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LONDON LOS ANGELES MADRID MOSCOW MUMBAI MUNICH NEW YORK PARIS RIYADH
SAN FRANCISCO SÃO PAULO SEOUL SHANGHAI SINGAPORE TOKYO TORONTO ZURICH
Making the Market for Private Sector Urban
Low Income Housing in India
July 2011
Based on Projects for National Housing Bank, with active support from World Bank and
funded by FIRST Initiative
Implementation support by IFC, Michael & Susan Dell Foundation, and FEM Italia
Monitoring and Evaluation project funded by Rockefeller Foundation
Copyright © 2011 by Monitor Company Group, L.P.
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This document provides an outline of a presentation and is incomplete without the accompanying oral commentary and discussion.

2. Monitor Group: An Introduction
Founded by renowned academics, the Monitor Group has grown rapidly to become a
leading global management consulting and merchant banking firm
Michael Porter, Founded by Michael Porter and other HBS faculty in 1983
Harvard Business School
Director and Co-Founder Renowned for focus on strategy and cutting-edge ideas
of the Monitor Group that help clients grow
We believe that “Ideas can create impact.”
With over 25 offices across the globe, we go the last mile…
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Growth Strategies City Strategies Social Venture Funds
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Private Equity Funds Country Ecosystem
Competitiveness
Copyright © 2011 Monitor Company Group, L.P. 2

3. Monitor Inclusive Markets in India
A unique mission and mode of operation
An autonomous unit that is actively facilitating scaling of market based solutions
Customers
Developers
Financial
Institutions
Construction
Technology
Identifying and refining Making the market for low income
business models at scale housing in India
Copyright © 2011 Monitor Company Group, L.P. 3

4. Facilitating Low Income Housing in Urban India
The Initial Situation
In 2006–07, we conducted an in-depth FIRST / World Bank study for NHB
The Initial Situation Urban India — Expenditure & Income Pyramid
Vibrant housing market in India, with housing
finance growing at over 36% YoY
The cheapest apartment was ~500 square feet 500+ sq. ft
houses MHE: 16% Monthly
selling at Rs 500–600,000 >Rs 9,625 pm (10MM) Income
– Only the top 12–15% of the urban housing
market could afford this housing (if they got Rs. 11,000
financing) USD 220
Customers in the next 35% income often live in 250-400 sq. MHE:
ft houses 37%
rent rooms in slums and low income Rs 4,575–
Rs 9,625 pm (~23MM)
neighborhoods
– Live in poorly constructed small houses with
bad sanitary conditions and lack of facilities Rs. 5,000
MHE: USD 100
Wanted and could afford small houses in 33%
Rs 2,500–
suburban areas at current market prices Rs 4,575 pm (~21MM)
– But no supply of housing, no access to
mortgages (especially for the informal sector) Rs. 2,500
USD 50
The study identified a commercially viable opportunity to MHE: 14%
serve the next 35% of the urban income pyramid & <Rs 2,500 pm (~9MM)
developed a series of innovative, market-based solutions to
address the problem
Current segment served
– E.g. business model with variants such as
“employer aggregator”; “land as inventory” Potential segment that can be served
Copyright © 2011 Monitor Company Group, L.P. 4

5. Low Income, not Low Quality
Copyright © 2011 Monitor Company Group, L.P. 5

6. 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
Profile — Nathubhai Appalling conditions Profile — Ganesh
Steady job as a factory of Slum-Dwellers Self-employed Mechanic in Mumbai
worker in a textile Live in poorly Monthly HH
enterprise in Ahmedabad constructed small income ~ Rs 11,000,
Monthly HH income cramped houses savings up to
~Rs 8,000, savings up to Poor sanitary Rs 1000 p.m.
Rs 900–1,000 p.m. conditions - shared Lives in 150 sq. ft.
toilets, bad room in slums, Rent Rs 2,400
Lives in 1 RmK in low income drainage, water
neighborhood, Rent Rs 1800 Married with 2 children
logging during
Family size: 5 (mother, wife, 2 children) monsoons Assets – Bank Account, LIC (Rs 1.5L),
Assets – Bank Account, LIC (Rs 3L), TV Refrigerator and PC
Lack of facilities —
Education: Both children attend private properly planned Education: Both children attend
Gujarati medium schools access points, English-medium school
Rent: Increased by 50% in past walkways, gardens, Rent: Has seen significant & frequent
3 years, has moved every dedicated schools increases in rent, has moved house 5
2 to 3 years etc. times in 12 years
Both share a dream . . . “A house of their own”
Can afford a 250–350 sqft. house, willing to make 20% down payment and
pay 35% of monthly income as EMIs to realize their dream
Source: Primary Research (n=2000), Monitor Analysis
Copyright © 2011 Monitor Company Group, L.P. 6

