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The Opportunity for Urban Low Income Housing Finance Microfinance India Summit 2009 Copyright © 2009 by Monitor Company Gr...
Monitor Group: An Introduction Michael Porter, Harvard Business School Director and Co-Founder of the Monitor Group Founde...
Monitor Inclusive Markets in India An autonomous unit that is actively facilitating scaling of  market based solutions Dev...
Current Urban Housing Market: Smallest house costs  ~ Rs. 5 Lakhs Source: NHB Trends in Housing; CRIS Infac Report; Monito...
The Opportunity: Smaller houses using current private  sector construction practices Source: NHB Trends in Housing; CRIS I...
Low income, not Low Cost or Low Quality: Mock Apartment, Mumbai
Customer Perspective:  Social Need and Willingness to Pay (16 Focus Groups and over 2,000 potential customers) Appalling c...
Increasing supply of housing but lack of access to finance Large real estate players like the Tatas and entrepreneurs like...
Barriers to entry for Banks and Housing Finance Companies The majority of Banks and Housing Finance Companies are reluctan...
A Low Income Housing Finance Business: Outline <ul><ul><li>Urban The need for low income housing and home loan financing i...
A Low Income Housing Finance Business  Projected Revenue Potential for a Housing Finance Business 10,336 Portfolio Growth ...
A Low Income Housing Finance Business  Customer Level Economics: Revenue and Costs at Branch Level Per Customer Cost Analy...
A Low Income Housing Finance Business  Profitability over a 10 year time frame Profitability over a 10 year time period Th...
Low Income Housing Finance A Fundamentally Different Business Model Income  documents /  tax papers generally inadequate  ...
Low Income Housing Finance: Potential Role of MFIs Profile and Interest Interests of select leading urban MFIs  <ul><ul><l...
Low Income Housing: The Economic Potential Note:  1  Monthly Household Income;  2  Affordability defined as households whi...
Low Income Housing as a Driver for Economic Growth:  Wide Range of Benefits Affordable Housing Affordable housing can prov...
Panel Discussion On: <ul><ul><li>Customer Demand and Need for Housing Finance </li></ul></ul><ul><ul><li>Traditional persp...
Appendix
Context Housing Finance Market: Map of Existing Players There are 45 registered HFCs in India, and these are split almost ...
Low Income Segments as Target Market: Largely-Untested Risk Profile, different from Sub-prime in the USA <ul><ul><li>75-80...
Establishing a Housing Finance Company: Monitor Inclusive Markets’ Role <ul><ul><li>Introduce the concept of housing finan...
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Ashish Karamchandani

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Transcript of "Ashish Karamchandani"

  1. 1. The Opportunity for Urban Low Income Housing Finance Microfinance India Summit 2009 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. 2 0 0 9 AMSTERDAM BEIJING CAMBRIDGE CHICAGO DELHI DUBAI FRANKFURT HONG KONG JOHANNESBURG LONDON LOS ANGELES MADRID MANILA MOSCOW MUMBAI MUNICH NEW YORK PALO ALTO PARIS SAN FRANCISCO SÃO PAULO SEOUL SHANGHAI SINGAPORE STOCKHOLM TOKYO TORONTO ZURICH October 27, 2009
  2. 2. 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 firm We believe that “Ideas can create impact” <ul><ul><li>Founded by Michael Porter and other HBS faculty in 1983 </li></ul></ul><ul><ul><li>Renowned for focus on strategy and cutting-edge ideas that help clients grow </li></ul></ul>With over 25 offices across the globe, we go the last mile… Corporates Governments Non Profits <ul><li>Growth Strategies </li></ul><ul><li>Leadership & Innovation </li></ul><ul><li>Private Equity Funds </li></ul><ul><li>City Strategies </li></ul><ul><li>Cluster Development </li></ul><ul><li>Country Competitiveness </li></ul><ul><li>Social Venture Funds </li></ul><ul><li>Impact Investing </li></ul><ul><li>Education Ecosystem </li></ul>
