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Affordable Housing in India for the Middle Income Group

July 2011

PROPEQUITY
Creating Investor Intelligence

Study Objectives & Methodology


Objectives
To assess the gap between demand & supply in affordable sector

Methodology
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 arrive at accrued demand Comparison of accrued demand with organized apartment sector supply (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

Analysis of pricing in the city for low-cost projects by developers with adequate connectivity & proximity to economic hubs Derivation of a feasible size by comparison of the Budget Categories & Minimum Threshold Price Ranking of each city on the basis of the derived feasible sizes & prices for the two budget categories ~ INR 10 Lakh-20 Lakh & INR 20 Lakh-40 Lakh

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 < INR 300k Income Group (LIG) Middle Income Group INR 300k- INR 500k (MIG) INR 500k- INR 1,000k High Income Group > INR 1,000k (HIG)

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


Cities MMR Sub-Cities < INR 300k

As per Supreme Court, India MIG are persons annually earning an income upto a maximum of INR 4 lakh. But due to the higher standard of living in Tier-1 cities, the study assumes annual income of INR 3 lakh - 10 lakh for the MIG category.

Mumbai Thane MMR Total Delhi Gurgaon NCR Noida Ghaziabad Faridabad NCR Total Bangalore Hyderabad Chennai

48% 53% 50% 54% 33% 70% 92% 64% 58% 69% 70% 53%

INR 300k- INR 500k- > INR Total House INR 500k INR 1,000k 1,000k Holds 21% 22% 9% 2,901,879 38% 5% 4% 1,921,515 28% 15% 7% 4,823,393 32% 9% 5% 3,376,311 48% 11% 9% 103,565 3% 17% 10% 153,614 4% 3% 1% 391,428 22% 6% 9% 346,499 28% 9% 5% 4,371,417 17% 7% 7% 1,749,845 18% 3% 9% 837,913 35% 7% 5% 1,096,606

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


Cities Sub-Cities MMR Mumbai Thane MMR Total Delhi NCR NCR Total Bangalore Hyderabad Chennai Gurgaon Noida Ghaziabad Faridabad 4,116 15,738 13,475 76,683 1,231,142 293,656 19,519 374,961 126,856 152,707 27,719 384,791 71,968

INR 300k - INR 500k 601,902 730,944 1,332,846 1,085,032 49,573 INR 500k - INR 1,000k 644,410 95,806 740,217 304,570

11,298 26,100

Source: Indicus Database (2008-09)

Budget Permissible based on Income

Gross Annual 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 Monthly Income

Home Loan Eligibility Criteria

Typically, the Indian Private Banking Sector does not entertain candidates with annual household incomes below INR 300,000. Moreover, the EMI eligibility for candidates earning Below INR 500,000 p.a. stands at a maximum of 35% of the Gross 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 home loan, the Private Banking Sector may be willing to disburse a maximum of 80% 85% of the total transaction value as home loan Gross Annual Income (INR 000) 300 500 Gross Monthly Income (INR Monthly) 25,000 - 42,000 42,000 - 83,000 Maximum Permissible EMI* (INR) 10,000 16,800 Gross Loan Eligibility (INR 000) 1,000 1,700 Gross Budget Funding %age (INR 000) 1,000 2,000 2,000 4,000

Gross Monthly EMI

Gross Home Loan Eligibility Total Budget Eligibility Based on funding %age by Bank

500 1,000

16,800 33,200

1,700 3,400

Source: PropEquity Research 2011

Citys Demand- Supply Gap~ MIG Housing


Budget Category INR 10 Lakh - 20 Lakh
Ownership Details Across Different Cities
Owned Households MMR NCR Bangalore Hyderabad Chennai 0% 20% 40% 60% 80% 100% No. of Households Rented / Other Households 1,400,000 1,200,000 1,000,000 800,000 600,000
673,340

Comparative Total & Actual Demand


Total Demand Residual Demand

400,000 200,000

529,167

180,237

0 MMR NCR Bangalore

84,305

232,302

Hyderabad

Chennai

Demand Supply Gap Across the Cities


Residual Demand 800,000
673,340

Total Supply

(PropEquity Database) 2008-2011 YTD

No. of Households

600,000 400,000 200,000

529,167

180,237 37,364 24,397 84,305 7,417 5,139

232,302

Low interest of private developers to launch in this category due to low margins Additionally, the government provides no incentives ~ Land acquisition at lower than market rates, higher permissible FSI, tax sops, relaxation of density norms, debt financing at lower rates, etc. Very few developers entering this space ~ VBHC, Tata Housing, Matheran Realty, Shapoorji Pallonji
Derived Demand (2008-09 Onwards) Supply (Organized Apartment Market ~ 2008-2011 YTD) Gap (2011 YTD) 1,700,000 86,000 95%

