2010 01 27 SAHF - Monitor Presentation

2009
AMSTERDAM
BEIJING
CAMBRIDGE
A Market Based Approach to Low Income

Housing : Commercial Viability of Supply
CHICAGO
DELHI
DUBAI
FRANKFURT
HONG KONG
JOHANNESBURG
Based on a Project for National Housing Bank, with active

support from World Bank and funded by FIRST Initiative
LONDON
LOS ANGELES
MADRID
MANILA
MILAN
MOSCOW
MUMBAI
Implementation support by IFC and Michael & Susan Dell

Foundation
MUNICH
NEW YORK
PALO ALTO
PARIS
South Asia Housing Finance Forum, January 27th, 2010
SAN FRANCISCO
SO PAULO
SEOUL
SHANGHAI
SINGAPORE
TOKYO
TORONTO
ZURICH
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.
COMPANY CONFIDENTIAL
Low Income Housing in India:

A Rs 1,300,000 Cr Opportunity (USD 260 Billion)
MHI1
Urban Income Pyramid
(INR)
>80000
1%
(0.7MM)
Offering & Market Potential
Confidential
Competitive Highlights
Price of unit2 > INR 25 Lakhs
Leading developers (DLF, Unitech)
Potential demand from ~2 M HHs with

estimated Market Size:of ~INR 500,000 Cr
Highly competitive, slowing demand

growth due to increasing prices and high
interest costs
5%
(3.4MM)
4000080000
Various mortgage finance options available

for segment
4%
(2.7MM)
Price of unit: INR 1025 Lakhs
3000040000

estimated Market Size of ~INR 900,000 Cr
Mostly small / regional developers

(Naik Navare)
Major plans / announcements from many

large players (e.g. Omaxe, Ansals,
Lodha, MAYTAS, Purvankara, etc.)
2000030000
5%
(3.4MM)
1000020000
22%
(15.0MM)
500010000
31%
(21.1MM)
<5000
33%
(22.4MM)
Mortgage finance available broadly
Price of House: INR 310 Lacs

estimated Market Size ~INR 1300,000 Cr
Presence of urban development bodies

(DDA, MHADA)
Nascent presence of scale private

developers (TMC, Tata, Homex)
Finance available for MHI > INR 12K in the

formal sector, limited availability below MHI
of INR 12K; negligible availability to the
informal sector
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 INR 1,200 per Lac (at 12% interest for a 15 year loan)
2
Copyright 2008 Monitor Company Group, L.P. Confidential
Source: NHB Trends in Housing; CRIS Infac Report; Monitor Research
Customer Perspective: Social Need and Willingness to Pay

(16 Focus Groups and over 2,000 potential customers)
Confidential
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
Steady job as a factory

worker in a textile
enterprise in Ahmedabad
Monthly HH income ~ Rs
8,000, ($160) savings up
to Rs 900 ($18) p.m.
Lives in 1 RmK in low income

neighborhood, Rent Rs 1800 ($ 36)
Family size: 5 (mother, wife, 2 children)
Assets Bank Account, LIC (Rs 3L), TV
Education: Both children attend private
Gujarati medium schools
Rent: Increased by 50% in past 3 years,
has moved every 2 to 3 years
Appalling conditions
of Slum-Dwellers
Live in poorly
constructed small
cramped houses
Poor sanitary
conditions shared toilets, bad
drainage, water
logging during
monsoons
Lack of facilities properly planned
access points,
walkways,
gardens,
dedicated schools
etc.
Profile - Ganesh
Self-employed Mechanic in Mumbai

Monthly HH income
~ Rs 11,000 ($ 220),
savings up to
Rs 1000 ($ 20) p.m.
Lives in 150 sq. ft.
room in slums, Rent Rs 2,400 ($ 48)
Married with 2 children
Assets Bank Account, LIC (Rs 1.5L),
Refrigerator and PC
Education: Both children attend
English-medium school
Rent: Has seen significant & frequent
increases in rent, has moved house 5
times in 12 years
Both share a dreamA house of their own

Can afford a 250-350 sqft. house, willing to make 20% down payment &
pay 35% of monthly income as EMIs to realize their dream
Source: Primary Research (n=2000), Monitor Analysis
Copyright 2008 Monitor Company Group, L.P. Confidential MUM
Confidential
Low Income, not Low Cost or Low Quality
An Alternate Business Model Land as Inventory

Sample Project Economics: Margin 22%, IRR 40%
Project details
Option
UOM
Key
Numbers
With Land Cost / No Revenue Share
Total Land size
10
sq. ft.
FSI allowed
435,600
1.80
Total area available for construction
sq. ft.
784,080
Area for Commercial
5%
sq. ft.
39,204
Area for Residential
95%
sq. ft.
744,876
Land Cost FSI
INR/sq. ft.
200
Construction Cost
INR/sq. ft.
800
sq. ft.
396
Number of flats
nos
1,883
Average realisation per flat (Rs)
INR
476,799
Average size of flat (sq.ft.)
Mix of Houses - Area
% of number
1 RMK
29%
sq. ft.
220
1 BHK Type 1
32%
sq. ft.
300
1 BHK Type 2
40%
sq. ft.
400
Loading Factor for Saleable Value
25%
Mix of Houses - Base Price in Phase 1

