NaNo housINg - IBEF · PDF fileThe Tata Group is increasingly target- ... While its ‘Nano’, the most inexpensive car in the world, ... to launch similar ‘Nano’ housing...

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IT is a US$ 250 billion opportunity and many of India’s leading business groups, along with top developers, are unveiling plans to make the most of

it. Affordable housing is the new buzzword in the infrastructure and housing industry and many leading groups and companies have started taking up ambitious projects to cash in on the opportunity.

The International Finance Corpora-tion (IFC), a member of the World Bank Group, has estimated that affordable housing potentially is a US$ 250 billion market in India. It works on the assump-tion of an average cost of US$ 10,000 for an affordable housing unit, and takes

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NaNo housINgTop business groups and realty developers are investing huge sums in low-cost housing projects that are coming up across India, especially on the outskirts of the major metros. A report by R. Nagesh.

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into account the estimates of the National Housing Bank (which is wholly-owned by the Reserve Bank of India, the country’s central bank) of a housing shortage of 25 million units.

The corporation, which has contributed significantly to the housing finance industry in India, was one of the three co-founders and promoters of Housing Development Finance Corporation Ltd (HDFC), India’s leading mortgage firm. IFC, together with the erstwhile Industrial Credit and Invest-ment Corporation (ICICI – now known as ICICI Bank) and the Aga Khan Foundation, pitched in with a five per cent equity stake each to launch HDFC.

Says Paolo Martelli, director, South Asia, IFC: “Access to housing and afford-able home financing plays a critical role in creating jobs, enhancing incomes for the less privileged that are part of the base of the pyramid, strengthening financial markets, and triggering sustainable and inclusive growth.”

The government has also been offering incentives to the real estate sector, encouraging the construction of affordable (or low-cost) housing units. In his budget presented to the Lower House of the Indian Parliament on February 26, 2010, Mr Pranab Mukherjee, the Union Finance Minister, unveiled measures to boost

affordable housing.The interest subsidy of one per cent

on housing loans – of up to US$ 22,000 – for purchase of units costing less than US$ 45,000 – which was introduced last year – has been extended till 2011. The government expects to disburse between US$ 65 million and US$ 85 million in fiscal 2009-10 and more than US$ 150 million in fiscal 2010-11.

“This is a welcome move and will help in maintaining the ongoing momentum of demand for affordable houses,” says Sanjay Chandra, managing director, Unitech Ltd, a leading real estate developer.

Adds Pradeep Jain, chairman, Parsvnath

Watch the affordable housINg fINaNce spaceTHE affordable housing finance space is one area that will see a lot of action over the coming years, according to analysts tracking the industry.

One of the first to set up a presence in this segment is Micro Housing Finance Corporation (MHFC), a start-up venture that aims to provide housing finance to lower-income households in the informal sector in urban India.

It recently raised US$ 5.5 million as an equity commitment in its first round of

external funding from the Indian Financial Inclusion Fund (IFIF) and the Michael & Susan Dell Foundation.

“This under-served segment is estimated to represent more than 90 per cent of the workforce, but has almost no financial institution catering to its housing finance needs,” explains Madhusudan Menon, chairman, MHFC.

MHFC, which has a license from the

National Housing Bank, aims to provide long-term housing finance to urban lower income families, particularly informal sector clients who cannot provide documentary evidence of their income and thus cannot access mainstream banks and other housing finance companies.

Loan amounts are usually around US$ 10,000, not exceeding 80 per cent of the cost of the house, and for a period not exceeding 15 years; the house serves as security for the loan and the rate of

interest is between 12 and 14 per cent per annum.

“Despite the presence of many strong mortgage lenders in India, home loans have not been easily available to lower-income segments,” says Mona Kachhwaha, director, investments, Caspian Advisors Pvt Ltd, a microfinance-focussed investment firm that provides advisory services to IFIF. “The primary

reason for this is the informal nature of borrowers’ occupations.”

MHFC plans to tie-up with developers who have a similar focus on urban affordable housing, defined by it as flats with a final price of about US$ 10,000 to US$ 13,000. The company has partnered with several leading developers including Tata Housing, which launched its ‘Shubh Griha’ project located at Boisar on the outskirts of Mumbai.

“We believe we share common values with Tata Housing in creating a long-term solution for quality, affordable housing in urban India, particularly to lower-income groups,” adds Menon. “We believe that the Tata housing project at Boisar will be very attractive to this target audience and hence, we look forward to providing assistance to its potential buyers.”

Geeta Goel, portfolio director, microfinance, Michael & Susan Dell Foundation, notes that MHFC is poised to be an effective catalyst for the development of a housing finance industry focused on the low-income and informal sector clients. “This will bridge the glaring gap present in the housing stock for this segment of society,” she points out, ading, “Innovative credit assessment techniques supported by income level benchmarks coupled with strong internal controls will be critical to the success of this initiative.”

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Developers Ltd: “The scheme recognises that cut in interest rates has an important role to play in reducing the monthly install-ments of borrowers, creating additional demand for low-cost housing. This move will encourage and prompt developers to give more importance to projects that will cost up to US$ 45,000.”