  3. 3. Monitor Inclusive Markets in India An autonomous unit that is actively facilitating scaling of market based solutions Developers Financial Institutions Construction Technology Identifying and refining business models at scale Making the market for low income housing in India since 2006 Customers
  4. 4. Current Urban Housing Market: Smallest house costs ~ Rs. 5 Lakhs 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 2,500 pm MHE: Rs 2,500– Rs 4,575 pm MHE: Rs 4,575– Rs 9,625 pm MHE: >Rs 9,625 pm Monthly Income Rs. 11,000 Rs. 2,500 Rs. 5,000 LESS THAN TOP 16% of Urban Indian Households can afford to own houses Current segment served Ahmedabad / Vadodara Mumbai Jaipur Hyderabad <ul><ul><li>Multiple builders: “Three room” flats @ Rs 950 / sq. ft. </li></ul></ul><ul><ul><ul><li>Vatwa, 12 km from city centre; 40 minutes travel, Naroda </li></ul></ul></ul><ul><ul><li>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 1 </li></ul></ul><ul><ul><li>1RK flat at Karjat, (Mumbai suburb) being sold at Rs 999 per sqft </li></ul></ul><ul><ul><li>Land rate of 0.6 -1.2 Cr per acre available in Titwala, FSI norm of 1 </li></ul></ul><ul><ul><li>Potential to provide housing at Rs 800–Rs 1000 per sq.ft. However, overriding concern is financing of these houses </li></ul></ul><ul><ul><li>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. </li></ul></ul>
  5. 5. 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 2,500 pm MHE: Rs 2,500– Rs 4,575 pm MHE: Rs 4,575– Rs 9,625 pm MHE: >Rs 9,625 pm Monthly Income Rs. 11,000 Rs. 2,500 Rs. 5,000 Target segment for this project 250-400 sqft. houses Potential to provide housing for over 20 Million urban households Cost Structure Rs 150-250 Land & Legal Rs 25 Design Rs 550-650 Construction Costs Rs 70-100 Rs 10-25 Infrastructure Costs Marketing Rs 15 Salaries 1 Rs 25-60 Interest 2 Rs 200-300 PBT 3 Rs. 1100-1400 Total Operating Profitability Project IRR 30-40%
  6. 6. Low income, not Low Cost or Low Quality: Mock Apartment, Mumbai
  7. 7. Customer Perspective: Social Need and Willingness to Pay (16 Focus Groups and over 2,000 potential customers) Appalling conditions of Slum-Dwellers Detailed customer research and our interaction with customers on the ground showed high need for a “house of their own” among people living in appalling living conditions <ul><ul><li>Steady job as a factory worker in a textile enterprise in Ahmedabad </li></ul></ul><ul><ul><li>Monthly HH income ~ Rs 8,000, savings up to Rs 900 – 1,000 p.m. </li></ul></ul>Profile - Nathubhai Source: Primary Research (n=2000), Monitor Analysis <ul><ul><li>Self-employed Mechanic in Mumbai </li></ul></ul><ul><ul><li>Monthly HH income ~ Rs 11,000, savings up to Rs 1000 p.m. </li></ul></ul><ul><ul><li>Lives in 150 sq. ft. room in slums, Rent Rs 2,400 </li></ul></ul><ul><ul><li>Married with 2 children </li></ul></ul><ul><ul><li>Assets – Bank Account, LIC (Rs 1.5L), Refrigerator and PC </li></ul></ul><ul><ul><li>Education: Both children attend English-medium school </li></ul></ul><ul><ul><li>Rent: Has seen significant & frequent increases in rent, has moved house 5 times in 12 years </li></ul></ul>Profile - Ganesh Both share a dream…“A house of their own” Can afford a 250-350 sq ft. house, willing to make 20% down payment & pay 35% of monthly income as EMIs to realize their dream <ul><ul><li>Lives in 1 RmK in low income neighborhood, Rent Rs 1800 </li></ul></ul><ul><ul><li>Family size: 5 (mother, wife, 2 children) </li></ul></ul><ul><ul><li>Assets – Bank Account, LIC (Rs 3L), TV </li></ul></ul><ul><ul><li>Education: Both children attend private Gujarati medium schools </li></ul></ul><ul><ul><li>Rent: Increased by 50% in past 3 years, has moved every 2 to 3 years </li></ul></ul><ul><ul><li>Live in poorly constructed small cramped houses </li></ul></ul><ul><ul><li>Poor sanitary conditions - shared toilets, bad drainage, water logging during monsoons </li></ul></ul><ul><ul><li>Lack of facilities - properly planned access points, walkways, gardens, dedicated schools etc. </li></ul></ul>