1 RMK
INR/sq. ft.
1100
1 BHK Type 1
INR/sq. ft.
1200
1 BHK Type 2
INR/sq. ft.
1250
Price Rise between Phases
0%
Average Residential (Rs)

Average Commercial Yield Factor
INR/sq. ft.
1,205
2
Commercial (Rs)
INR/sq. ft.
2,410
Confidential
Overall realization from

project
Revenue from different Sources
Commercial (Rs)
Residential (Rs)
Overall Realization of the
Project (Rs. Crores)
Costs from different Sources
Cost of land
Construction Cost
Sales and Marketing
Overall cost of project (Rs.
Crores)
Net realization (Rs)
Margin
Return on Investment (IRR)
INR
INR
9.45
89.76
99.21
INR
cr.
INR
cr.
INR
cr.
INR
cr.
INR
cr.
15.7
62.7
3.0
81.38
17.82
21.9%
40%
Assumptions:
The project is constructed over 3 phases - each phase
consists of approximately 600 flats
Price is constant over the duration of the project
The value of area per square feet is enhanced using two
methods:
Commercial space is valued more than residential space
with an Average Yield Factor of 2
The mix of flats is such as to allow some area to

be sold at a higher price point
Cost of construction is Rs. 800 per square foot

(comparable to other estimates for such projects
based on our experience)
Land is owned by the developer
Making a Market: Phase 1: 2008-2009

Facilitating supply using an ecosystem approach
RAISING AWARENESS
Confidential
END TO END SUPPORT
Government, regulatory bodies etc.

Press (over 20 articles)
Conferences and industry sessions
One on one meetings with broad range of
stakeholders (over 400)
Conveying the opportunity

Arranging customer financing
Selecting land, Obtaining customers
Sharing best practices (architectural
designs, site layouts, etc.)
SMALL
DEVELOPERS AND NEW
PLAYERS
BUILDING THE ECOSYSTEM
Existing and new players for mortgage finance (including

incubating housing finance companies)
PE and VC funds (incubated a USD 100 Million housing
ecosystem fund)
Research on optimal architectural designs, low cost
construction technology, sustainability etc.
Two years, 600 developers, and downturn in the economy to:

1)Achieve a clear recognition in the market of the opportunity
2)Lead to a number of players in this space
6
Market demonstration of Demand: Private sector projects

across India
Ahmedabad: Vatva
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
Project launched on March 27
Confidential
Ahmedabad: Vatva
Taral Bakeri
Phase 1: 800 units
Construction start: June 2009
Price: Rs 3.3 lakh 5.6 lakh
Foliage Developers
Phase 1: 400 units
Price: Rs 2.81 lakh upwards
Maharashtra :Boisar
Tata Housing
67 acres: Phase 1: 1300 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
Maharashtra: Karjat
TMC Matheran Realty
Bangalore: Value Budget Housing

Rs 3-9 lakh townships on minimum
10 acre plots
15,000 units by June 2011;

3,000 units in Phase 1 June 09
6,000 flats @ Rs 3 lakh
Possession: June 2009
Potential demand from 21 Million Households with

estimated Market Size ~INR 1,300,000 Cr (USD 260 Billion)
7
Confidential
Entry by potential scale players
Value Budget Housing

Development Corporation
Tanaji Malusare City

Launched by Matheran
Realty Pvt. Ltd. in Karjat
Aims to create large scale
commercially viable housing
for lowincome households
66,000 applications for sale
of 3,000 units in Phase 1.
Will contain 15,000 flats
1RMK 200 and 300 sq. ft. at
2.1 lakh and 3.15 lakh,
1BHK 400 sq.ft. at 5.25 lakh
and 2BHK 500 sq.ft. at 7.35
lakh
Jerry Rao (founder,

MphasiS) and P.S.
Jayakumar (ex Citibank) set
up housing development
company
Large business opportunity
with significant social impact
Goal: 1 Million homes in
urban India in price range of
Rs. 3-9 lakh in next decade
The company has partnered
with Monitor to test feasibility
of vision, provide in-depth
knowledge of the market and
assist in building the
organization structure
Tata Housing
Launched a low income

housing township in Boisar,
98 kms from South Mumbai
Spread over 67 acres and
has 1,000 flats in the first
phase
1 RMK 283 sq. ft and 1 RMK
with 360 sq. ft.
Flats priced between Rs. 3.9
lakh and Rs. 6.7 lakh
Low Income Housing as a Driver for Economic Growth

Wide Range of Benefits
Market based affordable housing can be part of a broader portfolio of solutions to
housing for the poor and lower income groups
Provide alternative to Urban Slums
Benefits for families of Urban LIG
~40M people live in urban slums without basic

facilities such as sanitation, water, schools, etc
Renters disempowered. All power is w/ slum lords
Slum lords own houses and benefit from Slum
Rehabilitation Schemes
Slums create high pressure on infrastructure
within a city
Housing is essential for the well-being of a

family
Enhanced security and health through
organized housing with access to sanitation
Access to better services (schools, healthcare
etc.) which are typically available to higherincome groups
Affordable Housing
Creation of Low-Risk Asset for Families
Aiding Overall Economic

