Affordable Housing in India for the Middle Income Group

PROPEQUITYCreating Investor Intelligence

July 2011

• Derivation of a feasible size by comparison of the BudgetCategories & Minimum Threshold Price

• Analysis of pricing in the city for low-cost projects by developerswith adequate connectivity & proximity to economic hubs

Objectives MethodologyTo assess the gap between demand

& supply in affordable sector• Analysis of income distribution of households in 5 major cities ~

MMR, NCR, Bangalore, Hyderabad & Chennai• Total loan eligibility for the Middle Income Group (INR 3-10 Lakh

p.a.) based on BFSI sector norms ~• EMI for MIG at a maximum of 40% of their gross monthly income

• Budget determination based on BFSI sector norms ~• Disbursement of 15-25% of the total transaction value as home loan

• Total Demand of Households reduced by Owned Houses to arriveat accrued demand

• Comparison of accrued demand with organized apartment sectorsupply (2008-2011 YTD)

To identify minimum threshold price in every city

To understand the feasible size of an affordable project in a city

To adjudge the quality of living standard in a city

• Ranking of each city on the basis of the derived feasible sizes &prices for the two budget categories ~ INR 10 Lakh-20 Lakh & INR20 Lakh-40 Lakh

Study Objectives & Methodology

Introduction

Presently, approx. 26.53 million houses are required across various socio-economic segments, with approx. 99% of

demand arising from EWS & LIG segment followed by Middle Income segment

“The fastest growing housing value bracket is between INR 10 lakh to INR 25 lakh”- Eleventh Five Year Plan 2008-12

The concept of Affordable Housing has been tweaked by various stakeholders to address two specific objectives ~

For a private developer / builder Affordable Housing is a concept driven primarily by Ticket Size and Location of

Development, irrespective of the income segment being catered

As per High Level Task Force of the Government the concept of Affordable Housing is based on two parameters:

Multiples of Household Income and Size of Tenement

The idea of Affordable Housing has been in existence for some time, but it has gained the spotlight during the

economic downturn witnessed across developed and developing economics of the world.

The global financial meltdown impacted the Indian real estate sector significantly. Indian developers and builders

were forced to re-visit the drawing boards and develop strategies to sustain their businesses. A conscious decision

was undertaken to shift focus from „Premium and Luxury Housing‟ to Affordable Housing segment as a result of

significant amount of inventory overhung in cities.

However, with gradual recovery in real estate sector, the developers are shifting focus to high margin category of

High-end and Premium Housing. Thus, treating Affordable Housing segment became a Stop Gap arrangement.

The relevance for this paper arises from the simple fact that with approx. 26.53 million housing requirement and majority being from Budget & Affordable housing segment ~ Is Indian Real Estate heading in the right direction?

Income Classification ~ 5 Major Cities

The scope of the study spans 5 major cities ~ MMR, NCR, Bangalore, Hyderabad & Chennai.For the Purpose of this report, PropEquity has selected the middle income group as the analysis set.

Income Categorization (Per Annum)Economically Weaker Sections (EWS) & Low

Income Group (LIG)< INR 300k

Middle Income Group (MIG)

INR 300k- INR 500k

INR 500k- INR 1,000k

High Income Group (HIG)

> INR 1,000k

Annual Household Income (%age of Urban Households) ~ 2008-09

Cities Sub-Cities < INR 300kINR 300k-INR 500k

INR 500k-INR 1,000k

> INR 1,000k

Total House Holds

MMRMumbai 48% 21% 22% 9% 2,901,879

Thane 53% 38% 5% 4% 1,921,515

MMR Total 50% 28% 15% 7% 4,823,393

NCR

Delhi 54% 32% 9% 5% 3,376,311

Gurgaon 33% 48% 11% 9% 103,565

Noida 70% 3% 17% 10% 153,614

Ghaziabad 92% 4% 3% 1% 391,428

Faridabad 64% 22% 6% 9% 346,499

NCR Total 58% 28% 9% 5% 4,371,417

Bangalore 69% 17% 7% 7% 1,749,845

Hyderabad 70% 18% 3% 9% 837,913

Chennai 53% 35% 7% 5% 1,096,606

MIG Annual Household Income (Number of Urban Households) ~ 2008-09Cities MMR MMR

Total

NCRNCR Total Bangalore Hyderabad Chennai

Delhi Gurgaon Noida Ghaziabad FaridabadSub-Cities Mumbai Thane

INR 300k - INR 500k 601,902 730,944 1,332,846 1,085,032 49,573 4,116 15,738 76,683 1,231,142 293,656 152,707 384,791

