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Expansion and Growth in Affordable Housing Markets NHB-AUF International Conference New Delhi- January 30, 2012. Presentation path. About Us Housing Marco Statistics: Demand-Supply Mismatch Addressing Supply Side Constraint is a large Challenge Key Pressure Points

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  1. Expansion and Growth in Affordable Housing MarketsNHB-AUF International Conference New Delhi- January 30, 2012

  2. Presentation path • About Us • Housing Marco Statistics: Demand-Supply Mismatch • Addressing Supply Side Constraint is a large Challenge • Key Pressure Points • Some Suggestions on Increasing Demand Side • Conclusion

  3. About us • Value Budget Housing Corporation (VBHC) is a professionally managed real estate company • Construction of Affordable Entry Level Homes (AEL), priced range of Rs. 5 to 15 lakhs, building self contained communities in suburbs/urban periphery • Marquee Investors whose direction to VBHC is in delivering Quality Homes, at an Affordable Price, Transparent Sales Process and Reasonable Returns • Essence of Planning is to Experience the Joy of Living • Investment Thesis: Industrialization of construction is key to address the supply side challenge and achieve balance between price, quality and speed of delivery • Application of Industrial Building Systems and building of trained skilled labour force

  4. Acute shortage of housing in India • LEADERSHIP TEAM: • Jerry Rao: Founder, Chairman • P.S.Jayakumar: Founder, MD • Pramod Kumar: Director, COO • Alejandro Morales: Head, Construction • Bhaskar Chaudhry: CFO Housing shortage in India expected to be over 26 million units by 2012 (Source: KPMG). Over 90% of this demand is in the 300 – 800 sq ft size category (defined as EWS and LIG).

  5. Industrial building systems (IBS) at VBHC • Standard prototype of apartments and buildings, use of BIM for acceleration in design process • Offline completion of bar bending, steel mesh, electrical and plumbing kit • Cast In Situ, reusable Aluminium mould for completion of structures • High quality design with high emphasis on sustainability measures • Current speed, initial phase of 30 apartment every month, currently 90 apartments, plan to achieve140 apartments completion every month

  6. Key supply side challenges I – Offsetting Input Cost Increase • Increased cost of most inputs driven indirectly by energy cost • Cascading effects on adveloram charges including higher circle rates • Labour cost both skilled and unskilled • Higher transportation costs • IBS application offer substantial opportunity to offset input costs through productivity improvements • Cycle time reduction: progress from conventional construction-in-situ to precast • Sweating fixed assets, lowering period costs, lowering cost of capital • Technology progress will provide more options on material substitution, productivity gain to offset input costs 6

  7. Key supply side challenges II – Approval Lead Time • Prior history on non complaint behaviour on the part of builder community • Uniform bylaws will promote standardization and lower costs • Bylaws ambiguous , need for an appellate authority for appeal and early disposal • Density rules can be improved based on empirically established data – buyers are young, nuclear families • Bylaws can be improved leading to more efficient design and loser costs • Long approval time lines, adds ~15% of total cost • Biggest opportunity is to focus on aspects that are costs to the consumer but not revenues loss to the Government * Receipt of Occupancy Certificate (OC) takes an additional 4-6 months 7

  8. Case study: Variation in bylaws across the country (1/3) • Bylaws vary between cities in critical design requirements impacting modularity and standardization • Some of the bylaws which determine the Master Plan are: • FAR/FSI - Ranges from 0.75 to 2.25 • Setbacks - Ranges from 6m to 8m for a building of 30m height • Distance between buildings - Ranges from 1/2 the building height to 1/4 the building height • Fire driveway requirements - Ranges from 3.6m to 8m • Open space requirement - Ranges from 10% to 25% • Some of the bylaws which determine the Building Design are: • Minimum room sizes – Ranges from no min. size specified to 9.5 sqm for bedroom • Ventilation shaft requirement - Ranges from 4 sqm to 8 sqm for a 30 m high building • Fire distance within buildings – Defined from the exit door or from furthest point in the unit • Requirement and location of fire stairs – location, number and design req. varies • Minimum window sizes - Ranges from 10% to 20%: • Parking requirement – Based on plinth or FSI area. Floor area ranges from 50 sqm to 75 sqm 8

  9. Case study: Variation in bylaws across the country (2/3) 9

  10. Case study: Variation in bylaws across the country (3/3) 10

  11. Key supply side challenges III - access to capital and funding • 100% Equity required for land purchase at project Level. • ECBs permitted for large township. Scope to provide flexibility for Affordable Home Projects • Long-term finance for purchase of equipments • Working capital funding, real estate considered in negative category, stressed portfolio also leading to conservative standards • A more favourable environment for access of funding of projects... will also lower delivery risks to customers 11

  12. Customer profile (1/2) Note: customer profile is based on data collected from over 1,000 customers of the Bangalore project

  13. Customer profile (2/2) Income Distribution • Majority of the customers are young (less than 40 years of age) professionals • 20% of customers are women • 50% of customers currently live in rented accomodation • Modal customer earns between INR 3 – 7 lacs per annum Note: customer profile is based on data collected from over 1,000 customers of the Bangalore project

  14. Demand side intervention • Key is to encourage long term investors such as insurance and pension funds in organized rental market • Young workers in our industrial corridors • Not ready to make decision to purchase • Rental / shared accommodation • Companies willing to provide guaranteed long term lease • Part purchase and part funding, option to purchase the balance property • Individual, Social Sector, Philanthropy willing to guarantee facility to support access to mortgage loans on prime rate 14

  15. Demand side intervention: Example of Guarantee Program Demand side intervention • Guarantor, Dr. D.V.R. Seshadri is adjunct faculty of Marketing at the Indian Institute of Management – Bangalore.   • Beneficiary: Mrs and MrUshanNaika , housekeepers for Dr. Seshadri with a combined income of Rs 15,000 per month. • Property: 1 BHK flat, total cost Rs 8.82 lakhs. Loan availed Rs. 7.5 lakhs, EMI Rs. 8,132. • Guarantee: Is redeemed on reaching certain trigger event such as seasoning and LTV ratio • Program on ‘ Cloud’, Opportunity to build an institutional portfolio with individuals and social institutional investors 15

  16. Thank you

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