Development
Construction of low income housing
provides disproportionate job creatiion
Creates signficant economic value for
state (taxes, anxiliary economic
activity, source of labor potentially
leading to industry, etc
Allows Government funds to focus

on poor
Long term wealth creation due to value of

asset, saving on rent & collateral for loan
A security net in crisis
Low income houses typically built on land with
low cost per sq. ft. Low likelihood of price
depreciation, Hence downside risk is low
Limited government resources can be

spent on rental and owned housing for
poorer sections of society
Sets benchmarks that can be used for
housing for the poor
Copyright 2009 Monitor Company Group, L.P. Confidential IND
Our path forward: Monitors plans for the next two years
In the next few years, we intend to facilitate the scaling up of a robust, commercially viable,
and sustainable low income housing market in India
Ensuring Supply of
Housing (Distinct
Business Model)
Facilitating
Consumer
Finance
Supporting
Government Scale
up Low Income
Housing
Facilitating
Broader Market
Innovations
Attract players who can provide large scale low income housing at reasonable prices, including
Facilitating entry of mid/large developers,
Attracting international low income housing developers and new players into the field
Formal Sector: Highlight opportunity for low income home financing to large banks and HFCs
Informal Sector: Catalyzing housing finance through banks, dedicated HFCs, MFIs, etc.
Facilitating access to low-cost, long-term debt
Develop a list of options relevant in the Urban Indian Context, including the pros and cons of
each option and the situations where it would be effective
Working with the central Government and nodal agencies like NHB to transfer this knowledge to
local decision makers.
Sustainability Elements in Low Income Housing
Developing Consumer Education Modules
Developing a Paradigm for Low Income Rental Housing
Monitoring, Evaluating, and Spreading Best Practices/Addressing Unintended Consequences
Developing Architectural Benchmarks and Low Cost Construction Technologies
Working with financial institutions to lower cost of service for low income customers
Including low income housing in SEZs
Facilitating the flow of long term low cost debt to the sector, including warehouse facilities and
securitization options.
10
Confidential
Back-up
11
Confidential
Key Challenges and Critical Success Factors

Several challenges will need to be addressed in order to enable the creation of a
robust, commercially viable, and sustainable low income housing market in India
Ensuring Sustained
Supply of Housing in
the Rs. 3-7 Lakhs
Range
Facilitating
Consumer
Finance
Supporting
Government Scale
up Low Income
Housing
Facilitating
Broader Market
Innovations
Some traditional developers have expressed interest in low income housing because of the
current economic downturn once the market recovers, may move out of this space
Most developers are building affordable homes that cost between Rs. 10-20 Lakhs, but the real
need and business opportunity is houses costing Rs. 3-7 Lakhs
The challenge is to ensure a sustained supply of housing in the Rs. 3-7 Lakhs price range
Access to home financing for low income customers remains the major choke point to the scale
development of this market
There is a need for additional traditional financial institutions to serve the salaried low income
market, since existing banks and HFCs are slow to process loans and charge high rates of interest
New entrants are required to serve the low income informal customer segment - this group is
currently un-served because they are perceived as being high risk and high cost to serve
While the government is interested in stimulating private sector led approaches to low income
housing, they are unclear on effective enabling policy measures
They are concerned that the private sector is largely profit driven and benefits will not percolate to
customers
State policies need to be customized to local situations on the ground to be effective
The low income housing market will also require the creation of an enabling ecosystem through
interventions/projects such as:
Introduction of Sustainability Elements, Development of Consumer Education Modules, Development of

a Paradigm for Low Income Rental Housing, Monitoring, Evaluating, and Spreading Best
Practices/Addressing Unintended Consequences, Developing Architectural Benchmarks and Low Cost
Construction Technologies , Working with financial institutions to lower cost of service for low income
customers, Including low income housing in SEZs, Facilitating the flow of long term low cost debt to the
sector, including warehouse facilities and securitization options etc.
12
Confidential
Facilitating Supply of Housing for Low Income Customers

We would like to ensure a sustained supply of housing in the Rs. 3-7 Lakhs range, and
facilitate the entry of new, scale players into this market
Challenge
Due to the economic downturn, some traditional developers have expressed interest in low
income housing because of the current economic downturn once the market recovers, may
move out of this space
Most developers are building affordable homes that cost between Rs. 10-20 Lakhs, but the real
need and business opportunity is houses costing Rs. 3-7 Lakhs
The challenge is to ensure a sustained supply of housing in the Rs. 3-7 Lakhs price range
There is broad awareness in the market of the business opportunity in Low Income Housing so
our approach will be reactive
For developers who are currently in (or interested in) this space, encourage them to build
housing in the Rs. 3-7 Lakhs range
Focus on large and medium developers
Facilitate the entry of new, scale players (such as corporates, successful entrepreneurs).
Demonstrate commercial viability and sustained demand for homes costing between Rs. 3-7
Lakhs, and help them enter this market through provision of end-to-end support
Monitor support varies from non-commercial sharing of information to light-touch customized

delivery of existing information to traditional customized consulting.
Monitor is also tracking the space and engaging with a broad group of developers (doing group
sessions on areas like ways to lower cost of construction, sustainable elements, etc)
Approach
13
Confidential
Facilitating Consumer Financing for Low Income Customers