  8. 8. Increasing supply of housing but lack of access to finance Large real estate players like the Tatas and entrepreneurs like Jerry Rao are starting to recognize the business potential of low income housing and constructing large projects, thereby giving the field increased credibility There is increasing construction of low income projects across India but access to home financing for low income customers is the major choke point <ul><li>“ The biggest challenge for our customers is accessing loans - 1,700 out of 3,000 customers in Phase 1 wanted loans and out of these 1,300 have got sanctions after 6-8 months. There are still 400 customers who are trying to get loans”- Joe Silva, Chairman and CEO, Matheran Realty Pvt Ltd- Promoters of TMC. </li></ul><ul><li>“ We find many people willing to buy our flats in Ambivilli like drivers, shop keepers and even priests, however their biggest problem is accessing finance in buying our flats”- Nayan Shah, Director of Neptune </li></ul><ul><li>“ Ever since we launched, we have been getting enquiries almost every day on housing loans from informal sector customers. The challenge has been to service all such requests”- Rajnish Dhall, Promoter MHFC </li></ul>Source: Monitor Research Ahmedabad: Vatva Foliage Developers Phase 1: 400 units Price: Rs 2.81 lakh upwards Ahmedabad: Vatva Taral Bakeri Phase 1: 800 units 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 Maharashtra: Karjat TMC – Matheran Realty 15,000 units by June 2011; 3,000 units in Phase 1 – June ’09 6,000 flats @ Rs 3 Lakh Maharashtra: Boisar Tata Housing 67 acres: Phase 1: 1200 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 Development Corporation Rs 3-9 Lakh townships on minimum 10 acre plots; 1 Million intended flats
  9. 9. Barriers to entry for Banks and Housing Finance Companies The majority of Banks and Housing Finance Companies are reluctant to serve customers in the informal sector because of the uncertainty of their risk profiles Difficulty of Assessing Risk Ticket Size 10 Lakhs 5 Lakhs Formal ‘ Semi-formal’ Informal Paid / earns in cash No formal income documents No formal residence/identity documents Salaried with pay slip Income Tax documents Residence Documents Identity documents Bank account Salaried or Self Employed Significant proportion of undisclosed income Some residence/identity documents Source: Monitor Research Select HFCs (e.g., DEWAN HOUSING) Alternate means of income assessment for higher income customers such as supplier and customer checks, or MFI and chit fund savings history; guarantor typically required 2 Lakhs Largely Un-served Some PSU schemes, but difficult to access loans due to bureaucracy; staff incentives geared towards disbursement targets Low-end focused HFCs (e.g., MAS) Limited geographic coverage & capacity Trying to move to higher ticket sizes to increase profitability
