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State of the Affordable Housing Sector in India Prepared for: Department For International Development Prepared by: Knight Frank India Pvt. Ltd.
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State of the Affordable Housing Sector in India€¦ · State of the Affordable Housing Sector in India Reasons for Shortage of Affordable Housing • No Affordable Housing policy

Aug 07, 2020

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Page 1: State of the Affordable Housing Sector in India€¦ · State of the Affordable Housing Sector in India Reasons for Shortage of Affordable Housing • No Affordable Housing policy

State of the Affordable Housing Sector in India

Prepared for: Department For International

Development

Prepared by: Knight Frank India Pvt. Ltd.

Page 2: State of the Affordable Housing Sector in India€¦ · State of the Affordable Housing Sector in India Reasons for Shortage of Affordable Housing • No Affordable Housing policy

2State of the Affordable Housing Sector in India

Growth of Population and Urbanisation in India

439

683

10281210

360524

740833

79 159288

377

1961 1981 2001 2011

Total Population (million) Rural Population (million) Urban Population (million)

Growth of Population in India

Growing Urbanization in India

18.0% 18.2%23.3% 25.7% 27.8% 31.2% 32.4% 33.2% 34.0% 35.9%

40.1%46.4%

52.8%

1961 1971 1981 1991 2001 2011 2014 2016 2018 2022 2030 2040 2050

Estimate of Urbanisation

Factors driving growth of Urbanization in India

52 63 5944

12 2 10

4

17 13 1030

20 23 21 22

1971-1981 1981-1991 1991-2001 2001-2011

Natural growth (new births) Expansion of existing urban boundary

Reclassification of towns Rural to urban migration

% Share of growth contributed by factors

• In the period 2001 – 2011, the growth rate of population inrural and urban areas was 12.18 percent and 31.80 percentrespectively.

• Estimates suggest rapid urbanization in India, thus increasingthe demand for housing and infrastructure in Urban areas.

• Contrary to widespread perception, rural-urban migration is notthe primary driver for growth of Urbanisation in India.

Source: Census of India + KF Analysis

Source: Centre for Policy ResearchSource: Census of India + KF Analysis, Estimate of urbanization by United Nations

Page 3: State of the Affordable Housing Sector in India€¦ · State of the Affordable Housing Sector in India Reasons for Shortage of Affordable Housing • No Affordable Housing policy

3State of the Affordable Housing Sector in India

64

60

57

51

69

67

57

53

33

36

36

43

29

30

39

42

3

4

7

6

2

3

4

5

Chattisgardh

Jharkhand

West Bengal

Odisha

Rajasthan

Madhya Pradesh

Uttar Pradesh

India

Good Livable Dilapidated

Condition of Housing Stock

Condition of Housing Stock in Urban Areas

Size of the Housing Stock

1

20

3

2

38

51

51

3

27

13

42

28

8

1

1

32

33

31

32

34

18

13

16

31

20

19

14

19

15

17

16

18

19

17

9

17

21

18

16

16

Chattisgardh

Jharkhand

West Bengal

Odisha

Rajasthan

Madhya Pradesh

Uttar Pradesh

India

No exclusive room 1 room 2 rooms 3 rooms 4+ rooms

7.4

1.1

7.0

3.7

3.0

7.8

3.1

5.4

92.6

98.9

93.0

96.3

97.0

92.2

96.9

94.6

Chattisgardh

Jharkhand

West Bengal

Odisha

Rajasthan

Madhya Pradesh

Uttar Pradesh

India

Slum Population Non Slum Population

Slums as percentage of Total PopulationFigures in percentage Figures in percentage

Figures in percentage

Source: Census of India 2011 + KF Analysis

Page 4: State of the Affordable Housing Sector in India€¦ · State of the Affordable Housing Sector in India Reasons for Shortage of Affordable Housing • No Affordable Housing policy

4State of the Affordable Housing Sector in India

Shortage of Urban Housing in IndiaStatewise Shortage of urban Housing in India

56% 40% 4%

EWS LIG MIG and above

Distribution of Housing Shortage by Segment Factors driving Housing Shortage

80% 12% 5% 3%

HH living in congested houses HH living in obsolescent houses

HH living in non servicable katcha houses HH living in homeless conditions

Source: Report of the Technical Urban Group (TG-12) on Urban Housing Shortage 2012-17, Ministry of Housing and Urban Poverty Alleviation, September 2012