INR 500k - INR 1,000k 644,410 95,806 740,217 304,570 11,298 26,100 13,475 19,519 374,961 126,856 27,719 71,968

Source: Indicus Database (2008-09)

As per Supreme Court, India MIG arepersons annually earning an income upto amaximum of INR 4 lakh. But due to thehigher standard of living in Tier-1cities, the study assumes annual income ofINR 3 lakh - 10 lakh for the MIG category.

Budget Permissible based on Income

Approx. 90% of home loans terms ranges from 18 – 22 years

Current Home Loan Interest Rates range from 10.25% to 11.00%

Norms for housing loan tightening in light of recent RBI directives

Only limited %age of people having access to Organized Housing Loan

Gross AnnualIncome (INR

‘000)

Gross MonthlyIncome (INR

Monthly)

MaximumPermissible EMI* (INR)

Gross Loan Eligibility(INR ‘000)

Gross Budget –Funding %age

(INR ‘000)

300 – 500 25,000 - 42,00010,000 -16,800

1,000 –1,700

1,000 – 2,000

500 – 1,000 42,000 - 83,00016,800 -33,200

1,700 –3,400

2,000 – 4,000

Gross Annual Income

Gross Monthly Income

Home Loan Eligibility Criteria

Gross Monthly EMI

Gross Home Loan Eligibility

Total Budget Eligibility –Based on funding %age by

Bank

Source: PropEquity Research 2011

Typically, the Indian Private Banking Sector does not entertain candidates withannual household incomes below INR 300,000. Moreover, the EMI eligibility forcandidates earning Below INR 500,000 p.a. stands at a maximum of 35% of theGross Annual Household Income while for above INR 500,000 p.a. it is 40%

Depending on the economic environment prevailing at time of seeking a homeloan, the Private Banking Sector may be willing to disburse a maximum of 80% -85% of the total transaction value as home loan

Budget Category INR 10 Lakh - 20 Lakh

City’s Demand- Supply Gap~ MIG Housing

Ownership Details Across Different Cities Comparative Total & Actual Demand

0% 20% 40% 60% 80% 100%

Chennai

Hyderabad

Bangalore

NCR

MMR

Owned Households Rented / Other Households

Demand Supply Gap Across the Cities

Source: Indicus Database (2008-09)

& PropEquity Research 2011

• Low interest of private developers to launch in thiscategory due to low margins

• Additionally, the government provides no incentives ~Land acquisition at lower than market rates, higherpermissible FSI, tax sops, relaxation of densitynorms, debt financing at lower rates, etc.

• Very few developers entering this space ~ VBHC, Tata

Housing, Matheran Realty, Shapoorji Pallonji

529,167

673,340

180,23784,305

232,302

0

200,000

400,000

600,000

800,000

1,000,000

1,200,000

1,400,000

MMR NCR Bangalore Hyderabad Chennai

No

. of

Ho

use

ho

lds

Total Demand Residual Demand

529,167

673,340

180,237

84,305

232,302

37,364 24,3977,417 5,139 11,414

0

200,000

400,000

600,000

800,000

MMR NCR Bangalore Hyderabad Chennai

No

. of

Ho

use

ho

lds

Residual Demand Total SupplyPropEquity Database

2008-2011 YTD( )

Derived Demand (2008-09 Onwards) 1,700,000

Supply (Organized Apartment Market ~ 2008-2011 YTD) 86,000

Gap (2011 YTD) 95%

Comparative Total & Actual Demand

293,881

205,075

77,860

15,303

43,44751,604

100,040

30,31720,461 28,325

0

50,000

100,000

150,000

200,000

250,000

300,000

350,000

MMR NCR Bangalore Hyderabad Chennai

No

. of

Ho

use

ho

lds

Residual Demand Total Supply

Demand Supply Gap Across the Cities

Source: Indicus Database (2008-09)