  10. 10. A Low Income Housing Finance Business: Outline <ul><ul><li>Urban 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 </li></ul></ul><ul><ul><li>Reach: The HFC will have an urban focus and will establish presence in Metros and surrounding Tier I/II/III cities </li></ul></ul><ul><ul><li>Branch: Hub and Spoke model with 55 branches by Year 10 </li></ul></ul><ul><ul><li>Target Monthly Household Income range: Rs. 5,000 – 20,000 </li></ul></ul><ul><ul><li>Both salaried customers who are unable to access home loans and informal sector customers, i.e. self-employed and salaried unorganized individuals </li></ul></ul>Customer Profile and Focus Product Offerings and Pricing Structure <ul><ul><li>Primary Product: Loan for home purchase </li></ul></ul><ul><ul><ul><li>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 </li></ul></ul></ul><ul><ul><ul><li>Loan to Value: 50 – 80%: A minimum of 20% equity from the customer will help mitigate the financier’s risk, while ensuring that the loan is not sub-prime </li></ul></ul></ul><ul><ul><ul><li>Installment-Income Ratio (IIR): 30 - 40%: This income group typically pays between 20 - 25% of their monthly incomes as rent, so a 30 - 40% EMI is feasible </li></ul></ul></ul><ul><ul><ul><li>Loan Tenure: 6 – 15 years: Will vary based on the customer’s income </li></ul></ul></ul><ul><ul><li>Pricing Structure </li></ul></ul><ul><ul><li>Adjustable Rate Mortgages with typical interest rates between 11 - 15% based on down-payment amount, IIRs, loan Tenure, and perceived risk profile of customer; and allowing approximately a 3-4% spread </li></ul></ul><ul><ul><li>Processing fee of 1% of loan value to re-cover loan origination and credit check costs </li></ul></ul>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
  11. 11. A Low Income Housing Finance Business Projected Revenue Potential for a Housing Finance Business 10,336 Portfolio Growth Projections over 10 years A housing finance business can achieve significant growth over a 10 year period, disbursing close to 260,000 loans worth ~ Rs. 10,000 Crores and turning profitable in year 3 Y2 Y1 Y10 258,398 Y9 172,266 Y8 114,844 Y7 65,625 Y6 Y5 Y4 Y3 Cumulative Growth in Loans Cumulative Value of Loans Disbursed (Rs. Cores) Assumptions 1 <ul><ul><li>Since the HFC market is extremely underpenetrated – it is feasible to assume Year on Year growth rates between 50 – 200% for a start-up, decreasing yearly </li></ul></ul><ul><ul><li>Average Ticket Size is Rs. 4 Lakhs </li></ul></ul><ul><ul><li>Interest Rate: 14%; Gross Spread of 4% </li></ul></ul><ul><ul><li>Loan To Value: No more than 80% </li></ul></ul><ul><ul><li>Sanction and Disbursal: 12 month time lag between disbursement and commencement of principal repayment </li></ul></ul><ul><ul><li>Scheduled loan Tenure is 15 years </li></ul></ul><ul><ul><li>The average loan gets repaid in 8 years and there is no prepayment penalty </li></ul></ul>Observations <ul><ul><li>It is possible to model more aggressive or conservative growth scenarios based on the capital available, high level strategic objectives (desired share of the market) of the promoters, supply of low income housing stock etc. </li></ul></ul><ul><ul><li>Cumulative Portfolio Size is dependent on Average Ticket Size of loan, with bigger loans resulting in a larger book size </li></ul></ul>Cumulative Number of Loans Disbursed Note: 1 Assumptions are based on interviews with Dewan Housing Finance Company, MAS Rural Housing and Finance, MHFC, and Fullerton Capital 4,594 2,625 Y10 6,891 Y9 Y8 Y7 Y6 Y5 Y4 Y3 Y2 Y1 Cumulative Amount of Loans Disbursed (in Rs Crores)
  12. 12. A Low Income Housing Finance Business Customer Level Economics: Revenue and Costs at Branch Level Per Customer Cost Analysis 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.) Assumptions <ul><ul><li>Average Loan Size: Rs. 4 Lakhs </li></ul></ul><ul><ul><li>Interest Rate Charged: 14% </li></ul></ul><ul><ul><li>Loan Processing Fee: 1% </li></ul></ul><ul><ul><li>NPA: 1.0% 1 </li></ul></ul><ul><ul><li>A 0.5% of loan value bonus is provided to the branch sales force as an incentive fee for each loan generated </li></ul></ul><ul><ul><li>These assumptions are typical for most HFCs (our data is based on inputs from Dewan, GRUH, HDFC and MHFC) </li></ul></ul>Observations <ul><ul><li>It costs approximately Rs. 32,000 to serve each customer, i.e. cost to serve is about 8% of loan size, </li></ul></ul><ul><ul><li>The HFC would earn approximately Rs. 88,000 in net income from each customer </li></ul></ul><ul><ul><li>Net Profit Per Customer Over 8 years (not including other costs) is approximately Rs. 56,000 </li></ul></ul>Note: 1 DHFC and Gruh NPAs are less than 1% Sales Incentive Office Overheads Average NPA Documentation, Storage & Retrieval Legal & Technical clearance Total Cost to Serve Operating Overheads Processing Fee Net Interest Income Total Per Customer Revenue Analysis
