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State of the Affordable Housing Sector in India
Prepared for: Department For International
Development
Prepared by: Knight Frank India Pvt. Ltd.
2State of the Affordable Housing Sector in India
Growth of Population and Urbanisation in India
439
683
10281210
360524
740833
79 159288
377
1961 1981 2001 2011
Total Population (million) Rural Population (million) Urban Population (million)
Growth of Population in India
Growing Urbanization in India
18.0% 18.2%23.3% 25.7% 27.8% 31.2% 32.4% 33.2% 34.0% 35.9%
40.1%46.4%
52.8%
1961 1971 1981 1991 2001 2011 2014 2016 2018 2022 2030 2040 2050
Estimate of Urbanisation
Factors driving growth of Urbanization in India
52 63 5944
12 2 10
4
17 13 1030
20 23 21 22
1971-1981 1981-1991 1991-2001 2001-2011
Natural growth (new births) Expansion of existing urban boundary
Reclassification of towns Rural to urban migration
% Share of growth contributed by factors
• In the period 2001 – 2011, the growth rate of population inrural and urban areas was 12.18 percent and 31.80 percentrespectively.
• Estimates suggest rapid urbanization in India, thus increasingthe demand for housing and infrastructure in Urban areas.
• Contrary to widespread perception, rural-urban migration is notthe primary driver for growth of Urbanisation in India.
Source: Census of India + KF Analysis
Source: Centre for Policy ResearchSource: Census of India + KF Analysis, Estimate of urbanization by United Nations
3State of the Affordable Housing Sector in India
64
60
57
51
69
67
57
53
33
36
36
43
29
30
39
42
3
4
7
6
2
3
4
5
Chattisgardh
Jharkhand
West Bengal
Odisha
Rajasthan
Madhya Pradesh
Uttar Pradesh
India
Good Livable Dilapidated
Condition of Housing Stock
Condition of Housing Stock in Urban Areas
Size of the Housing Stock
1
20
3
2
38
51
51
3
27
13
42
28
8
1
1
32
33
31
32
34
18
13
16
31
20
19
14
19
15
17
16
18
19
17
9
17
21
18
16
16
Chattisgardh
Jharkhand
West Bengal
Odisha
Rajasthan
Madhya Pradesh
Uttar Pradesh
India
No exclusive room 1 room 2 rooms 3 rooms 4+ rooms
7.4
1.1
7.0
3.7
3.0
7.8
3.1
5.4
92.6
98.9
93.0
96.3
97.0
92.2
96.9
94.6
Chattisgardh
Jharkhand
West Bengal
Odisha
Rajasthan
Madhya Pradesh
Uttar Pradesh
India
Slum Population Non Slum Population
Slums as percentage of Total PopulationFigures in percentage Figures in percentage
Figures in percentage
Source: Census of India 2011 + KF Analysis
4State of the Affordable Housing Sector in India
Shortage of Urban Housing in IndiaStatewise Shortage of urban Housing in India
56% 40% 4%
EWS LIG MIG and above
Distribution of Housing Shortage by Segment Factors driving Housing Shortage
80% 12% 5% 3%
HH living in congested houses HH living in obsolescent houses
HH living in non servicable katcha houses HH living in homeless conditions
Source: Report of the Technical Urban Group (TG-12) on Urban Housing Shortage 2012-17, Ministry of Housing and Urban Poverty Alleviation, September 2012
96 percent of the housing shortage is driven due to congestion within the housing unit and lies in the Affordable Housing (EWS+LIG) Segment
16%
10%
7% 7% 7% 6%6% 6% 5% 5%
3% 3% 3%2% 2% 2% 2%
1% 1% 1%
0%2%4%6%8%10%12%14%16%18%
0
0.5
1
1.5
2
2.5
3
3.5
Shorage of Urban Houses (Mn.) % of Total National Shortage
5State of the Affordable Housing Sector in India
Reasons for Shortage of Affordable Housing
• In certain states such as M.P, the stategovernment nodal agency for PMAY stay asguarantors to Affordable housing financecompanies, thus facilitating loan disbursement toEWS households.
• No defined Central or State policy to promoteRental housing, which is also outside the purviewof PMAY Scheme.
Reasons
Scarcity of land for affordable housing within
cities
Lack of Rental housing stock for
EWS/LIG Households
Limited participation by developers for slum
redevelopment/ affordable housing
projects.