7. Innovative Business Model for Low Income Housing
The developers entering the low income housing market have different approaches than
those used in the traditional real estate sector
Traditional Developer Low Income Housing Developer
Buy Land Buy Land
Incremental Construction
gg
Sell All Units
Sell Units
Wait for Land Value
Construct Completely
Appreciation
Land as Asset Land as Inventory
Longer life cycle Short life cycle
Super profits High IRR ~40%
Construction is incidental Good Margins ~17.8%
Source: Monitor Research, Monitor Analysis
Copyright © 2011 Monitor Company Group, L.P. 7

8. Making a Market: 2008-2009 - Creating supply through raising
awareness and “end-to- end” facilitation of the local ecosystem
1 Dissemination at leading conferences
Monitor raised awareness Press articles in business press and industry journals
of the opportunity and
the solution Convened group sessions for targeted stakeholders
1 on 1 sessions with developers, financiers, broad range of stakeholders
2
Monitor offered “end-to-end handholding” services to developers plus base IP and customized application:
Access to
Land Selection & Project Sales and
Business Blueprint Financed
Project Design Implementation Marketing
Customers
Business strategy and OD Land selection and Project phasing and End-to-end sales process, Enable access to financing
Business economics and validation implementation support customer outreach and options for customers
project financing Site visits and project design marketing design Broker tie-ups with FIs for
Embed competencies in informal and formal
client team for long-term customers
3
Monitor worked Studied
Worked with
on broader gaps construction Templatized sales Aggregated
architects to
technologies to process to reach customers and
in the supply develop site and
shorten build-time, desired customer arranged for
ecosystem unit layouts and
and enhance segments customer financing
designs
developer IRR
Two years, 600 developers, support from multiple stakeholders and a downturn
in the economy to: (i) Achieve a clear recognition in the market of the opportunity
(ii) Lead to a number of players in this space
Copyright © 2011 Monitor Company Group, L.P. 8

9. Efficient Use of Space – Sample Unit Layout
Copyright © 2011 Monitor Company Group, L.P. 9

10. Market Map (September 2010)
An estimated 50,000 low income housing units were sold by 40+ developers across
multiple cities in India in 2010-2011
Bawal, Haryana
Bhiwadi, Rajasthan Ashray Homes, Surefin Builders
Avalon Homes, Avalon Group
Dev City, Arun Dev Developers Rohini, Delhi
Ahmedabad, Gujarat
Renaissance Nakshatra, Renaissance Township
Om Shanti Nagar 2, Santosh Associates
Navjivan Housing, Foliage Meerut, UP
Gokul Galaxy, Galaxy Developer Spice Homes
New Maninagar Apartments, Dharmadev Builders
Umang Lambha, DBS Affordable Home Strategy Ltd.
Karnavati Apartment, Shree Ram Developers
Surat, Gujarat
Laxmi Villa Township
Sai Vihar Residency
Mumbai, Maharashtra Nagpur, Maharashtra
Swarajya, Neptune Group Shridhar Empire AC, Shridhar Buildcon
Samruddhi Complex, Poddar Housing
TMC, Matheran Realty
Pink City and Star City, Rashmi Housing
Bangalore, Karnataka
Shubh Griha, Tata Housing
Vaibhava, VBHC
Karjat Land Developers
Shubha, Janaadhar
Sathya Nagar, Conglome Techno Constructions
Vaishnavi SAI Complex, Shubh Aangan Realty
Valram Vatika and Valram Ashish, Valram Chennai, Tamil Nadu
Constructions
Conglomerate
Sankul Panvelkar
Atulya, Annai Builders
SAS Group
Pune, Maharashtra
Anandgram, Vastushodh Project Private Ltd. Cochin, Kerala
Shalini Lakeview, Trishul Builders Star Apartments, Star Homes
Copyright © 2011 Monitor Company Group, L.P. 10