  13. 13. A Low Income Housing Finance Business Profitability over a 10 year time frame Profitability over a 10 year time period 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 <ul><ul><li>Average Loan Tenure: 8 years </li></ul></ul><ul><ul><li>Cost of debt: 10% </li></ul></ul><ul><ul><li>Debt Equity ratio: </li></ul></ul><ul><ul><ul><li>Year 5- 4: 1 </li></ul></ul></ul><ul><ul><ul><li>Year 10- 6: 1 </li></ul></ul></ul><ul><ul><li>Capex in Years 1 to 3- Rs 3 Cr (towards software and hardware) </li></ul></ul><ul><ul><li>NPA of 1 % provided on all loans disbursed from Year 4 </li></ul></ul><ul><ul><li>Net Profit/Loss = Post Tax (Income – Expenses) </li></ul></ul><ul><ul><li>ROE = Net Profit/Loss / Average Equity </li></ul></ul><ul><ul><li>ROA = Net Profit/Loss / Average Assets </li></ul></ul>Observations <ul><ul><li>The HFC will operate at a loss for the first few years, but will turn profitable by year 3 </li></ul></ul><ul><ul><li>ROE of 23% in year 10 is very robust by the Indian financial industry standards </li></ul></ul><ul><ul><li>ROA of 3% in year 10 is comparable to HFC industry standards </li></ul></ul>Y5 Y3 Y4 Y2 Y1 Y7 Y8 Y6 Y10 180.3 Y9 101.9 Y5 Y6 Y3 Y4 2.2 Y2 Y7 -4.0 -13.9 -3.0 Y1 Y10 Y9 Y8 Return On Equity Return On Assets
  14. 14. Low Income Housing Finance A Fundamentally Different Business Model Income documents / tax papers generally inadequate Credit appraisal Salaried Based on income documents / tax forms Determine eligibility based on income proof General credit appraisal Sanction loan Self employed / Professional Use surrogates for credit appraisal Scope of Business: Margins, Credit/Debit Terms, Stability Savings Habit (e.g., from chit funds) Track Record Reference Checks, Supplier/Customer Referrals Gross Receipts Personal Discussion Background and Profile Prior History and Relationship Based on the parameters sanction / reject loans Like microfinance, low income housing finance is a fundamentally different business model than traditional housing finance, and requires completely distinct processes to appropriately assess customer credit worthiness and risk SELF EMPLOYED SALARIED Illustrative Credit Appraisal Process for Low Income Informal Sector Customers <ul><li>Credit appraisal to accurately understand element of risk within the informal sector requires proxies </li></ul><ul><li>for traditional income documents </li></ul><ul><li>Due to the lack of income proof and other verification, the informal sector requires a more ‘field-based’ approach </li></ul><ul><li>to verifying income and credit worthiness including visits to the customer’s business, conversations with NGOs/ </li></ul><ul><li>chit funds/local institutions the customer is linked to etc. </li></ul>