11,414

0 MMR NCR Bangalore Hyderabad Chennai

Source: Indicus Database (2008-09) & PropEquity Research 2011

Citys Demand- Supply Gap~ MIG Housing


Budget Category INR 20 Lakh - 40 Lakh
Ownership Details Across Different Cities
Owned Households MMR NCR Bangalore Hyderabad Chennai 0% 20% 40% 60% 80% 100% No. of Households Rented / Other Households

Comparative Total & Actual Demand


Total Demand Residual Demand

800,000
700,000 600,000 500,000 400,000 300,000 200,000 100,000 0 MMR NCR
77,860 15,303 43,447 293,881 205,075

Bangalore

Hyderabad

Chennai

Demand Supply Gap Across the Cities


350,000 PropEquity Database Residual Demand Total Supply 2008-2011 YTD Primarily as part of low 293,881 cost locations such as Ghaziabad & Faridabad The only city faced with 205,075 an oversupply situation primarily due to political turmoil 100,040
77,860 51,604 30,317 15,303 20,461 43,447 28,325

No. of Households

300,000

250,000
200,000 150,000 100,000 50,000 0

Scenario improves slightly as the ticket price increases However, demand base decreases by 1/3rd Hyderabad being the only city faced with an oversupply situation ~ Lower land rates primarily due to the Telengana issue Low cost housing in NCR primarily as part of supply being witnessed by Ghaziabad & Faridabad ~ Infrastructural & Safety Concerns
Derived Demand (2008-09 Onwards) Supply (Organized Apartment Market ~ 2008-2011 YTD) Gap (2011 YTD) 636,000 231,000 64%

MMR

NCR

Bangalore

Hyderabad

Chennai

Source: Indicus Database (2008-09) & PropEquity Research 2011

Citys Price Threshold~ MIG Housing


The rationale behind threshold price for each city is to identify locations where projects have been launched by private developers within the confines of the city at low base selling prices (BSP) in the past 3 quarters ~ Feasibility of development of low cost housing in these locations exists
Feasible Sizes in Cities
City MMR NCR Bangalore Hyderabad Chennai Feasible Locations Mira Road, Byandar, Kalwa Sec 91, 92, 93, 106 (Gurgaon) Anagalapura, Battarahalli, Horamavu, Kalkere Tellapur, Chandanagar, Kompally Ambatur, Pallavaram Pricing Threshold (INR/Sq. ft.) 4,500 2,750 2,000 1,700 2,400 Feasible Sizes INR 10-20 Lakh (in INR 20-40 Lakh (in Sq. ft.) Sq. ft.) 222-444 364-727 500-1,000 588-1,176 417-833 444-890 727-1,455 1,000-2,000 1,176-2,353 833-1,667

PropEquity Quality of Living Index


City Hyderabad Bangalore Chennai NCR MMR Pricing Threshold 1,700 2,000 2,400 2,750 4,500 Ranking on the basis of Price 1 2 3 4 5 Feasible Size 588-2,353 500-2,000 417-1,667 364- 1,455 222-890 Ranking on the basis of Size 1 2 3 4 5 Overall Ranking 1 2 3 4 5

The Way Forward ?


Ground Realities
Most private developers prefer catering to the Premium, Luxury & SuperLuxury consumer segments

Higher Margins Higher Positioning High Capitalization Better Brand Repute Despite tall claims of development through the PPP route, the government has failed to come up with a definitive policy which would excite private developers

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

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

Some Success Stories

Janapriya Engineers Syndicate has been delivering low-cost housing in Hyderabad & Bangalore for several years ~ No. 1 Developer in terms of Apartments Sold (January 2008 March 2010) Tata Housings 1,500-home affordable housing project at Boisar, near Mumbai alongside another 1,300 mid-price homes Value and Budget Housing Corporation (VBHC) has launched affordable housing ranging INR 7 14 lakhs at Attibele, near Bangalore

A Win-Win For All

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 long before this sector becomes an integral part of every developers portfolio

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