& PropEquity Research 2011

City’s Demand- Supply Gap~ MIG Housing

293,881

205,075

77,860

15,303 43,4470

100,000

200,000

300,000

400,000

500,000

600,000

700,000

800,000

MMR NCR Bangalore Hyderabad Chennai

No

. of

Ho

use

ho

lds

Total Demand Residual Demand

Ownership Details Across Different Cities

0% 20% 40% 60% 80% 100%

Chennai

Hyderabad

Bangalore

NCR

MMR

Owned Households Rented / Other Households

Budget Category INR 20 Lakh - 40 Lakh

Primarily as part of low cost locations such as

Ghaziabad & FaridabadThe only city faced with an oversupply situation

primarily due to political turmoil

PropEquity Database 2008-2011 YTD( )

• Scenario improves slightly as the ticket price increases• However, demand base decreases by 1/3rd

• Hyderabad being the only city faced with an oversupplysituation ~ Lower land rates primarily due to theTelengana issue

• Low cost housing in NCR primarily as part of supplybeing witnessed by Ghaziabad & Faridabad ~Infrastructural & Safety Concerns

Derived Demand (2008-09 Onwards) 636,000

Supply (Organized Apartment Market ~ 2008-2011 YTD) 231,000

Gap (2011 YTD) 64%

City’s Price Threshold~ MIG Housing

Feasible Sizes in Cities

City Feasible LocationsPricing

Threshold (INR/Sq. ft.)

Feasible Sizes

INR 10-20 Lakh (in Sq. ft.)

INR 20-40 Lakh (inSq. ft.)

MMR Mira Road, Byandar, Kalwa 4,500 222-444 444-890

NCR Sec 91, 92, 93, 106 (Gurgaon) 2,750 364-727 727-1,455

BangaloreAnagalapura, Battarahalli,

Horamavu, Kalkere2,000 500-1,000 1,000-2,000

HyderabadTellapur, Chandanagar,

Kompally1,700 588-1,176 1,176-2,353

Chennai Ambatur, Pallavaram 2,400 417-833 833-1,667

PropEquity Quality of Living Index

CityPricing

ThresholdRanking on the basis of Price

Feasible SizeRanking on the

basis of SizeOverall Ranking

Hyderabad 1,700 1 588-2,353 1 1

Bangalore 2,000 2 500-2,000 2 2

Chennai 2,400 3 417-1,667 3 3

NCR 2,750 4 364- 1,455 4 4

MMR 4,500 5 222-890 5 5

The rationale behind threshold price for each city is to identify locations where projects have beenlaunched by private developers within the confines of the city at low base selling prices (BSP) in thepast 3 quarters ~ Feasibility of development of low cost housing in these locations exists

The Way Forward ?

Most private developers prefer catering to the Premium, Luxury & Super-Luxury consumer segments

Higher Margins – Higher Positioning – High Capitalization – Better Brand Repute

The government cannot alone cater to rising demand for Low-Cost Housing

Despite tall claims of development through the PPP route, the government has failedto come up with a definitive policy which would excite private developers

Adequate catalyst for low-cost housing available in India

CSR initiatives started by several conglomerate to help their employees & the needy

Microfinance Options available through MHFC & a few private financial institutions

Ground Realities

Some Success Stories

A Win-Win For All

Janapriya Engineers Syndicate has been delivering low-cost housing inHyderabad & Bangalore for several years ~ No. 1 Developer in terms ofApartments Sold (January 2008 – March 2010)

Tata Housing’s 1,500-home affordable housing project at Boisar, near Mumbaialongside another 1,300 mid-price homes

Value and Budget Housing Corporation (VBHC) has launched affordable housingranging INR 7 – 14 lakhs at Attibele, near Bangalore

A definitive incentivized government policy on development of Budget &Affordable Housing is expected to increase developer interest in the segment

With the presence of a huge demand base for the segment, it will not be longbefore this sector becomes an integral part of every developer’s portfolio

Thank you

Disclaimer: The contents of this report are based on public information generally believed to be reliable. Due care and caution has been exercised in compilation of data. However this report does not purport to be a solicitation of any advice of P E Analytics Pvt. Ltd and P E Analytics does not accept any liability whatsoever nor do they accept responsibility for any consequences arising from the use of the research or information provided herein.

CONTACT: VAISHALI PAWAH Email: vaishali@propequity.in REGISTERED OFFICE: D4 Commercial Complex, Paschimi Marg, Vasant Vihar, New Delhi-100057 WEBSITE: www.propequity.in