Lack of incentivisation of
new low cost construction
technology or material
Limited access of EWS & LIG
households to Housing Finance
Shortage of Affordable Housing due to Market Conditions
Source: Primary Research + KF Analysis
6State of the Affordable Housing Sector in India
Reasons for Shortage of Affordable Housing
• No Affordable Housing policy is structured tofactor in the size and specific housing needsof the households.
• The Household is less inclined to undertakeconstruction, repairs of their house incasethey do not have titles to the property.
• Through a policy measure in 2018, theGovernment of Odisha has provided landrights to slums dwellers.
Reasons
Land Use Regulations
Height Restrictions of Buildings
Usage of FAR as a revenue tool
Restrictions on Lending to Slum
Dwellers
Lack of Property Titles/
Documentation
Shortage of Affordable Housing due to Policy related Issues Failures
Source: Primary Research + KF Analysis
7State of the Affordable Housing Sector in India
Shortage of Affordable Housing in India
Current Housing Gap in India in EWS & LIG Segment (2019)
Total Housing gap prevalent amongst LIG and EWS households in 2019
EWS Households LIG Households Total
Rural India 4,51,26,205 1,43,84,543 5,95,10,748
Urban India 81,90,700 23,83,462 1,05,74,162
Additional Housing Need in EWS & LIG segment in India (2019-2030)
New Households to be added in the year 2019 -2030
EWS Households LIG Households Total
Rural 12,70,193 1,41,133 14,11,326
Urban 2,19,72,025 38,77,416 2,58,49,441
Total Housing Need in EWS & LIG segment over next 11 years (2019-2030)
Total Housing Gap in India (2019 to 2030)
EWS LIG Total
Urban 3,01,62,725 62,60,878 3,64,23,603
Rural 4,63,96,398 1,45,25,676 6,09,22,074
8State of the Affordable Housing Sector in India
Size of Affordable Housing Finance Market in India
The maximum addressable opportunity for Housing Finance companies to service the EWS and LIG Segment over the next 11 years (2019 -2030)
Average Size of the home loan availed by EWS and LIG
households while purchasing/ repairing an affordable
housing unit.
Average Size of the home loan in INR
EWS LIG
Rural India 80,000 1,50,000
Urban India 1,20,000 2,50,000
Total Housing Gap in India (2019 to 2030)
EWS LIG Total
Rural India 4,63,96,398 1,45,25,676 6,09,22,074
Urban India 3,01,62,725 62,60,878 3,64,23,603
Total Housing Gap over the next 11 years (2019 to 2030)
Total Housing Finance Market in India (INR Lakhs)
Size of the Housing Finance Market (INR Lakhs)
EWS LIG Total
Rural India 3,71,17,119 2,17,88,513 5,89,05,632
Urban India 3,61,95,270 1,56,52,195 5,18,47,465
Total Market Size (INR Lakhs) 11,07,53,097
9State of the Affordable Housing Sector in India
Central Government Policy for Affordable Housing
56% 33% 7% 4%
Beneficiary led construction Affordable housing in partnership
Credit linked subsidy scheme In-situ slum rehabilitation
Pradhan Mantri Awas Yojana
• The major policy gaps and other operational issues faced by beneficiaries are as follows
• The scheme does not look at the size or diversity of requirements of requirements of thebeneficiary households. The subsidies should be linked to size of the family.
• Provision of rental housing for EWS and LIG is not covered under the purview of the scheme.
• Apart from land within the city, there is no other incentive for developers to participate in slumredevelopment or affordable housing (PPP) projects. In the absence of participation bydevelopers, states such as Odisha, West Bengal, Chhattisgarh are mainly focused on BeneficiaryLed construction sub-scheme.
• Most implementing agencies in states have opined that they face Infrastructural and manpowerrelate challenges.
Percentage of total beneficiaries who have opted for each sub-scheme (Since Inception of the Scheme in 2015 upto November 2018)
▪ Started in 2015, the Pradhan Mantri Away Yojana (PMAY) is an initiative of the Indian Government to provide assistance and facilitate the creation of 1 crore urban and 3 crore rural affordable housing units, especially for EWS and LIG Households.
▪ All earlier affordable housing schemes have been subsumed under PMAY.
