: Construction Industry Development Council Report, Industry Experts, Monitor Analysis Largest spend on labor Within the construction industry which is the largest employers of labor in urban India, affordable housing emerges as the most labor-intensive providing high potential for employment opportunity to the urban poor With 31 million workers (2005), the Construction Industry is the leading provider of employment to lower income segments in Urban India A typical construction worker is from states with lower economic development (U.P., Bihar), a daily wage earner (income of ~Rs 100 per day), resides in temporary settlement near construction site and has been badly hit by inflation and slowdown in construction industry With 31 million workers (2005), the Construction Industry is the leading provider of employment to lower income segments in Urban India A typical construction worker is from states with lower economic development (U.P., Bihar), a daily wage earner (income of ~Rs 100 per day), resides in temporary settlement near construction site and has been badly hit by inflation and slowdown in construction industry Comparison of spend on Labor in Construction Projects (as % of total Project Value) 13% 25%

29 Confidential Copyright © 2008 Monitor Company Group, L.P. Confidential MUM 29 Interviews with over 30 Housing Developers Interest in Low Income Housing Large private developers are not interested in the segment unless it facilitates access to additional land for high end projects while some medium / small private developers are interested in serving the segment provided they get sufficient volumes and financing is available for customers Large Private DevelopersMedium and Small Private Developers Very limited interest in building housing for low income customers –Developers believe that there is still a large opportunity in housing for middle income and higher income segments –Recognize land as an extremely valuable resource and consider stand alone low income housing projects as sub optimal utilization of available land Not willing to compromise on profit margins Believe that it is difficult to make housing at price affordable for low income segment Interested in looking at housing for low income customers only if developing such housing helps them acquire land (from the government) for high end residential and commercial projects –Willing to cross subsidize low income houses Believe that there is high competition in the middle segments and market is saturating Some medium and small developers recognize the opportunity in low income housing are interested in looking at the segment –Believe they have the management capabilities for taking on such additional projects Believe that it is viable to serve this segment while earning close to their current margins (20-30%) However, need comfort that they will get sufficient volumes from this segment; concerned about non availability of housing finance to the segment Some developers have also expressed interest in being part of a pilot project

30 Confidential Copyright © 2008 Monitor Company Group, L.P. Confidential MUM 30 Financial Institutions: Current Market Focus The target segment is largely un-served – select medium sized HFCs and banks have a small presence among customers (primarily salaried) with household income above Rs. 5,000 per month > Rs. 10 K Rs. 8K – 10 K Rs. 5K – 8K 1 Rs. 3K – 5K Rs. 2.5K – 3K Large Private and Government Banks, Large Housing Finance Companies Limited MFIs (Home repair / extension loans) Note: 1 Certain large private banks willing to look at salaried customers with income level down to Rs. 5,000 per month if there is proper documentation and sourcing / collection is done through third parties thereby managing the overall cost to serve the segment Source: Discussions with Industry Participants, Monitor Analysis Target Segments for the Project Select Medium Sized Housing Finance Companihes, Co-op Banks, NBFCs Large Private and Government Banks, NBFCs Salaried (Organized) Self Employed & Salaried (Unorganized) Banks typically treat the unorganized salaried segment as part of self employed Government Banks, Medium Sized HFCs, Co-operative Banks, NBFCs (Select players, small % of portfolio) Shaded portion represents un- served customer segments