  15. 15. Low Income Housing Finance: Potential Role of MFIs Profile and Interest Interests of select leading urban MFIs <ul><ul><li>Most MFIs in India are largely active in rural areas </li></ul></ul><ul><ul><li>However, there are a few MFIs which cater mainly to the urban poor e.g., Ujjivan, Swadhaar, SatinCare, etc </li></ul></ul><ul><ul><ul><li>Most have small loan portfolios and small customer bases </li></ul></ul></ul><ul><ul><li>Provide short tenure loans (6 months-5 years) for house repairs, livelihood generation and consumption etc. </li></ul></ul><ul><ul><li>Most MFIs do not have the necessary scale to undertake risk sharing, although some are willing to undertake part risk if provided with long term line of credit </li></ul></ul><ul><ul><li>Interested in providing support (for a fee) in demand aggregation, credit evaluation, loan distribution and collection etc. </li></ul></ul><ul><ul><li>Some MFIs, not keen on risk sharing, are willing to align incentives to provide additional comfort to FIs </li></ul></ul><ul><ul><ul><li>Incentives linked to collection in case of agency role (the model has not been tried out hence MFIs have not through about desired incentive structure) </li></ul></ul></ul>Collection and Distribution Non Client Credit Risk Assessment Alignment of Incentives Risk Sharing on Housing Loans Demand Aggregation Sharing Client Credit History      1                Note: 1 Share MFI open to share client history, credit risk assessment or play an agency role in collection and distribution only if the activities are bundled with potential risk sharing role; 2 Willing for part risk sharing and need to discuss with banks to understand exact risk sharing mechanism MFIs may be well placed to serve as conduits for housing finance or even set up dedicated HFCs because of their access and understanding of low income informal sector customers and the unique processes required to best serve them  2  1  1  2 Urban MFIs can either set up dedicated HFCs (such as MAS), or can assist traditional banks and HFCs interested In serving low income informal sector customers with customer pre-selection, credit appraisal, demand aggregation, payment collections, risk assessment etc. According to many MFIs, ‘the ultimate aspiration for their customers is to own their own homes, and all other loans are merely a band-aid for a housing loan.’
  16. 16. Low Income Housing: The Economic Potential 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 Rs 1,200 per Lac (at 12% interest for a 15 year loan); 3 Conservative estimates that 60% of total households in MHI of Rs 5-20K (36Mn) are renting and looking to buy a house of their own. Source: NHB Trends in Housing; CRIS Infac Report; Monitor Research <ul><ul><li>Price of unit 2 > Rs 25 Lacs </li></ul></ul><ul><ul><li>Potential demand from ~2 M HHs with estimated Market Size of ~Rs 500,000 Cr </li></ul></ul><ul><ul><li>Various mortgage finance options available for segment </li></ul></ul>The low-income housing segment (MHI of Rs 5,000 – 20,000) is estimated at 22 Million households with an estimated opportunity size of Rs. 1,100,000 Cr and is largely underserved Urban Income Pyramid Offering & Supply of Housing <ul><ul><li>Price of unit: Rs 10–25 Lacs </li></ul></ul><ul><ul><li>Potential demand from ~5 M HHs with estimated Market Size of ~Rs 900,000 Cr </li></ul></ul><ul><ul><li>Mortgage finance available broadly </li></ul></ul>1% (0.7MM) 5% (3.4MM) 22% (15.0MM) 33% (22.4MM) 4% (2.7MM) 10000–20000 >80000 30000–40000 <5000 40000–80000 31% (21.1MM) 5% (3.4MM) 5000–10000 20000–30000 MHI 1 (Rs) <ul><ul><li>Price of House: Rs 3–10 Lakhs </li></ul></ul><ul><ul><li>Potential demand from ~ 22 Mn 3 HHs with estimated Market Size ~Rs 1,100,000 Cr </li></ul></ul>Supply of Housing Finance <ul><ul><li>Various mortgage finance options available for segment </li></ul></ul><ul><ul><li>Potential size of mortgage market ~ Rs 400,000 Cr </li></ul></ul><ul><ul><li>Mortgage finance available broadly </li></ul></ul><ul><ul><li>Potential size of mortgage market ~ Rs 675,000 Cr </li></ul></ul><ul><ul><li>Severely constrained supply of housing finance for informal sector </li></ul></ul><ul><ul><li>Finance available for MHI > Rs 12K in the formal sector, limited availability below MHI of Rs 12K for formal sector and 20K for informal sector </li></ul></ul><ul><ul><li>Potential size of mortgage market ~ Rs 8,80,000 Cr </li></ul></ul>