60,418
78,588
1,50,573
56,101
63,871
2,97,620
3,06,888
2,22,514
1,68,042
3,50,391
1,41,887
1,81,308
6,88,406
11,58,152
Chattisgardh
Jharkhand
West Bengal
Odisha
Rajasthan
Madhya Pradesh
Uttar Pradesh
Houses Sanctioned
Houses Completed
25,69,507
80,96,758 India
Sanctioned vs. Completed Houses under PMAY (As on 27th May 2019)
Offtake of PMAY Scheme
Source: Primary Research + KF Analysis
Source: Ministry of Housing & Urban Affairs - GoI
Source: Ministry of Housing & Urban Affairs - GoI
10State of the Affordable Housing Sector in India
State Government Policies for Affordable Housing
Source: Primary Research + KF Analysis
Policy Gaps & Shortcomings – Key Takeaways
Most state level affordable housing policies do not have a robust framework in place to support monitoring and implementation.
State government schemes lack scale in terms of funds and hence have not been able to create a sustainable impact.
State level schemes do not have a holistic approach and are generally focused on a certain beneficiary category.
Most state level schemes are focused on a certain region or location within the state.
Due to the introduction of PMAY scheme, the focus of states which have introduced state specific schemes have shifted towardsimplementation of PMAY Schemes
11State of the Affordable Housing Sector in India
Share of loans to EWS & LIG Household are decreasing
• Although the overall disbursements of Housing loans have increased, the share of small ticket size loans is decreasing in the totaldisbursement.
1,9
96
2,4
59
2,8
18
3,1
59
3,8
00
4,8
24
21%
16%14% 12%
14%10%
39%
38%37% 37% 35%
33%
0%
10%
20%
30%
40%
50%
60%
70%
-
1,000
2,000
3,000
4,000
5,000
6,000
FY 2013 FY 2014 FY 2015 FY 2016 FY 2017 FY 2018
INR
Bn
Total Disbursements (HFC+SCB) Share of EWS sector Share of LIG sector
Size of the Affordable Housing Finance Market in India
Source: National Housing Bank
12State of the Affordable Housing Sector in India
Ecosystem of Housing Finance Companies in India
Amongst total Housing loans to EWS and LIG segment, majority is contributed by Affordable Housing Finance Companies
68% 32%
Affordable Housing Finance Companies Conventional Housing Finance Companies & Banks
Source: Primary Research + KF Analysis
~55 percent of total Housing Loans provided by Affordable Housing Finance companies are provided to EWS & LIG
10% 45% 45%
EWS LIG Others
Source: Primary Research + KF Analysis
13State of the Affordable Housing Sector in India
Challenges faced by Affordable Housing Finance Companies
Challenges
High Cost of Customer
Acquisition
High Cost of Collection &
Debt Servicing
Higher Risk of Default
Low technology adoption by
customer
Access to long term funds at
lower interest rates
Source: Primary Research + KF Analysis
14State of the Affordable Housing Sector in India
Challenges faced by Developers
• RBI guidelines do notallow banks to provideloans to Developers forland purchases.
• They are forced to seekfunds from NBFCs athigher interest rates,thus increasing theinput costs.
• As most newconstruction materialand technologies arenot yet popular,developers useconventional materialsand constructionmethods, thusincreasing time andcost of construction.
• The cost of land is so highthat it is impossible tobuild low cost affordablehousing close to centralbusiness districts in anycity.
• The government shouldallocate unutilized landfor affordable housingwithin the city.
Adoption of New
Technology/ Alternate
construction materials
Lack of Financing of
Land Acquisition
Availability of Supporting
Infrastructure
Financial Viability of
construction
Availability of Land for
Affordable Housing in
cities.
• Affordable housingprojects are feasible onthe city periphery due tolow land costs.
• However, projects willonly be successful if thereis good public transportconnectivity and othersupporting infrastructuresuch as roads, watersupply etc.
• Affordable housingprojects or Slum-Redevelopment is notalways a profitableventure
1. Cost of the housingunit is not marketdriven.
2. Construction Delaysdue to proceduresand other issues ofPPP construction
Source: Primary Research + KF Analysis
15State of the Affordable Housing Sector in India
Challenges faced by Consumers
Underdeveloped Mortgage
Finance Market catering to EWS/LIG segment.
Low Awareness of modalities of
Government Housing Schemes
High Cost of Finance
Difficulty to Establish
Creditworthiness to Access Finance
• EWS & LIG household are notthe preferred consumersegments.
• Evidently, India has one of thelowest mortgage to GDP ratio asbelow
6%
9%
20%
41%
81%
88%
Sri Lanka
India
China
Hong Kong
USA
UK
• Although Beneficiaries areaware of PMAY and other stateschemes, they have limitedunderstanding of
• Eligibility criteria andwhether they qualify.