11. Swarajya - Neptune Group, Mumbai
Location: Ambivali, Mumbai
72 mins from city center by train
Transport: Railway Station is 1.25 kms; transport
provided by Neptune, or a 20 minute walk
Infrastructure: Close to markets, temples, schools
and hospitals
Number of Units: 19,112 total — 2,446 under
construction; 3,000 sold; 90% residential units, 10%
commercial
Unit Format & Prices:1 BHK (1869 units): 315 ft2
(Rs. 5.20 L), 2 BHK (577 units): 523 ft2 (Rs. 8.90 L)
“We already have plans of building other low-income
housing projects in Pune, Nagpur and other cities
after seeing the success of our first LIH project in
Ambivali.”
- Nayan Shah, Promoter of Neptune Group
Copyright © 2011 Monitor Company Group, L.P. 11

12. Navjivan Housing — Foliage, Ahmedabad
Location: Vatva, Ahmedabad
13 kms from Ahmedabad city center
Transport: Well connected public transport
Infrastructure: Schools and colleges nearby
Number of Units: Residential: 423 units;
Commercial: 38 shops
Unit Format & Prices:
1 RK (240 units): 299-414 ft2 (Rs.2.8-4.8 L)
1 BHK (148 units): 458-546 ft2 (Rs.3.7-6.6 L)
2 BHK (35 units): 632-837 ft2 (Rs.5.8 – 9.6 L)
“Foliage has already acquired land for its 2nd low
income housing project in Ahmedabad. The interest
in low income housing we’ve seen from customers
has been phenomenal.”
- Nehal Shah, CEO, Foliage
Copyright © 2011 Monitor Company Group, L.P. 12

13. Low Income Housing Finance
Different Model From Mid and High Income Customers
With supply of low income housing units increasing, the need was for low income housing
finance companies to provide mortgages to customers
FORMAL SECTOR
Credit
appraisal
Based on income Determine eligibility based General credit Sanction
Salaried
documents / tax forms on income proof appraisal loan
Scope of Business
INFORMAL SECTOR
Margins, Credit/Debit Terms, Stability
Use Based on the
Income Savings Habit (e.g., from chit funds)
Self employed / surrogates for Track Record parameters
documents / tax papers
Informal sector income (not credit) Reference Checks, sanction/ reject
generally inadequate
appraisal Supplier/Customer Referrals loans
Gross Receipts
Personal Discussion
Background and Profile
Prior History and Relationship
With a business model that accurately captures the needs of, and addresses limitations faced by, the low income
household, housing finance companies can break even in year 3, provide a Return on Assets of 2.5-3% in year
5, and Return on Equity of 17% in year 5.
Copyright © 2011 Monitor Company Group, L.P. 13

14. Customer and branch-level economics
Highly competitive unit economics
Additional costs of dealing with the informal customer segment – such as verification – can
be factored into the processing fees and interest rates
Rs. Per Transaction cost structure
30,000
13,844 25,844
20,000
4,000
Loan Origination Cost = Rs. 8,000
10,000 1,000
2,000
2,000
3,000
0
Verification Verification Hub & Spoke staff Hub & spoke Documentation NPA provision Total Transaction
(project,customer) and overheads staff/overheads Costs
Rs.Per Transaction Profits
80,000 80,000
63,775 67,775 67,775 25,844
60,000 60,000
41,931
40,000 40,000
20,000 20,000
4,000
0 0
Processing Net Interest Income Total Income Net Interest Income Cost to Serve Profits per
fees (1%) + Process Fee per transaction transaction
Note: All figures (unless otherwise stated) are on a discounted basis; rate of discount at 10%; customer interest rate at 14%
Copyright © 2011 Monitor Company Group, L.P. 14

