About Monitor Group It is a management and consulting and merchant banking group started by Michael Porter and a group of his colleagues at Harvard business school. In 2006, Monitor started its Inclusive Markets Practice in India that aims to catalyze market based solutions (MBSs) for creating social impact among the B60 (bottom 60% of the economic population). They offer three types of services – •Advisory services •capability-building services and •Capital services

Concept: Affordable housing by Monitor Group Monitor Inclusive Markets (MIM) has identified housing as one of the key areas where market based solutions can alter the social and economic landscape of the country and become a powerful route to social progress. India’s biggest challenges are in the area of social inequity . Very little supply of affordable housing in India for the lower and middle income segments.They conducted a study for the National Housing Bank with active support from the World Bank to understand the market, customers, developers, land prices, financing, construction techniques, regulation, etc. for the low-income housing space.

Identified a target segment of customers who : earn Rs. 7,000-15,000 (USD 140-300)currently rent rooms in slums and low income neighborhoods.live in poorly constructed, small cramped houses, with deplorable sanitary conditions and lacking basic neighborhood amenities.aspire to live in and can afford to buy houses between 250-400 square feet in the suburbs at current market prices.It was found that , these houses, while commercially feasible, are not being built, and customers are also unable to access mortgages from traditional financial institutions.Thus, MIM has used this understanding of the market and the customer’s needs to develop a set of innovative solutions to address key stakeholder concerns.

How they intend to do this ?•Assembled a group of financial institutions to serve customers in the low income segment, •Been a critical part of the launch of a USD 100 Million low income housing ecosystem fund

•Enjoyed recent successes with developers, corporates, and entrepreneurs with proven track records, interested in building homes to cater to this income segment, as the top end of the market has crashed in the economic downturn.• Also , They would encourage more developers to enter the market to both ensure that there is sufficient supply to meet the demand for homes and to maintain the low pricing that these customers require.•Attract traditional financial institutions to serve the salaried low income market, and bring in new players.

Broader field initiatives •Introducing sustainability elements•Working with government•Working with financial institutions

In the last 3 years however, the low-income housing market has seen a series of encour aging developments driven partly by:• The macro economic recession •The efforts of dedi cated “market-makers” and “field-builders”, (including NHB, World Bank, IFC, Michael and Susan Dell Foundation and Monitor Inclusive markets)

The Low Income Housing Market in Urban IndiaBy a study undertaken in early 2010, found more than 25 developers in urban areas building (or about to build) good quality, multi-family units in the Rs. 3 lakh to Rs. 7 lakh price range (ap proximately US$6,500 to US$15,100)

Map of Low income housing projects, 2010

The study shows a significant shift toward a more sustainable supply equation which is apparent by a number of factors like: 1. The growth of the number of new cities that are starting to see supply of low income

housing: Ahmedabad and Mumbai, which were the initial centers for low income housing projects, continue to build on the success of the early projects, and today boast numerous developers providing housing to low income custom ers.

Example: Following on the heels of Santosh Associates’ Om Shanti Nagar project, low income housing projects are sprouting in Vatva today, including Foliage’s Navjivan Housing, Shree Ram Devel opers’ Karnavati Apartments and Dharmdev’s Swaminarayan Park.

2. The new mix of developers contains not only small developers but also larger, more established developers as well as some corporate players:

Example: VBHC has already announced plans to build a million homes (priced below Rs. 10 lakhs) in 10 years, and Neptune (an erstwhile premium builder) has declared intentions to expand from Mumbai to other cities in Maharashtra with its ‘Swarajya’ brand, before expanding nationally.

3.These developers emphasize the importance of new ideas : whether it be:•The testing of innovative, scale-enhancing construction technologies that reduce construction timelines and increase profitability; •Participating in the development of new architectural unit layout designs that amplify comfort and livability in small spaces; or,• Incorporating sustain ability elements that save on cost and reduce environmental impact.

Example: Foliage and VBHC, who have long terms plans to build multiple projects, have prioritized sustainability as an essential component of their developments, and are conducting careful research into the feasibility of different options. In their first project in Bengaluru, VBHC is incorporating several sustainable innovations, including solar street lights on the internal roads, which they feel will not only meet sustainability goals, but will also help to keep residents safer

VHBC Sustainability map

Housing finance for low income customersHousing finance has traditionally served only the middle-to-high income formal sector cus tomer — and therefore eliminated a large majority of lower income customers, both formal and informal. Apart from the two pioneers, Gruh and Dewan Housing Finance Limited (DHFL), there would be very few low income informal sector customers served in urban India. There are now dedicated

start-ups like Micro Housing Finance Corporation (MHFC) that have identified this very segment as a large business opportunity. HFC’s which serve the low income urban customer: •GRUH•DHFL (Dewan Housing Finance Corporation Limited)•MAS •MHFC (Micro housing finance corporation ltd.) •SEWA

Expected entrants: •SUMEL Housing Finance Limited,•Aptus Value Housing Finance India Ltd.•Home First Finance Ltd•Aadhar Housing Finance Pvt. Ltd.