We would like to extend access to home financing to low income customers, especially
informal sector workers
Access to home financing for low income customers remains the major choke point to the scale
development of this market
For low income formal sector customers:
Challenge
Large public sector banks are slow to process loan applications
Small housing finance companies charge higher rates of interest to cover their cost of funds
New entrants are required to serve the low income informal customer segment - this group is
currently un-served because they are perceived as being high risk and high cost to serve
Understanding real versus perceived credit risk and managing costs to serve are the key
challenges for HFCs serving the informal sector
Encourage a few traditional financial institutions to serve low income formal sector customers
Work with them on specific projects and ensure they see the value in the market
Work on policy aspects to encourage traditional Fis to serve this market
Incubate new housing finance companies to serve the informal sector etc.
Dissemination of the opportunity through media, conferences & events, and group sessions
Approach
Highlight the opportunity to a shortlist of alternate financial institutions such as MFIs, NBFCs,
cooperative banks etc. who have the reach and potential capabilities to effectively serve this
market
Help them start an HFC. From designing the go-to-market strategy and configuration to
deliver, to raising funds (helping them with the IM and using our network of capital providers),
to connecting them to other service providers and players and helping them with their NHB
application.
14
Confidential
Supporting the Government to Scale Low Income Housing

We would like to work with central and state governments to devise ways to incentivize
the private sector to provide access to low income housing
Challenge
Preferred
Approach
The government, at the central and state level, is interested in facilitating the supply of affordable
housing through the private sector; but is unsure of effective ways to do so
They are concerned that the private sector will enter this segment to make large profits, and
benefits will not percolate to the customers
The local situation on the ground and policies will define the appropriate low income housing
solution on the ground
Work with the central government to develop a portfolio of options to incentivize private players
to provide low income housing
Create a list of options relevant in the urban Indian context identify the pros and cons of each
option, and situations where they are applicable and/or likely to be misused .
Shortlist a set of options that are effective in different environments
Work with the central Government and nodal agencies like NHB transfer this knowledge to local
decision makers
Support a few ULBs on implementing these options and use this learning to refine the options
Leverage our networks to address Urban Local Bodies (ULBs) and state governments to raise
awareness of the potential for private sector led approaches to low income housing
Short Term
Approach
Follow up with interested ULBs/States to raise awareness among developers in their

geography
Provide support in getting a few projects off the ground
Tie-up with the local governments to deliver targeted pieces of support, e.g., customer education
modules
15
Confidential
Development and Facilitation of Market Innovations

In addition to our core market making efforts, we intend to work on special projects
that will help create an enabling ecosystem for the scalable growth of low income
housing in India
Development and
Dissemination of
Customer
Education
Modules
The success of the affordable housing market in India will create a new group of home-owners
that is unaware of the responsibilities of home ownership. We intend to:
Communicate key information on home/developer selection, financing, maintenance, and long

term value enhancement to this segment
Create modules in a format that is easily accessible to target segments i.e. in local languages,
involving role-play and illustrations
Disseminate this information through stakeholders that have aligned incentives (e.g., developers
and housing finance companies on a financial education module).
First module will be a customer finance module (in discussion with FMO about funding)
Monitoring,
Evaluating, and
Spreading Best
Practices/
Addressing
Unintended
Consequences
The low income segments move from their current rental housing into the low income flats, they
will be among the first home-owners in this income group. While we expect the impact of moving
from tenements and slums into homes in good neighborhoods to be positive, there are also likely
to be problems. If we can identify these early, we may be able . Therefore we intend to:
Assess the financial, socio-cultural, and broader (e.g., health, education levels) implications on
the first sets of customers (about 200) moving into these low income houses
Follow a these customers over a 30 month period; this will also allow determining outcomes of
areas like home ownership, maintenance, etc.
Develop approaches to reduce negative factors and spread best practices
Provide rapid feedback to developers, housing finance companies, the government, and other
relevant stakeholders (RBI, NHB etc.) and engage relevant players in addressing the
issues/opportunities (so these become the norm in the market
16
Confidential
Development and Facilitation of Market Innovations

In addition to our core market making efforts, we intend to work on special projects
that will help create an enabling ecosystem for the scalable growth of low income
housing in India. These projects are pending funding from sponsors
Sustainability
Elements in Low
Income Housing
Developing a
Paradigm for Low
Income Rental
Housing
Facilitating
Broader Market
Making
Innovations
The creation of the low income housing market offers a rare opportunity to introduce a new set of
environmentally sustainable elements in the market. If these elements are included in early
projects that are commercially successful, they are likely to be replicated by future entrants in
this space
We have identified an initial set of feasible sustainability elements that are environmentally
better than conventional practice without increasing cost. We would like to expand this list,
quantify the benefit of these elements, include some of them in the new projects and propagate
information about them.
There is a clear need for more and better quality rental housing, and there may be a
commercially viable opportunity to provide such housing
We would like to understand the current living conditions of families such as recent migrants,
young breadwinners etc. who cannot afford to buy homes of their own and their interest in rentals
that the market can provide, regulatory issues, the potential of combining a rental model
ownership housing, etc.
This is likely to lead to a innovative models for rental housing and a clear articulation of a
business opportunity which we could help implement and scale
We are also interested in exploring broader market making efforts such as:
Developing Architectural Benchmarks
Developing Low Cost Construction Technologies
Facilitating the flow of long-term and low-cost debt to the sector, including warehousing facilities
and options for securitization
Including Low Income Housing in SEZs
Working with financial institutions to lower the cost of service for low income customers
17
Confidential
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,
Harvard Business School
Director and Co-Founder
of the Monitor Group
Founded by Michael Porter and other HBS faculty in 1983
Renowned for focus on strategy and cutting-edge ideas that

help clients grow
We believe that Ideas can create impact.