96 percent of the housing shortage is driven due to congestion within the housing unit and lies in the Affordable Housing (EWS+LIG) Segment

16%

10%

7% 7% 7% 6%6% 6% 5% 5%

3% 3% 3%2% 2% 2% 2%

1% 1% 1%

0%2%4%6%8%10%12%14%16%18%

0

0.5

1

1.5

2

2.5

3

3.5

Shorage of Urban Houses (Mn.) % of Total National Shortage

Page 5: State of the Affordable Housing Sector in India€¦ · State of the Affordable Housing Sector in India Reasons for Shortage of Affordable Housing • No Affordable Housing policy

5State of the Affordable Housing Sector in India

Reasons for Shortage of Affordable Housing

• In certain states such as M.P, the stategovernment nodal agency for PMAY stay asguarantors to Affordable housing financecompanies, thus facilitating loan disbursement toEWS households.

• No defined Central or State policy to promoteRental housing, which is also outside the purviewof PMAY Scheme.

Reasons

Scarcity of land for affordable housing within

cities

Lack of Rental housing stock for

EWS/LIG Households

Limited participation by developers for slum

redevelopment/ affordable housing

projects.

Lack of incentivisation of

new low cost construction

technology or material

Limited access of EWS & LIG

households to Housing Finance

Shortage of Affordable Housing due to Market Conditions

Source: Primary Research + KF Analysis

Page 6: State of the Affordable Housing Sector in India€¦ · State of the Affordable Housing Sector in India Reasons for Shortage of Affordable Housing • No Affordable Housing policy

6State of the Affordable Housing Sector in India

Reasons for Shortage of Affordable Housing

• No Affordable Housing policy is structured tofactor in the size and specific housing needsof the households.

• The Household is less inclined to undertakeconstruction, repairs of their house incasethey do not have titles to the property.

• Through a policy measure in 2018, theGovernment of Odisha has provided landrights to slums dwellers.

Reasons

Land Use Regulations

Height Restrictions of Buildings

Usage of FAR as a revenue tool

Restrictions on Lending to Slum

Dwellers

Lack of Property Titles/

Documentation

Shortage of Affordable Housing due to Policy related Issues Failures

Source: Primary Research + KF Analysis

Page 7: State of the Affordable Housing Sector in India€¦ · State of the Affordable Housing Sector in India Reasons for Shortage of Affordable Housing • No Affordable Housing policy

7State of the Affordable Housing Sector in India

Shortage of Affordable Housing in India

Current Housing Gap in India in EWS & LIG Segment (2019)

Total Housing gap prevalent amongst LIG and EWS households in 2019

EWS Households LIG Households Total

Rural India 4,51,26,205 1,43,84,543 5,95,10,748

Urban India 81,90,700 23,83,462 1,05,74,162

Additional Housing Need in EWS & LIG segment in India (2019-2030)

New Households to be added in the year 2019 -2030

EWS Households LIG Households Total

Rural 12,70,193 1,41,133 14,11,326

Urban 2,19,72,025 38,77,416 2,58,49,441

Total Housing Need in EWS & LIG segment over next 11 years (2019-2030)

Total Housing Gap in India (2019 to 2030)

EWS LIG Total

Urban 3,01,62,725 62,60,878 3,64,23,603

Rural 4,63,96,398 1,45,25,676 6,09,22,074

Page 8: State of the Affordable Housing Sector in India€¦ · State of the Affordable Housing Sector in India Reasons for Shortage of Affordable Housing • No Affordable Housing policy

8State of the Affordable Housing Sector in India

Size of Affordable Housing Finance Market in India

The maximum addressable opportunity for Housing Finance companies to service the EWS and LIG Segment over the next 11 years (2019 -2030)

Average Size of the home loan availed by EWS and LIG

households while purchasing/ repairing an affordable

housing unit.