Representative HFC market map - India - 2010

Managing the finance in low income segmentServing the low income customer is a fundamentally different business as they rarely have the proof of income and expenditure documentation that large mortgage lenders rely upon to conduct their credit assessments.Assessing these customers requires:• field-based approach for cash flow verification•A dual strategy: investing in comprehensive and innova tive customer risk assessment proceduresdetailed, regular training programs for the loan officers as they are the front-end of this assessment procedure.

Project Overview: Swarajya , Neptune group , Ambivalli , Maharashtra Developer: Neptune group is a premium real estate development firm that has delivered retail and commercial projects to higher income segments. Swarajya is its first project in low – income housing .

Site area: 146 acres, divided into 6 sectors

Total units planned: 19,122

Price range: Rs. 5.2 lakh to Rs. 8.9 Lakh; 80% of units already booked.

Currently sector 1 and 2 under construction

Location: Ambivali – 72 mins from CST by train and 2 hours by road from Mumbai city centre.

Connectivity: Ambivali railway station – 1.25 kms

Infrastructure: Water supply – bore wells & also by municipal corp.

Electricity – MSEB

Site area: 146 acres, divided into 6 sectors

Total units planned: 19,122

Price range: Rs. 5.2 lakh to Rs. 8.9 Lakh; 80% of units already booked.

Currently sector 1 and 2 under construction

Location: Ambivali – 72 mins from CST by train and 2 hours by road from Mumbai city centre.

Connectivity: Ambivali railway station – 1.25 kms

Infrastructure: Water supply – bore wells & also by municipal corp.

Electricity – MSEB

Although phase 2 is newer, it was launched at a special price of Rs . 1499 per sq.ft. Of BHK’s . Phase 1 units are selling at a higher price as building is closer to possession

Although phase 2 is newer, it was launched at a special price of Rs . 1499 per sq.ft. Of BHK’s . Phase 1 units are selling at a higher price as building is closer to possession

Customer finance A wide availability of customer finance, at varied interest rates which range from 8.6% to 14% depending on whether customers are part of the formal or informal sector.

Pricing details · Pricing variation by floor:

all buildings either G+5 or G+7 and have lifts.

Floors 1st -4th and 1st – 6th are sold out fastest as people do not want to buy ground and top floors

· Maintenance and extra charges : extra charges – 6-7.5% of the flat cost.

Maintenance charges of approx. Rs. 1.75 to 2 per month/sq.ft./flat on an ongoing basis.

Pricing details · Pricing variation by floor:

all buildings either G+5 or G+7 and have lifts.

Floors 1st -4th and 1st – 6th are sold out fastest as people do not want to buy ground and top floors

· Maintenance and extra charges : extra charges – 6-7.5% of the flat cost.

Maintenance charges of approx. Rs. 1.75 to 2 per month/sq.ft./flat on an ongoing basis.

Marketing and salesAdvertisements: News channels, trains, buses, newspapers etc.Sales: Current sales are 250 units per month and are expected to go up to 350-400 bookings per month as building are completed.In total 70000-80000 people have visited the site already.

Summary of findings 1. IMPROVED SUPPLY IN THE LOW INCOME HOUSING MARKET: The low income housing

market in urban India is improving, with the beginnings of a robust supply equation in place for affordable, high – quality housing i.e. according to the study more than 25 developers in urban areas across India building (or about to build) multi-family units in the Rs. 3 Lakh to Rs. 7 Lakh range. The way the market is changing is :

• New cities • New mix of developers • New ideas 2. INCREASED ACCESS TO LOANS IN THE HOUSING FINANACE MARKET: A market of housing finance is now open for poorer customers. Also more player than ever before are now serving, or aspiring to serve, the low income customer.• Pioneers : example – Gruh and DHFL • New players : MHFC’s – MAS , SEWA• Expected entrants: SUMEL Housing finance ltd.3.STRONG COMMERCIAL POTENTAIL FOR LOW INCOME HOUSING DEVELOPERS : •Strong commercial feasibility •High customer demand equating to strong marketability 4.STRONG COMMERCIAL POTENTAIL FOR HFC’s: Robust returns on assets and equity and new entrants are expecting similar returns. Also there is strong commercial opportunity in targeting low income, informal sector urban customer, which is large and un-served population.