Indeed, the incentives extended by the government to buyers of affordable homes have given a boost to the housing finance industry, as the off-take of mortgages has gone up significantly. HDFC Ltd, a leading housing finance company, sees the robust activities in the low-cost housing segment as an important growth opportunity for the real estate market.

“HDFC has always believed in promoting home ownership and has

strongly supported the fact that availability of ‘affordable houses’ is very important, not only for the home buyers, but also for the real estate market to grow,” explains Renu Sud Karnad, managing director, HDFC Ltd.

Dewan Housing, another company that has received funding from the IFC, is now planning to set up a separate unit targetting the low-cost home segment. The IFC plans to take a 20 per cent stake in the new company, expected to be estab-lished at a cost of US$ 20 million. The new venture will target low- and middle-income households in states such as Bihar, Uttar Pradesh, Madhya Pradesh and Orissa.

Many of India’s leading industrial groups, which have diversified into the real estate sector, are now taking up

Access to housing and affordable home financing

plays a critical role in creating jobs and enhancing incomes for the less privileged.

paolo Martelli,director, South Asia, IFC

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affordable housing projects. Tata Housing Development Company (THDC), the real estate development arm of the Tata Group (2008-09 revenues: US$ 70.8 billion), has launched an ambitious low-cost housing project at Boisar, about 80 km north of Mumbai, India’s financial capital.

The Tata Group is increasingly target-ting the ‘Bottom of the Pyramid’ in the consumer market. While its ‘Nano’, the most inexpensive car in the world, aims to make a four-wheeler affordable to millions of Indians, the group recently launched its ‘Nano’ housing scheme at Boisar.

Shubh Griha, the project, will include 1,200 apartments ranging in size from 283 sq ft to 465 sq ft and priced at between US$ 8,500 and US$ 15,000. THDC plans to launch similar ‘Nano’ housing projects

elsewhere in India to meet the growing demand for affordable housing.

Says Brotin Banerjee, ceo and managing director, THDC: “We observed that since most of the people in the low-in-come bracket live away from their families to earn a livelihood in the big cities, there is a large percentage of migrant population living in either rented or company provided accommodation. Our study shows that around 48 per cent in the lower segment are currently staying in rented accommo-dation.”

Banerjee points out that as a real estate company, THDC is sensitive to the need of providing this segment with its own home along with a community life. The company, which will be investing about US$ 22 million in the project, aims

gaugINg the Market sIzeTHE Monitor Group, an international consulting firm that was established by Prof Michael Porter and his colleagues at the Harvard Business School, undertook a project last year on behalf of the National Housing Bank, with active support of the World Bank, exploring the commercial opportunities to serve the low-income housing market.

“Research shows that market-based solutions to address housing shortage for this segment can be found, which are profitable too,” says Ashish Karamchandani, ceo, Monitor Inclusive Markets, which includes the ‘affordable housing’ unit of the group.

According to him, market-based solutions may offer a way to empower and enable low-income households to realise their dreams of owning a home. The ‘affordable housing’ unit conducted extensive field research across urban India, involving international and local experts to develop innovative solutions.

The team also interviewed more than 1,000 potential customers, 50 developers, 20 financial institutions and 10 microfinance and specialised lending organisations. The Monitor team discovered that housing finance for the low-income segment – households with a monthly income between US$

150 and US$ 530 – is untested so far, but a relatively low-risk segment with significant business potential.

At the bottom of the pyramid – monthly household income levels between US$ 110 and US$ 440 – it saw a potential of 21 million house buyers.

One of the key learnings from the Monitor project was that at current land prices and construction rates,

it is possible to build housing that even the lower middle income urban customers

can afford. Several developers in cities such as Ahmedabad, Jaipur,

Mumbai, Hyderabad, Kolkata, Kolhapur and Vishakapatnam confirmed that they could build flats in smaller formats, if financing was available.

Monitor has now developed a set of new and

innovative business models that address the concerns of

different stakeholders and enable easy access to credit for low-income

households. The group, to test the feasibility of its business models, facilitated

a series of pilots having 300 to 800 flats each in Ahmedabad and Mumbai.

The firm is confident that these innovative business models are replicable in other geographies as well. The World Bank, a partner to the study, has also expressed confidence in the potential of the models and is keen for Monitor to share information on them in other parts of the world.

The cut in interest rates

will encourage developers to give more importance to projects that

will cost up to US$ 45,000.

pradeep Jain,chairman, Parsvnath Developers Ltd

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to build up to 15,000 low-cost homes over the next three years in the major metros of Mumbai, Delhi and Bengaluru.

Reliance Industries Ltd (RIL), India’s largest private sector company, is also entering the affordable housing space, especially since it has a vast land bank adding up to thousands of hectares of land. The company is expected to enter the segment sometime this year.

Godrej Properties, the real estate unit of Godrej Industries, is investing large sums in promoting low-cost housing. In Bengaluru, for instance, it plans to invest nearly US$ 450 million over the next five years, targetting the low- to mid-level housing segments. It has also tied up with a developer in Ahmedabad to promote a sprawling, 40 million sq ft township,

which would focus on low- and mid-level housing.