With over 25 offices across the globe, we go the last mile
Corporates
Growth Strategies
Leadership &
Innovation
Private Equity Funds
Governments
City Strategies
Cluster Development
Country
Competitiveness
18
Non Profits
Social Venture Funds
Impact Investing
Education Ecosystem
Confidential
Monitor Inclusive Markets in India

An autonomous unit that is actively facilitating scaling of market based solutions
Customers
Developers
Financial
Institutions
Construction
Technology
Making the market for low income

housing in India
Identifying and refining

business models at scale
19
Urban Housing Market 2007

Smallest house costs ~ Rs. 5 Lakhs (~ USD 10,000)
Multiple builders: Three room

flats @ Rs 950 / sq. ft.
Vatwa, 12 km from city centre;
40 minutes travel, Naroda
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
Confidential
Urban India Expenditure &

Income Pyramid
Monthly
Income
Potential to provide housing

at Rs 800Rs 1000 per sq.ft.
However, overriding concern
is financing of these houses
MHE:
>Rs 9,625 pm
16%
(10MM)
Rs. 11,000
MHE:
Rs 4,575
Rs 9,625 pm
Jaipur
37%
(~23MM)
Rs. 5,000
Ahmedabad / Vadodara
MHE:
Rs 2,500
Rs 4,575 pm
Mumbai
Hyderabad
1RK flat at Karjat, (Mumbai

suburb) being sold at Rs 999
per sqft
Land rate of 0.6 -1.2 Cr per
acre available in Titwala, FSI
norm of 1
USD 220
1BHK flats (450500

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.
33%
(~21MM)
USD 100
Rs. 2,500
MHE:
<Rs 2,500 pm
14%
(~9MM)
USD 50
Current segment served
LESS THAN TOP 16% of Urban Indian

Households can afford to own houses
20
Confidential
The opportunity: Smaller houses using current private sector

construction practices
Urban India Expenditure
Pyramid
Cost Structure : Project IRR of 30 40%

Project IRR 30-40%
Rs
Rs.
200-300 1100-1400
Rs 70-100
Monthly
Income
Operating Profitability
Rs 10-25 Rs 15
250-400
sq ft.
houses
Rs 25-60
Rs 550-650
MHE:
>Rs 9,625 pm
16%
(10MM)
Rs. 11,000
MHE:
Rs 4,575
Rs 9,625 pm
37%
(~23MM)
USD 220
Rs. 5,000
MHE:
Rs 2,500
Rs 4,575 pm
Rs 150-250
33%
(~21MM)
USD 100
Rs. 2,500
Rs 25
USD 50
MHE:
<Rs 2,500 pm
Land &
Legal
Design
Constructi Infrastruct Marketing Salaries

on Costs ure Costs
Interest
PBT
14%
(~9MM)
Total
Target segment for this project
Potential to provide housing for 1521 Million urban households

21
Confidential
Efficient Use of Space Sample Unit Layout
22
Confidential
Interest in Housing:
Focus Groups Household Income Rs. 6,700- 7,700/month ($ 140)
Key is strong interest, proximity to facilities (e.g. schools, market places), connectivity
via public transport and shared open spaces
Housing Concept3 Tested with Respondents
Customer Profile:
Income: Rs. 7,000/month
Maximum Affordable
Down Payment
Housing Loan
Tenure1
Current Rent
(Large City)
Current Average
Savings
Area: Housing is
Complex would comprise 6 buildings with 32 flats in

each building (8
Rs. 70,000
No lifts and single set of staircases

Complex would have a compound wall with shared
open spaces including garden and play area for kids
Rs. 1,500 1,800
Close to primary, secondary schools,

healthcare centre and market place
per month2
Rs. 700 1,000
Well connected to city by bus linkages
per month
Rs. 2,450 / month
Maximum Affordable
Housing Unit
292 sq ft
Rs. 2,92,000
(Super Built Up)
flats/ floor and 4 floors)
Regular water and electricity
20 years
Maximum Affordable
EMI Payments
within 1 hour of the city centre4
Each flat would have a built up area of ~ 300

(large cities) or 400 sq. ft. (small cities)
sq.ft.
1 BHK with an attached toilet and bathroom

Well painted walls and well ventilated
(35% of monthly income)
Rs 300 per month as maintenance charges
All respondents were very

interested in this concept
Note: 1Interest rate assumed to be 12%; 2Rent excludes electricity and water payments; 3Price for lower-income segment housing estimated at Rs. 900/sq ft
3Housing concept tested is based on examples of larger (400-500 sq. ft) flats constructed in cities like Ahmedabad; 4The project team identified areas in the
various cities where apartments could be constructed at property rates of Rs. 800-1,000 / sq. ft and these specific locations were tested with respondents
23
Confidential
A Low Income Housing Finance Business: Outline