31 Confidential Copyright © 2008 Monitor Company Group, L.P. Confidential MUM 31 Payroll deduction Facilitates aggregation and information on customers Retention tool High productivity New Housing Business Model: Salaried Sector The new product for those employed in formal sector settings required several reconfigurations of existing products and practices, with a direct link to customer employers Developer (Small and Medium) Financial Institution Employer Developer (Small and Medium) Financial Institution Employer Formal Sector Customers Opportunity to Set Standards: Architectural Design, Maintenance, Consumer Education Opportunity to Set Standards: Architectural Design, Maintenance, Consumer Education Construction Finance No construction finance (concern on buyers / delays) Formal Sector Customers Developer puts 500 sq.ft.+ apartments on market in phases (3–4 years) and gets individual, walk in customers Serve 1 customer at a time, wont finance below Rs. 12,000/month Affordable sq ft units, good quality, no delays Upfront, financed, aggregated customers Loans at affordable rates Aggregated low risk, low cost to serve customers Current Bottom of the Market (12k–20k) Alternative Model Serves 6k–12k Market Uncertainty of Sales Sales and Mktg. costs Funding constraint Risk of Delays Retention issues

32 Confidential Copyright © 2008 Monitor Company Group, L.P. Confidential MUM 32 Financial return with aligned incentives Aggregated customers Potentially low risk Low cost to serve Aggregated customers Use of tools such as rolling guarantee to reduce risk Credit check, collection, consumer education Uncertainty of Sales Sales and Mktg. costs Funding constraint Risk of Delays Developer (Small and Medium) New Housing Business Model: Informal Sector The new product for those employed in informal sector settings may require the introduction of MFIs as an aggregator and potentially a credit guarantor to incentivize financing Financial Institution Current Bottom of the Market (12k–20k) Alternative Model Serves 6k–12k Market Developer (Small and Medium) Customers MFI Financial Institution Loan at affordable rates Credit Guarantee Construction Finance Affordable sq ft units, good quality, no delays Upfront, financed, aggregated customers Often will not finance Informal Sector Customers Repossession of bad debt No construction finance (concern on buyers / delays) Developer puts 500 sq.ft.+ apartments on market in phases (3–4 years) and gets individual, walk in customers

33 Confidential Copyright © 2008 Monitor Company Group, L.P. Confidential MUM 33 Summary of Various Affordability Levers Various quantifiable affordability levers significantly differ from each other in terms of impact on affordability and feasibility Note: 1 Sales Tax and Excise Duty Exemption ; The numbers in the graph represent the percent reduction of gap in affordability due to the lever Source: Discussions with Industry Participants, Monitor Analysis Land Subsidy Subsidized Construction material Bulk Material Purchase Longer Tenure Loan Stamp Duty and Registration waiver on Land FSI Increase Tax Concessions 1 Interest Subsidy Semi Finished Construction Low Cost Construction Small Sized Houses MediumHighLow Feasibility Stamp Duty Exemption to Customer Income tax Exemption to Developer Registration Fee s Waiver to Customer

34 Sales and Marketing Project implementation Support provided across the affordable housing value chain Development of business plan including strategy Organization design and structure Roles and responsibilities Identification of functions that can be outsourced/inhouse Project/Business Economics Sensitivities of plan to approval process, construction costs and time, sales efficiencies, etc Business Blueprint Business Planning and Organization Design Land selection and validation Design and Developmen t Product mix and pricing Sales process design Training of client team Databank of unit layouts (Lower cost and increase value to customer) Improve mix of commercial and residential to improve returns Databank of site layouts to incorporate open, green spaces, max FSI, etc.) Strategy to reach out to different sets of customers Building the sales process from the time a customer walks in to the project until the time possession is handed over to the customer. Templatize processes Access to Monitor Networks Financing End-to-end handholding : Base IP and customized application; Decision support and overall knowledge Access to housing financing companies Access to targeted financing for specific projects Access to double- bottomline funds for investment at a business level Access to PE funds interested in investing in affordable housing Developing list of attractiveness criteria as well as inhibiting features to evaluate areas for determining buy decision Validation of selected land parcels Facilitating site visits by potential customers to determine attractiveness and demand. Project phasing Developing optimal product mix given FSI norms and desired returns Differential product pricing Work with banks, MFIs and specialized institutions to enable access to financing options for customers at booking stage Tie-ups with financial institutions for both formal and informal sector customers Structure team in order to achieve long term competencies in selling Train team to be able to do this at scale across projects Monitors Value Proposition to Developers


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