Average Size of the home loan in INR

EWS LIG

Rural India 80,000 1,50,000

Urban India 1,20,000 2,50,000

Total Housing Gap in India (2019 to 2030)

EWS LIG Total

Rural India 4,63,96,398 1,45,25,676 6,09,22,074

Urban India 3,01,62,725 62,60,878 3,64,23,603

Total Housing Gap over the next 11 years (2019 to 2030)

Total Housing Finance Market in India (INR Lakhs)

Size of the Housing Finance Market (INR Lakhs)

EWS LIG Total

Rural India 3,71,17,119 2,17,88,513 5,89,05,632

Urban India 3,61,95,270 1,56,52,195 5,18,47,465

Total Market Size (INR Lakhs) 11,07,53,097

Page 9: State of the Affordable Housing Sector in India€¦ · State of the Affordable Housing Sector in India Reasons for Shortage of Affordable Housing • No Affordable Housing policy

9State of the Affordable Housing Sector in India

Central Government Policy for Affordable Housing

56% 33% 7% 4%

Beneficiary led construction Affordable housing in partnership

Credit linked subsidy scheme In-situ slum rehabilitation

Pradhan Mantri Awas Yojana

• The major policy gaps and other operational issues faced by beneficiaries are as follows

• The scheme does not look at the size or diversity of requirements of requirements of thebeneficiary households. The subsidies should be linked to size of the family.

• Provision of rental housing for EWS and LIG is not covered under the purview of the scheme.

• Apart from land within the city, there is no other incentive for developers to participate in slumredevelopment or affordable housing (PPP) projects. In the absence of participation bydevelopers, states such as Odisha, West Bengal, Chhattisgarh are mainly focused on BeneficiaryLed construction sub-scheme.

• Most implementing agencies in states have opined that they face Infrastructural and manpowerrelate challenges.

Percentage of total beneficiaries who have opted for each sub-scheme (Since Inception of the Scheme in 2015 upto November 2018)

▪ Started in 2015, the Pradhan Mantri Away Yojana (PMAY) is an initiative of the Indian Government to provide assistance and facilitate the creation of 1 crore urban and 3 crore rural affordable housing units, especially for EWS and LIG Households.

▪ All earlier affordable housing schemes have been subsumed under PMAY.

60,418

78,588

1,50,573

56,101

63,871

2,97,620

3,06,888

2,22,514

1,68,042

3,50,391

1,41,887

1,81,308

6,88,406

11,58,152

Chattisgardh

Jharkhand

West Bengal

Odisha

Rajasthan

Madhya Pradesh

Uttar Pradesh

Houses Sanctioned

Houses Completed

25,69,507

80,96,758 India

Sanctioned vs. Completed Houses under PMAY (As on 27th May 2019)

Offtake of PMAY Scheme

Source: Primary Research + KF Analysis

Source: Ministry of Housing & Urban Affairs - GoI

Source: Ministry of Housing & Urban Affairs - GoI

Page 10: State of the Affordable Housing Sector in India€¦ · State of the Affordable Housing Sector in India Reasons for Shortage of Affordable Housing • No Affordable Housing policy

10State of the Affordable Housing Sector in India

State Government Policies for Affordable Housing

Source: Primary Research + KF Analysis

Policy Gaps & Shortcomings – Key Takeaways

Most state level affordable housing policies do not have a robust framework in place to support monitoring and implementation.

State government schemes lack scale in terms of funds and hence have not been able to create a sustainable impact.

State level schemes do not have a holistic approach and are generally focused on a certain beneficiary category.

Most state level schemes are focused on a certain region or location within the state.

Due to the introduction of PMAY scheme, the focus of states which have introduced state specific schemes have shifted towardsimplementation of PMAY Schemes

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11State of the Affordable Housing Sector in India

Share of loans to EWS & LIG Household are decreasing

• Although the overall disbursements of Housing loans have increased, the share of small ticket size loans is decreasing in the totaldisbursement.