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
Customer
Profile and
Focus
Geography: 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
Reach: The HFC will have an urban focus and will establish presence in Metros and surrounding Tier
I/II/III cities
Branch: Hub and Spoke model with 55 branches by Year 10
Target Monthly Household Income range: Rs. 5,000 20,000
Customer groups: Both salaried customers who are unable to access home loans and informal sector
customers, i.e. self-employed and salaried unorganized individuals
Primary Product: Loan for home purchase
Product
Offerings and
Pricing
Structure
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
Loan to Value: 50 80%: A minimum of 20% equity from the customer will help mitigate the
financiers risk, while ensuring that the loan is not sub-prime
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
Loan Tenure: 6 15 years: Will vary based on the customers income
Pricing Structure
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
Processing fee of 1% of loan value to re-cover loan origination and credit check costs
24
Copyright 2008 Monitor Company Group, L.P. Confidential
A Low Income Housing Finance Business

Customer Level Economics: Branch Level Revenue & Costs
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.)
Per Customer Cost Analysis
Assumptions
35,000
20,000
32,000
30,000
25,000
20,000
15,000
4,000
10,000
2,000
Average Loan Size: Rs. 4 Lakhs
Interest Rate Charged: 14%
Loan Processing Fee: 1%
NPA: 1.0%1
A 0.5% of loan value bonus is provided to the branch

sales force as an incentive fee for each loan
generated
These assumptions are typical for most HFCs (our

data is based on inputs from Dewan, GRUH, HDFC
and MHFC)
1,000
2,000
5,000
3,000
0
Legal &
Technical
clearance
Sales
Office Documentation,Average
Incentive Overheads Storage &
NPA
Retrieval
Operating Total Cost

Overheads to Serve
Per Customer Revenue Analysis
Customer (Rs.)
Income Earned Per
90,000
84,000
4,000
Observations
88,000
80,000
70,000
60,000
50,000
40,000
30,000
It costs approximately Rs. 32,000 to serve each

customer, i.e. cost to serve is about 8% of loan size,
The HFC would earn approximately Rs. 88,000 in net

income from each customer
Net Profit Per Customer Over 8 years (not including

other costs) is approximately Rs. 56,000
20,000
10,000
0
Net Interest Income
Note: 1 DHFC and Gruh NPAs are less than 1%
Processing Fee
Total
25
A Low Income Housing Finance Business

Profitability over a 10 year time frame
The HFC will turn profitable after 3 years of operations, and it is anticipated that
margins will grow sequentially in progressive years
Profitability over a 10 year time period
Assumptions1
Net Profit/(Loss) (Rs. crores)
300
276.9
250
Average Loan Tenure: 8 years
Cost of debt: 10%
Debt Equity ratio:
180.3
200
150
-2.8
-1.2
0.8
5.6
16.0
27.3
Y1
Y2
Y3
Y4
Y5
Y6
Y7
Y8
25
Y9
22.0
Return On Assets
20
17.0
Return On Equity
Net Profit/Loss = Post Tax (Income

Expenses)
ROE = Net Profit/Loss / Average Equity
ROA = Net Profit/Loss / Average Assets
Observations
19.0
6.0
0.8
-15
2.9
2.5
2.6
2.9
3.2
The HFC will operate at a loss for the first few

years, but will turn profitable by year 3
ROE of 23% in year 10 is very robust by the

Indian financial industry standards
ROA of 3% in year 10 is comparable to HFC

industry standards
3.3
-3.0
-4.0
-5
-10
2.2
6: 1
NPA of 1 % provided on all loans disbursed

from Year 4
10.0
10
Year 10-
Y10
23.0
13.0
15
4: 1
Capex in Years 1 to 3- Rs 3 Cr (towards

software and hardware)
52.6
50
Year 5-
101.9
100
-50
Percentage Return
1.0
-13.9
-13.0
Y1
Y2
Y3
Y4
Y5
Y6
Note: 1 Based on conversations with HFC Industry Experts and existing HFCs
Y7
Y8
26
Y9
Y10
Low Income Segments as Target Market

Untested Risk Profiles, different from Sub-prime in USA
Sub-prime Experience in USA
Low-Income Housing in India

75-80% LTV significant individual
contribution required; EMIs tend to be 35%
of Monthly Income
Target customers have regular
employment, albeit with low income with
an unproven credit record which needs to
be tested
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
Very high LTV; creative structures

developed to reduce EMIs
Loans extended without due
consideration to ability to pay (basis
employment history) financing
provided to those with questionable
employment record
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
Confidential
Outcome: Sub-prime Defaults

and Foreclosures
27
Outcome: Untested, relatively

low-risk segment with
significant business potential
Confidential
Low Income Housing as a Driver for Economic Growth

Significant Employment Potential to Lower-Income Segments
Within the construction industry which is the largest employers of labor in urban India,
affordable housing emerges as the most labor-intensive providing high potential for
employment opportunity to the urban poor
Construction Laborer in India
With 31 million workers