15. Low Income HFC
Profitability expectation over 10 years
The low income housing finance business is a commercially attractive opportunity – can
break even in year 3 and generate an ROE of in excess of 20% by year 10
Indicative financials for a hypothetical start up housing finance company Assumptions
Profit After Tax 277 Average loan Ticket Size is Rs. 4 Lakhs
300
Loan To Value: No more than 80%
250
180 Average Loan Tenure: 8 years – scheduled
200
loan tenure is 15 years
150 102 Gross spread on loans: 4%
Net Profit/ Loss
(in Rs. Crores)
100 53 Cost of debt: 10%
50 16 27 Debt Equity ratio: Year 5 at 4: 1, Year 10 at 6: 1
-3 -1 1 6
0 NPA is assumed to be 1% of portfolio starting
from Year 4
-50
Y-o-Y portfolio growth assumed to be between
Y1 Y2 Y3 Y4 Y5 Y6 Y7 Y8 Y9 Y10 50 – 200% for a start-up, decreasing yearly
Portfolio Size
– Year 1 Rs. 20 Cr.
Return on Asset and Return on Equity – Year 3 Rs. 150 Cr.
25 22 23
– Year 5 Rs. 750 Cr.
Return on Assets 19
20 17
Return on Equity
15 13
10
Percentage Return
10 6 Observations
2.9 2.5 2.6 2.9 3.2 3.3
5 2.2
1 ROE of 23% in year 10 is very robust by the
0 -3.0 Indian financial industry standards (ROE for
0.8 HDFC is 20%, ROE for DHFL is 21.7%)
-5
-13 -4 ROA of 3% in year 10 is comparable to HFC
-10 industry standards (ROA for HDFC is 2.7% and
-15 -13.9 ROA for DHFL is 1.9%)
Y1 Y2 Y3 Y4 Y5 Y6 Y7 Y8 Y9 Y10
Source: Monitor Research, Monitor Analysis
Copyright © 2011 Monitor Company Group, L.P. 15

16. Low Income Housing Finance Companies
Entry of larger players catering to this segment
Along with new housing finance companies, an increasing number of established financial
services institutions and banks are entering/exploring the low income housing finance
market
Pre-2008 2009–2010 2010–2011
National Housing Bank has been proactively supporting housing finance
companies that are catering to low income housing customers
Copyright © 2011 Monitor Company Group, L.P. 16

17. Low Income Housing in Urban India
Vs the traditional market & the recent “Affordable” housing market
The low-income housing segment (MHI of Rs 7,500 – 25,000) is estimated at 22 Million
households with an estimated opportunity size of Rs. 1,100,000 Cr (USD 245 Billion) and is
largely underserved
Urban Income Pyramid Offering & Supply of Housing Supply of Housing Finance
MHI1 Price of unit2 > Rs 25 Lakh Various mortgage finance options
(Rs)
1% Potential demand from ~2 M HHs with available for segment
>80,000
(0.7MM) estimated Market Size of ~Rs 500,000 Cr Potential size of mortgage market ~ Rs
Various mortgage finance options 400,000 Cr
5% available for segment
40,000–80,000
(3.4MM)
Price of unit: Rs 10–25 Lakh Mortgage finance available broadly
4%
30,000–40,000
(2.7MM)
Potential demand from ~5 M HHs with Potential size of mortgage market
estimated Market Size of ~Rs 900,000 Cr ~Rs 675,000 Cr
Mortgage finance available broadly
5%
20,000–30,000
(3.4MM)
Price of House: Rs 3–10 Lakh Severely constrained supply of
Potential demand from ~ 22 Mn3 HHs housing finance for informal sector
22%
10,000–20,000 with estimated Market Size Finance available for MHI > Rs 12K in
(15.0MM)
~Rs 1,100,000 Cr the formal sector, limited availability
below MHI of Rs 12K for formal sector
31% and 20K for informal sector
5,000–10,000
(21.1MM)
Potential size of mortgage market
~ Rs 8,80,000 Cr
33%
<5,000
(22.4MM)
1Monthly 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
Copyright © 2011 Monitor Company Group, L.P. 17

18. Low Income Housing
A Unique Opportunity for Social Change and Attractive Returns
Allows EMI payments
Government necessitate savings and
greater financial
Employment and funds to be discipline
Multiplier effect; 5 spent on the 1
Taxes, Investing in a house
poor leads to saving on rent,
Transforms
Increases wealth creation of an
Financial asset & a security net
GDP
Situation
Attractive Access to better
Construction is largest Returns sanitation, water,
employer in the country, 4 2 healthcare, community
Low Income Housing is Enhances and green spaces, safer
most labor intensive Creates environments, schools,
quality of etc.
Employment
life
Provides an
alternative
to Slums
Better planned and offer
3 a significant upgrade in
quality of living
Copyright © 2011 Monitor Company Group, L.P. 18

19. Facilitating Low Income Housing in Urban India
Developing a Broader Ecosystem
Today, the needs are different — and we have chosen to focus on elements to strengthen a
much broader ecosystem as our priority
Creating Customer
Education
Increased Access Modules Creating a robust
to Housing supply and finance
Finance industry
Increasing Supply Supporting
of Housing Government
Addressing
Unintended
Consequences
Copyright © 2011 Monitor Company Group, L.P. 19