1,9

96

2,4

59

2,8

18

3,1

59

3,8

00

4,8

24

21%

16%14% 12%

14%10%

39%

38%37% 37% 35%

33%

0%

10%

20%

30%

40%

50%

60%

70%

-

1,000

2,000

3,000

4,000

5,000

6,000

FY 2013 FY 2014 FY 2015 FY 2016 FY 2017 FY 2018

INR

Bn

Total Disbursements (HFC+SCB) Share of EWS sector Share of LIG sector

Size of the Affordable Housing Finance Market in India

Source: National Housing Bank

Page 12: State of the Affordable Housing Sector in India€¦ · State of the Affordable Housing Sector in India Reasons for Shortage of Affordable Housing • No Affordable Housing policy

12State of the Affordable Housing Sector in India

Ecosystem of Housing Finance Companies in India

Amongst total Housing loans to EWS and LIG segment, majority is contributed by Affordable Housing Finance Companies

68% 32%

Affordable Housing Finance Companies Conventional Housing Finance Companies & Banks

Source: Primary Research + KF Analysis

~55 percent of total Housing Loans provided by Affordable Housing Finance companies are provided to EWS & LIG

10% 45% 45%

EWS LIG Others

Source: Primary Research + KF Analysis

Page 13: State of the Affordable Housing Sector in India€¦ · State of the Affordable Housing Sector in India Reasons for Shortage of Affordable Housing • No Affordable Housing policy

13State of the Affordable Housing Sector in India

Challenges faced by Affordable Housing Finance Companies

Challenges

High Cost of Customer

Acquisition

High Cost of Collection &

Debt Servicing

Higher Risk of Default

Low technology adoption by

customer

Access to long term funds at

lower interest rates

Source: Primary Research + KF Analysis

Page 14: State of the Affordable Housing Sector in India€¦ · State of the Affordable Housing Sector in India Reasons for Shortage of Affordable Housing • No Affordable Housing policy

14State of the Affordable Housing Sector in India

Challenges faced by Developers

• RBI guidelines do notallow banks to provideloans to Developers forland purchases.

• They are forced to seekfunds from NBFCs athigher interest rates,thus increasing theinput costs.

• As most newconstruction materialand technologies arenot yet popular,developers useconventional materialsand constructionmethods, thusincreasing time andcost of construction.

• The cost of land is so highthat it is impossible tobuild low cost affordablehousing close to centralbusiness districts in anycity.

• The government shouldallocate unutilized landfor affordable housingwithin the city.

Adoption of New

Technology/ Alternate

construction materials

Lack of Financing of

Land Acquisition

Availability of Supporting

Infrastructure

Financial Viability of

construction

Availability of Land for

Affordable Housing in

cities.

• Affordable housingprojects are feasible onthe city periphery due tolow land costs.

• However, projects willonly be successful if thereis good public transportconnectivity and othersupporting infrastructuresuch as roads, watersupply etc.

• Affordable housingprojects or Slum-Redevelopment is notalways a profitableventure

1. Cost of the housingunit is not marketdriven.

2. Construction Delaysdue to proceduresand other issues ofPPP construction

Source: Primary Research + KF Analysis

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15State of the Affordable Housing Sector in India

Challenges faced by Consumers

Underdeveloped Mortgage

Finance Market catering to EWS/LIG segment.

Low Awareness of modalities of

Government Housing Schemes

High Cost of Finance

Difficulty to Establish

Creditworthiness to Access Finance

• EWS & LIG household are notthe preferred consumersegments.

• Evidently, India has one of thelowest mortgage to GDP ratio asbelow

6%

9%

20%

41%

81%

88%

Sri Lanka

India

China

Hong Kong

USA

UK

• Although Beneficiaries areaware of PMAY and other stateschemes, they have limitedunderstanding of

• Eligibility criteria andwhether they qualify.

• Channels to access theschemes.

• Housing Finance Companiesget input funds from PE athigh interest rates.

• Consequently the interestrates levied on consumerloans are high to the tune of24 percent, deterringconsumers from availingloans.

• ~80 percent of the EWS &LIG customers are employedin the informal segment.

• In the absence of incomeproof or not meeting otherqualifying criteria toestablish creditworthiness,majority of EWS category isdenied a housing loan.