(2005), the Construction
Industry is the leading provider
of employment to lower
income segments in Urban
India
A typical construction worker
is from states with
lower economic
development (U.P.,
Bihar), a daily
wage earner
(income of ~Rs 100 per day),
resides in temporary
settlement near construction
site and has been badly hit by
inflation and slowdown in
construction industry
Comparison of spend on Labor in Construction Projects

(as % of total Project Value)
Traditional Housing Project
Low Income Housing Project
250
750
25%
13%
400
300
550
1,200
3,000
Largest spend
on labor
400
1,300
250
Capital2
Raw
Material3
Labor
Gross
Margin
Total
Note:2 Includes land costs, design expenses and equipment costs; 3 Includes cost for steel, cement, tiles etc;
Source: Construction Industry Development Council Report, Industry Experts, Monitor Analysis
28
Capital
Raw
Material
Labor
Gross
Margin
Total
Confidential
Interviews with over 30 Housing Developers

Interest in Low Income Housing
Large private developers are not interested in the segment unless it facilitates access
to additional land for high end projects while some medium / small private
developers are interested in serving the segment provided they get sufficient
volumes and financing is available for customers
Large Private Developers
Medium and Small Private Developers
Very limited interest in building housing for low income

customers
Developers believe that there is still a large
opportunity in housing for middle income and
higher income segments
Recognize land as an extremely valuable resource
and consider stand alone low income housing
projects as sub optimal utilization of available land
Not willing to compromise on profit margins
Believe that it is difficult to make housing at
price affordable for low income segment
Interested in looking at housing for low income

customers only if developing such housing helps them
acquire land (from the government) for high end
residential and commercial projects
Willing to cross subsidize low income houses
29
Believe that there is high competition in the middle

segments and market is saturating
Some medium and small developers recognize the

opportunity in low income housing are interested in
looking at the segment
Believe they have the management capabilities for
taking on such additional projects
Believe that it is viable to serve this segment while

earning close to their current margins (20-30%)
However, need comfort that they will get sufficient

volumes from this segment; concerned about non
availability of housing finance to the segment
Some developers have also expressed interest in

being part of a pilot project
Confidential
Financial Institutions: Current Market Focus

The target segment is largely un-served select medium sized HFCs and banks have a
small presence among customers (primarily salaried) with household income above Rs.
5,000 per month
Self Employed & Salaried (Unorganized)
Salaried (Organized)
> Rs. 10 K
Target Segments for the Project
Rs. 8K 10 K
Rs. 5K 8K 1
Large Private and Government Banks, Large Housing Finance

Companies
Banks typically treat

the unorganized
salaried segment as
part of self employed
Select Medium Sized

Housing Finance
Companihes, Co-op
Banks, NBFCs
Large Private and

Government Banks,
NBFCs
Government Banks, Medium Sized

HFCs, Co-operative Banks, NBFCs
(Select players, small % of portfolio)
Shaded portion represents unserved customer segments
Rs. 3K 5K
Limited MFIs (Home repair / extension loans)
Rs. 2.5K 3K
Note: 1 Certain large private banks willing to look at salaried customers with income level down to Rs. 5,000 per month if there is proper documentation and
sourcing / collection is done through third parties thereby managing the overall cost to serve the segment
Source: Discussions with Industry Participants, Monitor Analysis
30
Confidential
New Housing Business Model: Salaried Sector

The new product for those employed in formal sector settings required several
reconfigurations of existing products and practices, with a direct link to customer
employers
Alternative Model Serves 6k12k Market
Current Bottom of the Market (12k20k)
No construction finance
(concern on buyers / delays)
Developer
(Small and
Medium)
Developer
(Small and
Medium)
Uncertainty of Sales
Sales and Mktg. costs
Funding constraint
Financial
Institution
Employer
Retention issues
Developer puts 500 sq.ft.+

apartments on market in
phases (34 years) and gets
individual, walk in customers
Formal
Sector
Customers
Employer
Serve 1 customer at
a time, wont finance
below Rs. 12,000/month
Retention tool
High productivity
Risk of Delays
Affordable
200-350 sq ft
units, good
quality, no
delays
Payroll deduction
Facilitates aggregation
and information on
customers
Upfront,
financed,
aggregated
customers
Construction Finance
Financial
Institution
Aggregated low
risk, low cost to
serve customers
Formal
Sector
Customers
Loans at
affordable
rates
Opportunity to Set Standards:

Architectural Design, Maintenance, Consumer Education
31
Confidential
New Housing Business Model: Informal Sector

The new product for those employed in informal sector settings may require the
introduction of MFIs as an aggregator and potentially a credit guarantor to incentivize
financing
Alternative Model Serves 6k12k Market
Current Bottom of the Market (12k20k)
No construction finance
(concern on buyers / delays)
Developer
(Small and
Medium)
Developer
(Small and
Medium)
Uncertainty of Sales
Sales and Mktg. costs
Funding constraint
Financial
Institution
Affordable
200-350 sq ft
units, good
quality, no
delays
Developer puts 500 sq.ft.+

apartments on market in
phases (34 years) and gets
individual, walk in customers
Financial
Institution
Upfront,
financed,
aggregated
customers
Informal
Sector
Customers
Credit
Guarantee
Construction
Finance
Often will not finance
Customers
Risk of Delays
32
Aggregated
customers
Potentially
low risk
Low cost to
serve
Aggregated
customers
Use of tools such
as rolling guarantee
to reduce risk
Credit check,
collection, consumer
education
Financial
return with
aligned
incentives
MFI
Confidential
Summary of Various Affordability Levers