• Channels to access theschemes.
• Housing Finance Companiesget input funds from PE athigh interest rates.
• Consequently the interestrates levied on consumerloans are high to the tune of24 percent, deterringconsumers from availingloans.
• ~80 percent of the EWS &LIG customers are employedin the informal segment.
• In the absence of incomeproof or not meeting otherqualifying criteria toestablish creditworthiness,majority of EWS category isdenied a housing loan.
Source: Primary Research + KF Analysis
Source: National
Housing Bank
16State of the Affordable Housing Sector in India
Challenges faced by NGOs to expand their operations
Challenges faced to expand
operations
Funding
Lack of Working
relationship with state
government
Unavailability of technical
staff
Lack of Understanding of operational
dynamics in new markets
Lack of community patriation
Absence of Big Corporates, hence lesser CSR funds 1
Nature of work undertaken by existing agencies (Govt/ Donor Agencies)2
Less Coverage due to scattered nature of work3
Reasons for Low Presence of NGOs in focus states
Source: Primary Research + KF Analysis
17State of the Affordable Housing Sector in India
Recommendations
Long term capital to Affordable Housing Finance Companies at lower interest rates
▪ Due to limited availability of funding from other sources, Affordable HousingFinance companies (AHFC) seek funds from PE funds, who have a shorterinvestment horizon (4-5 years) and expect high returns on investment.
▪ Consequently, AHFCs lend at higher interest rate compared to ScheduledCommercial Banks, which makes it difficult for beneficiaries to seek finance.
▪ DFID should make a portfolio for long term lending with reduced interest rateto cater to Low Cost Affordable Housing Sector.
▪ Boundary conditions against such lending to housing finance companies maybe imposed and these conditions should focus on the followings.
1
Early stage capital to Affordable Housing projects
▪ Banks/ Financial Institutions fund a project only after all necessary approvalsfor commencing construction is obtained.
▪ However, real estate projects have significant initial funding requirementsduring the stages of land use conversion, zoning, construction approvals,design, shuttering etc., which is approximately 4-5 percent of total projectcost.
▪ DFID can play very important role by creating a fund for providing Early StageCapital to developers through affordable housing companies.
▪ Affordable Housing Companies can take over the loan once receive requisiteapprovals and construction activities start.
2
18State of the Affordable Housing Sector in India
Recommendations
Formulation of Risk Cover Fund to increase reach of Affordable Housing Finance companies.
▪ Housing Finance companies refrain to engage and provide loans to informalincome segment due to higher risks associated with the beneficiaries. Theperceived risks include difficulty in collecting money and related higher costof operations.
▪ Apart from having a high risk profile, many beneficiaries cannot access loansdue to lack of proper documentation.
▪ DFID can initiate a risk cover fund and can receive risk premium from HousingFinance companies on individual housing loans sanctioned.
▪ A part of net credit loss suffered by HFCs in funding informal segmentbeneficiary or informal properties could be made good out of the fund.Boundary conditions of beneficiary property and credit underwriting rulescan be predefined to protect DFID interest.
3Technical Support to Affordable Housing Finance
companies
▪ Cost of operation for affordable housing finance companies are quite high,especially for smaller companies and estimated to be around 4%-5%.
▪ To optimize business operations, DFID can play a very important role byhelping Affordable Housing finance companies to develop a StandardOperating Procedure (SOP).
▪ The SOP development can be facilitated by DFID by studying best practiceswith efficiency/productivity benchmarks which will help affordable housingfinance companies in reducing their costs and run business efficiently.
4
19State of the Affordable Housing Sector in India
Recommendations
Support to NGOs for Capacity Building
▪ NGOs working in the sector are not in a position to expand operationsin other states as they find it difficult in (a) in connecting with localGovernments (b) demonstrating Governments their work experiencein the region (c) don’t have familiarity to new market.
▪ DFID can help NGOs by providing technical support /training for their
capacity building efforts. The capacity building efforts should target
the following
▪ Develop a training module for staff of NGOs to enhance their
administrative & technical capabilities.
▪ Help NGOs in identifying new markets and engage to provide
knowledge of these markets.
1
Key ContactSugata Sarkar
Senior Director – Consultancy & Market Research
Knight Frank India
+91 22 674501991/ +91 9999266076
Sugata.sarkar@in.knightfrank.com
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