expansion and growth in affordable housing markets nhb-auf international conference new delhi-...
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Expansion and Growth in Affordable Housing MarketsNHB-AUF International Conference
New Delhi- January 30, 2012
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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
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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
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Acute shortage of housing in India
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).
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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
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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
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Material 2011 cost (2009 cost indexed to
100)
2011 cost (2010 cost indexed to
100)
Steel 150 120
Cement 160 130
Energy 130 115
Cycle time (days / casting)
Completion time (months)
3 30
2 22
1 14
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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
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Activity Time taken (months)
Approvals 12*
Construction 18
Idle time to construction time ratio
40%
* Receipt of Occupancy Certificate (OC) takes an additional 4-6 months
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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
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Case study: Variation in bylaws across the country (2/3)
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Case study: Variation in bylaws across the country (3/3)
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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
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Customer profile (1/2)
Note: customer profile is based on data collected from over 1,000 customers of the Bangalore project
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Customer profile (2/2)
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
Income Distribution
Note: customer profile is based on data collected from over 1,000 customers of the Bangalore project
0.00%
5.00%
10.00%
15.00%
20.00%
25.00%
30.00%
Upto Rs. 1.5 lacs
Rs. 1.5 -3 lacs
Rs. 3 - 5 lacs
Rs. 5 - 7 lacs
Rs. 7 -10 lacs
Rs. 10 -12 lacs
Rs. 12 -15 lacs
Rs. 15 -18 lacs
Rs. 18+ lacs
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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
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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
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Demand side intervention: Example of Guarantee Program
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Thank you