Various quantifiable affordability levers significantly differ from each other in terms of
impact on affordability and feasibility
Small Sized
Houses
Land
Subsidy
Feasibility
Low Cost
Construction
FSI
Increase
Stamp Duty and

Registration
waiver on Land
Bulk Material
Purchase
Subsidized
Construction
material
Semi Finished
Construction
High
Medium
Longer
Stamp Duty
Tenure Loan
Exemption
to Customer
Interest
Registration Fee s
Income tax
Subsidy
Waiver to Customer
Exemption to
Developer
Tax
Concessions1
Low
Note: 1 Sales Tax and Excise Duty Exemption ;The numbers in the graph represent the percent reduction of gap in affordability due to the lever
Source: Discussions with Industry Participants, Monitor Analysis
33
Monitors Value Proposition to Developers

Support provided across the affordable housing value chain
Project implementation
Business Blueprint
Business Planning
and Organization
Design
Development of
business plan
including strategy
Organization design
and structure
Financing
Roles and
responsibilities
Identification of
functions that can be
outsourced/inhouse
Project/Business
Economics
Land
selection
and
validation
Access to targeted
financing for specific
projects
Access to doublebottomline funds for
investment at a
business level
Access to PE funds
interested in
investing in
affordable housing
Developing list of
attractiveness criteria
as well as inhibiting
features to evaluate
areas for determining
buy decision
Design and
Developmen
t
Validation of selected
land parcels
Facilitating site visits
by potential
customers to
determine
attractiveness and
demand.
Sales and Marketing
Databank of unit
layouts (Lower
cost and increase
value to customer)
Improve mix of
commercial and
residential to
improve returns
Product
mix and
pricing
Project phasing
Developing
optimal product
mix given FSI
norms and desired
returns
Sales
process
design
Strategy to
reach out to
different sets of
customers
Building the
sales process
from the time a
customer walks
in to the project
until the time
possession is
handed over to
the customer.
Differential
product pricing
Databank of site
layouts to
incorporate open,
green spaces,
max FSI, etc.)
Access to
housing
financing
companies
Training of
client team
Structure team in
order to achieve
long term
competencies in
selling
Train team to be
able to do this at
scale across
projects
Templatize
processes
Sensitivities of plan
to approval process,
construction costs
and time, sales
efficiencies, etc
Access to Monitor Networks
End-to-end handholding : Base IP and customized application; Decision support and overall knowledge
Work with
banks, MFIs and
specialized
institutions to
enable access to
financing options
for customers at
booking stage
Tie-ups with
financial
institutions for
both formal and
informal sector
customers

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2009

A Market Based Approach to Low Income

Based on a Project for National Housing Bank, with active

Implementation support by IFC and Michael & Susan Dell

South Asia Housing Finance Forum, January 27th, 2010

Copyright 2009 by Monitor Company Group, L.P.

Low Income Housing in India:

Urban Income Pyramid

Offering & Market Potential

Price of unit2 > INR 25 Lakhs

Leading developers (DLF, Unitech)

Potential demand from ~2 M HHs with

Highly competitive, slowing demand

Various mortgage finance options available

Price of unit: INR 1025 Lakhs

Potential demand from ~5 M HHs with

Mostly small / regional developers

Major plans / announcements from many

Mortgage finance available broadly

Price of House: INR 310 Lacs

Potential demand from ~21 M HHs with

Presence of urban development bodies

Nascent presence of scale private

Finance available for MHI > INR 12K in the

Customer Perspective: Social Need and Willingness to Pay

Steady job as a factory

Lives in 1 RmK in low income

Self-employed Mechanic in Mumbai

Both share a dreamA house of their own

Copyright 2008 Monitor Company Group, L.P. Confidential MUM

Low Income, not Low Cost or Low Quality

Copyright 2008 Monitor Company Group, L.P. Confidential MUM

An Alternate Business Model Land as Inventory

With Land Cost / No Revenue Share

Total Land size

Total area available for construction

Area for Commercial

Area for Residential

Land Cost FSI

Average realisation per flat (Rs)

Average size of flat (sq.ft.)

Mix of Houses - Area

Loading Factor for Saleable Value

Mix of Houses - Base Price in Phase 1

Price Rise between Phases

Average Residential (Rs)

Overall realization from

The mix of flats is such as to allow some area to

Cost of construction is Rs. 800 per square foot

Making a Market: Phase 1: 2008-2009

END TO END SUPPORT

Government, regulatory bodies etc.

Conveying the opportunity

Existing and new players for mortgage finance (including

Two years, 600 developers, and downturn in the economy to:

Copyright 2008 Monitor Company Group, L.P. Confidential MUM

Market demonstration of Demand: Private sector projects

Bangalore: Value Budget Housing

15,000 units by June 2011;

Potential demand from 21 Million Households with

Copyright 2008 Monitor Company Group, L.P. Confidential MUM

Entry by potential scale players

Value Budget Housing

Tanaji Malusare City