  17. 17. Low Income Housing as a Driver for Economic Growth: Wide Range of Benefits Affordable Housing Affordable housing can provide huge benefits to families, communities and aid overall economic development of state <ul><ul><li>Aiding Overall Economic Development </li></ul></ul><ul><ul><li>Construction of low income housing provides disproportionate job creation </li></ul></ul><ul><ul><li>Creates significant economic value for state (taxes, ancillary economic activity, source of labor potentially leading to industry, etc </li></ul></ul><ul><ul><li>Provide alternative to Urban Slums </li></ul></ul><ul><ul><li>~40M people live in urban slums without basic facilities such as sanitation, water, schools, etc </li></ul></ul><ul><ul><li>Renters disempowered. All power is w/ slum lords </li></ul></ul><ul><ul><li>Slum lords “own” houses and benefit from Slum Rehabilitation Schemes </li></ul></ul><ul><ul><li>Slums create high pressure on infrastructure within a city </li></ul></ul><ul><ul><li>Benefits for families of Urban Poor </li></ul></ul><ul><ul><li>Housing is essential for the well-being of a family </li></ul></ul><ul><ul><li>Enhanced security and health through organized housing with access to sanitation </li></ul></ul><ul><ul><li>Access to better services (schools, healthcare etc.) which are typically available to higher-income groups </li></ul></ul><ul><ul><li>Creation of Low-Risk Asset for Families </li></ul></ul><ul><ul><li>Long term wealth creation due to value of asset, “saving on rent” & collateral for loan </li></ul></ul><ul><ul><li>A “security net” in crisis </li></ul></ul><ul><ul><li>Low income houses typically built on land with low cost per sq. ft. Low likelihood of price depreciation, Hence downside risk is low </li></ul></ul><ul><ul><li>Benefits to Communities </li></ul></ul><ul><ul><li>Neighborhoods with good quality housing have lower crime rates, stronger local economies and a better overall quality of life </li></ul></ul>
  18. 18. Panel Discussion On: <ul><ul><li>Customer Demand and Need for Housing Finance </li></ul></ul><ul><ul><li>Traditional perspective on Risks and Costs to Serve Lower Income Segments </li></ul></ul><ul><ul><li>Addressing Concerns on Serving this Segment </li></ul></ul><ul><ul><li>Funding and Investor Interest </li></ul></ul>For more information on the housing finance opportunity, contact: Ashish ( [email_address] ), Bala ( [email_address] ), or Nabomita ( [email_address] )
  19. 19. Appendix
  20. 20. Context Housing Finance Market: Map of Existing Players There are 45 registered HFCs in India, and these are split almost evenly between organizations that can accept deposits from the public and those that cannot <ul><li>Haware’s Housing Development Finance Corporation </li></ul><ul><li>India Home Loans Limited </li></ul><ul><li>Mahindra Rural Housing Finance </li></ul><ul><li>Micro Housing Finance Corporation </li></ul><ul><li>Swagat Housing Finance Company </li></ul><ul><li>Reliance Home Finance </li></ul><ul><li>India Infoline Housing Finance </li></ul><ul><li>Tata Capital Housing Finance </li></ul><ul><li>Can Fin Homes </li></ul><ul><li>DHFL Vyasa Housing Finance </li></ul><ul><li>Manipal Housing Finance Syndicate </li></ul>Cent Bank Home Finance <ul><li>GIC Housing Finance </li></ul><ul><li>HDFC </li></ul><ul><li>ICICI Home Finance </li></ul><ul><li>Dewan Housing Finance Corporation </li></ul><ul><li>LIC Housing Finance </li></ul><ul><li>AIG Home Finance India </li></ul>GRUH Finance <ul><li>Sundaram BNP Paribas Home Finance </li></ul><ul><li>REPCO Home Finance </li></ul><ul><li>Ind Bank Housing </li></ul><ul><li>National Trust Housing Finance </li></ul><ul><li>Vishwakriya Housing Finance </li></ul><ul><li>HUDCO </li></ul><ul><li>IDBI Home Finance </li></ul><ul><li>PNB Housing Finance </li></ul><ul><li>Deutsche Postbank Housing Finance </li></ul>MAS Rural Housing and Mortgage Finance <ul><li>HBN Housing Finance </li></ul><ul><li>Indiabulls Housing Finance </li></ul><ul><li>GE Money Housing Finance </li></ul><ul><li>Maharishi Housing Development Finance Corporation </li></ul><ul><li>Swarna Pragati Housing Micro Finance Private Ltd. </li></ul><ul><li>Inara Housing Finance </li></ul><ul><li>Janhavi Home Development and Finance </li></ul>Kerala Housing Finance Orange City Housing Finance <ul><li>Rose Valley Housing Development Finance Corporation </li></ul><ul><li>Sahara Housingfina Corporation </li></ul>Satyaprakash Housing Finance India <ul><li>SRG Housing Finance </li></ul><ul><li>Akme Buildhome Private Ltd. </li></ul>Utkal Housing Finance Vastu Housing Finance Corporation HFCs that cannot accept Deposits HFCs that can accept Deposits Source: NHB
  21. 21. Low Income Segments as Target Market: Largely-Untested Risk Profile, different from Sub-prime in the USA <ul><ul><li>75-80% LTV – significant individual contribution required; EMIs tend to be 35% of Monthly Income </li></ul></ul><ul><ul><li>Target customers have regular employment, albeit with low income – with an unproven credit record which needs to be tested </li></ul></ul><ul><ul><li>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 </li></ul></ul>Low-Income Housing in India <ul><ul><li>Outcome: Untested, relatively low risk segment with significant business potential </li></ul></ul><ul><ul><li>Very high LTV; creative structures developed to reduce EMIs </li></ul></ul><ul><ul><li>Loans extended without due consideration to ability to pay (basis employment history) – financing provided to those with questionable employment record </li></ul></ul><ul><ul><li>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 </li></ul></ul>Sub-prime Experience in USA <ul><ul><li>Outcome: Sub-prime Defaults and Foreclosures </li></ul></ul>
  22. 22. Establishing a Housing Finance Company: Monitor Inclusive Markets’ Role <ul><ul><li>Introduce the concept of housing finance and disseminate information on the commercially viable business opportunity to provide housing finance to low income customers to broad groups of stakeholders </li></ul></ul><ul><ul><li>Actively assist new players interested in entering the HFC space with their market entry strategies and business plans </li></ul></ul>Disseminate Concept & Help New Players Adopt the Business Model Monitor is well positioned to help incubate new Housing Finance Companies focusing on the low income sector, through its knowledge of the low income space in India as well as its deep networks <ul><ul><li>Assist in preparation of Information Memorandums for HFCs looking to raise funds </li></ul></ul><ul><ul><li>Connect HFCs to Private Equity investors looking to invest in the low income housing finance ecosystem </li></ul></ul><ul><ul><li>Actively assist in the fundraising process through broader introductions and brokerage with sources of capital such as multilateral institutions, foundations, impact investing networks etc. </li></ul></ul>Facilitate Access to Capital <ul><ul><li>Assist entrepreneurs through our knowledge of the process of setting up an HFC and introductions to experts and prior successful applicants </li></ul></ul><ul><ul><li>Connect the HFC to lawyers and technical experts with deep expertise in housing finance </li></ul></ul><ul><ul><li>Introduce the HFC to Monitor’s vast networks of developer partners, and facilitate tie-ups between the HFC and specific low income housing projects </li></ul></ul>Link HFC to key players in the Low Income Housing Ecosystem through Monitor’s networks
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