Source: Primary Research + KF Analysis

Source: National

Housing Bank

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16State of the Affordable Housing Sector in India

Challenges faced by NGOs to expand their operations

Challenges faced to expand

operations

Funding

Lack of Working

relationship with state

government

Unavailability of technical

staff

Lack of Understanding of operational

dynamics in new markets

Lack of community patriation

Absence of Big Corporates, hence lesser CSR funds 1

Nature of work undertaken by existing agencies (Govt/ Donor Agencies)2

Less Coverage due to scattered nature of work3

Reasons for Low Presence of NGOs in focus states

Source: Primary Research + KF Analysis

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17State of the Affordable Housing Sector in India

Recommendations

Long term capital to Affordable Housing Finance Companies at lower interest rates

▪ Due to limited availability of funding from other sources, Affordable HousingFinance companies (AHFC) seek funds from PE funds, who have a shorterinvestment horizon (4-5 years) and expect high returns on investment.

▪ Consequently, AHFCs lend at higher interest rate compared to ScheduledCommercial Banks, which makes it difficult for beneficiaries to seek finance.

▪ DFID should make a portfolio for long term lending with reduced interest rateto cater to Low Cost Affordable Housing Sector.

▪ Boundary conditions against such lending to housing finance companies maybe imposed and these conditions should focus on the followings.

1

Early stage capital to Affordable Housing projects

▪ Banks/ Financial Institutions fund a project only after all necessary approvalsfor commencing construction is obtained.

▪ However, real estate projects have significant initial funding requirementsduring the stages of land use conversion, zoning, construction approvals,design, shuttering etc., which is approximately 4-5 percent of total projectcost.

▪ DFID can play very important role by creating a fund for providing Early StageCapital to developers through affordable housing companies.

▪ Affordable Housing Companies can take over the loan once receive requisiteapprovals and construction activities start.

2

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18State of the Affordable Housing Sector in India

Recommendations

Formulation of Risk Cover Fund to increase reach of Affordable Housing Finance companies.

▪ Housing Finance companies refrain to engage and provide loans to informalincome segment due to higher risks associated with the beneficiaries. Theperceived risks include difficulty in collecting money and related higher costof operations.

▪ Apart from having a high risk profile, many beneficiaries cannot access loansdue to lack of proper documentation.

▪ DFID can initiate a risk cover fund and can receive risk premium from HousingFinance companies on individual housing loans sanctioned.

▪ A part of net credit loss suffered by HFCs in funding informal segmentbeneficiary or informal properties could be made good out of the fund.Boundary conditions of beneficiary property and credit underwriting rulescan be predefined to protect DFID interest.

3Technical Support to Affordable Housing Finance

companies

▪ Cost of operation for affordable housing finance companies are quite high,especially for smaller companies and estimated to be around 4%-5%.

▪ To optimize business operations, DFID can play a very important role byhelping Affordable Housing finance companies to develop a StandardOperating Procedure (SOP).

▪ The SOP development can be facilitated by DFID by studying best practiceswith efficiency/productivity benchmarks which will help affordable housingfinance companies in reducing their costs and run business efficiently.

4

Page 19: State of the Affordable Housing Sector in India€¦ · State of the Affordable Housing Sector in India Reasons for Shortage of Affordable Housing • No Affordable Housing policy

19State of the Affordable Housing Sector in India

Recommendations

Support to NGOs for Capacity Building

▪ NGOs working in the sector are not in a position to expand operationsin other states as they find it difficult in (a) in connecting with localGovernments (b) demonstrating Governments their work experiencein the region (c) don’t have familiarity to new market.

▪ DFID can help NGOs by providing technical support /training for their

capacity building efforts. The capacity building efforts should target

the following

▪ Develop a training module for staff of NGOs to enhance their

administrative & technical capabilities.

▪ Help NGOs in identifying new markets and engage to provide

knowledge of these markets.

1

Page 20: State of the Affordable Housing Sector in India€¦ · State of the Affordable Housing Sector in India Reasons for Shortage of Affordable Housing • No Affordable Housing policy

Key ContactSugata Sarkar

Senior Director – Consultancy & Market Research

Knight Frank India

+91 22 674501991/ +91 9999266076

[email protected]