“Property development is a major focus area for us,” remarks Adi Godrej, chairman of the Godrej Group. “We are also betting big on affordable housing costing less than US$ 45,000.”

The group also plans to tie up with microfinance institutions to ensure funding for those seeking affordable homes.

Leading Delhi-based developer, Ansal API, is promoting similar projects across north India, especially in Uttar Pradesh and Rajasthan, besides the National Capital Region (NCR). It recently took up a major low-cost housing project covering 500 acres of land in Agra; the project will cost about US$ 220 million.

Jerry Rao, a former banker and a

Property development is a major focus area

for us. We are also betting big on

affordable housing costing less than

US$ 45,000.

adi godrej,chairman, Godrej Group

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founder and former ceo of information technology major Mphasis, is among those who believes there is tremendous potential in the affordable housing sector. Rao has set up Value and Budget Housing Development Corporation, which aims to develop affordable housing units – in the range of 300 sq ft to 450 sq ft – across India.

Rao wants to sell his ‘Nano’ housing units at a price of around US$ 15,000. He plans to build a million homes over the next 10 years to meet the growing demand for affordable housing units. The company plans to tie-up with housing

finance majors and is looking at raising equity of about US$ 10 million.

Eredene Capital PLC, a UK-based company that invests in infrastructure projects in India, acquired a 63 per cent stake in Matheran Realty Pvt Ltd (MRPL) by investing US$ 22 million; MRPL is developing a sprawling complex at Karjat, about 100 km from Mumbai, comprising 15,000 low-cost housing units.

The Maharashtra Housing and Area Development Authority (MHADA), a state government agency, has also earmarked about US$ 25 million to develop low-cost housing across Mumbai. According

to Amarjeet Singh Manhas, chairman, MHADA, it would construct more than 15,000 affordable flats in Mumbai over the next two years.

India is undergoing urbanisation at a rapid pace, as millions of residents from rural areas migrate to the cities in search of a livelihood.

According to government estimates, India’s urban population will reach 320 million by 2011 and touch 530 million by 2021. Demand for low-cost housing will continue to keep pace, especially with the massive urbanisation that will continue to occur over the coming years.

the abg of affordable housINgATTIBELE, Boisar, Ghaziabad. These are not names that are familiar to most people as yet, but those in the affordable housing business have identified them as future hubs for low-cost housing.

In fact, top developers have rushed to acquire land in these three hubs – located in proximity of the three major metros of Bengaluru, Mumbai and Delhi, respectively – and many have started developing sprawling townships.

“Ghaziabad, which is historically as old as Delhi, is undergoing a major transformation,” remarks Sunil Jindal, ceo, SVP Group, a leading developer in the National Capital Region (NCR). The city is rapidly emerging as a low-cost hub within the NCR.

Several major infrastructure development works are also occurring in and around Ghaziabad. These include: the widening of national highways, building of expressways, the setting up of a cargo airport at near-by Dadri, the extension of Delhi Metro to Ghaziabad and the development of the sprawling, Anand Vihar railway terminal – one of the largest railway station complexes in India, spread over 42 hectares.

In the suburbs of Ghaziabad, such as Vaishali, Vasundhara, Kaushambi and Inrapuram, prices are among the most affordable within the NCR.

Boisar, which is about 80 km north of Mumbai, is also seeing a lot of development activity, especially after Tata Housing announced a major Nano housing project in the town. Western Railway, which operates one of India’s busiest suburban sectors, plans to extend its suburban services to Boisar and beyond in 2010, boosting commuting facilities.

Attibele, which is about 35 km from Bengaluru, has also seen

several top developers acquire land and promote low-cost housing units. The suburb, on the Karnataka-Tamil Nadu border, has been dubbed India’s ‘low-cost housing capital.’

Ramesh Ramanathan, a former top executive of Citibank, who co-founded a not-for-profit urban governance organisation called Janaagraha, is developing a low-cost housing complex on a 12-acre plot in Attibele, which is also located close to the Electronic City. Ramanathan says each of the 1,500 units would be sold for less than US$ 11,000.

Janalakshmi Financial Services (JFS), a microfinance institution founded by Ramanathan, will undertake development of the Attibele low-cost project. JFS recently raised US$ 10 million in its second round of funding; the exercise was led by Treeline Asia Master Fund, a Hong Kong and Singapore-based hedge fund.

Narayan Ramachandran, the former country head of Morgan Stanley India, also invested in JFS in his personal capacity and joined the board. The Michael and Susan Dell Foundation has also invested in JFS.

“We are very happy to have closed our second round of funding in a very quick time,” says Ramanathan. “It’s a validation of our approach to addressing issues of financial inclusion in a unique social business model.”

Another former Citibank executive, Jerry Rao, is investing US$ 22 million in developing a low-cost housing township in

Attibele. Developers such as Tata

Housing and Godrej Properties are also looking at investing in low-cost housing projects on the outskirts of the major metros and even in smaller cities across India over the coming years, boosting availability of affordable apartments in the country.