making 'the dream of millions' a reality

October 2016

Making ‘The Dream Of Millions’ A RealityAssessment of Affordable Housing in India

Making ‘The Dream Of Millions’ A Reality 3

Executive SummaryFor majority of the people in the country, housing still remains a distant dream. The central government, guided by its mission ‘Housing for All by 2022’, formulated a holistic policy ‘Pradhan Mantri Awas Yojana’ in 2015. The main objective of this policy is to provide housing for each and every household in the country by 2022.

The situation is challenging as the housing shortage in both urban and rural areas combined is estimated to be 62.45 million. In this paper, we try to identify key policies implemented by the government to reduce this shortage, identify challenges with various stakeholders of this segment and try to provide solutions for the same.

While there are challenges for the government, there are also opportunities for developers and housing finance institutions. The government can address challenges through policy implementation and further reforms whereas developers and housing finance institutions have opportunities to innovate and create new products using technology to supplement housing units and housing finance respectively.

This paper by Jones Lang LaSalle (JLL) India attempts to identify and highlight issues faced by the stakeholders on the demand side, such as home buyers, and on the supply side, such as developers in the market. In addition, the report also takes stock of opportunities and challenges faced by the same stakeholders. Various aspects of increasing supply of affordable housing using latest technologies like pre-fab, pre-cast, etc. are also discussed in addition to greater participation of private developers in the segment.

This paper attempts to suggest way to make current government initiatives more relevant, for e.g. by linking the ‘Jan Dhan Yojana’ with affordable housing finance to better serve the economically weaker sections and low income groups. This is just one of the many possible solutions that the report highlights though there is a need for industry-government collaborations to derive more such ideas.

Making ‘The Dream Of Millions’ A Reality4

AffordAble Housing


Housing sHortage in india

Source: National Housing Bank, MHUPA 2012Units (in million)

62.543.7

18.8

total Housing

sHortage

urban Housing

sHortage

rural Housing

sHortage

Housing shortage is a major concern in the country today, and can be correlated with the rate of urbanisation taking place. According to the Census of India 2011, India’s urban population increased to 377 million, reflecting the rise in urbanization from 27.8% to 31.2% between 2001 and 20111. This rise has led to many different issues like land shortage, housing shortfall, severe pressure on available infrastructure, transportation problems and stress on basic amenities like water, sanitation and healthcare. The following graphic shows the urbanisation growth in the country and where India ranks among other developing and developed countries.

Housing stock in urban India stood at 78.48 million units for a total of 78.86 million households1. While the data suggests sufficient stock, there is an actual shortage of housing, since many of these houses are dilapidated, congested slums, or inhabitable. While trying to understand about housing shortage, it should be noted that there is a shortage in quantity as well as quality of housing available.

Housing sHortAge - A mAjor concern

1Census of India, 2011


Source: CIA, 2015

urbanization percentage globally

chin

a russ

ia

braz

il

Japa

n

indi

a

indo

nesia

sout

h afri

ca

usa

33%

54%

56%

65%

74%

82%

86%

94%

Source: Census of India, 2011

1960-6118 %

18.2 %

23.3 %

25.7 %

27.8 %

1970-71 1980-81 1990-91 2000-01 2001-11

urbanization growtH in india

31.2 %

Making ‘The Dream Of Millions’ A Reality 7Source: JLL Research

premium housing

affordable housing

low cost housing / social housing

targeted at hig

targeted at mig

targeted at ews and lig

The housing market is understood as a function of target market catered by the housing finance companies. For better understanding of housing finance, the categorization of income group with respect to finance companies can be seen in the following figure.

defining tHe Housing mArket in indiA

Housing segmentation in india


ews

lig

migup to 30 sq m of

carpet areamore tHan 60 sq m

of carpet area

between 31-60 sq m of carpet area

income criteria

The maximum household income for the EWS is recommended up to INR 300,000 and LIG category is

recommended to be INR 300,000 to INR 600,000 per annum

affordability

The Task Force recommends that the desirable goal of a house price to income multiple which should be pursued for Affordable

Housing projects should be 5

3High level task force on Affordable Housing for All, December 2008

Source: Pradhan Mantri Awas Yojana (PMAY) Guidelines, 2015; Task Force on promoting Affordable Housing, MHUPA 2012

definition of affordable Housing

The Task force on promoting the Affordable Housing defines affordable housing as “Housing that meets some form of affordability criterion, which could be income level of the family, size of the dwelling unit or affordability in terms of EMI size or ratio of house price to annual income”3. Affordable Housing is a relative concept and can be defined depending on different primary parameters like income of the buyer, location and the size of the apartment. What is affordable for one individual may not be for another. Affordable Housing definition laid down by the Ministry of Housing and Urban Poverty Alleviation (MHUPA) defines the following parameters for Affordable Housing:

It should be mentioned that in India the concept of Affordable Housing and Low-Cost Housing are used interchangeably. Low-Cost Housing generally targets the EWS category, whereas affordable housing is targeted at LIG and MIG segments of the society. The difference between the two types of housing is clearly described in following figure:

The policy and regulatory framework has consistently pushed the industry towards developing market based solutions. Many lending institutions have evolved during the last decade and provided innovative financial instruments like Housing micro-finance to cater to the ever-growing demand for housing finance in the market. The government has taken up the task of providing housing finance and affordable housing to different sections of society, in pursuit of the ‘Housing for all by 2022’ goal and thereby reducing the housing shortage gap via implementation of various policies.

Source: JLL Research

difference between affordable Housing and low cost Housing

affordable Housing

private developers are involved in tHe development

differs from city to city (One that is affordable in Indore might not be affordable in Mumbai or vice versa)

relative in nature (income, capital value, size of the tenement, etc.)

one tHat someone can afford

government agencies are involved in funding and developing

uniform definition across all tHe geograpHies

(as defined by regulators)

uniform in nature (Size of the tenement, target market, etc.)

one tHat is a social need

low cost Housing/ social

Housing

Making ‘The Dream Of Millions’ A Reality 9Source: MHUPA, NHB, JLL Research

The central government’s objective of achieving ‘Housing for All by 2022’ serves as a driving force towards providing shelter to all the citizens of India. The following section describes the initiatives and policies that the government has initiated to support its goal of ‘Housing for All by 2022’ with emphasis on providing and accelerating housing for EWS and LIG segments of society.

government initiAtives

Key obJective to improve affordability of Housing loans for ews / lig

segment in urban areas

current status

13 states, 22 scHeduled banKs, 7 Housing finance companies and 5 regional rural banKs

Have signed mou

Key obJective meet tHe gap of urban

Housing tHrougH increased private sector

participation.

current status

pHase 1 of tHe initiative Has been implemented

Key obJective envisages ‘slum-free india’ by encouraging states to tacKle problem in a definitive manner

current status

discontinued. all tHe liabilities created in tHis policy Have been

transferred

Key obJective to support implementing

agencies and allow cHanges witHin central policy as per

requirement of tHe states

current status

a total of 681 cities Have been approved till date

interest subsidy for housing the Urban Poor

(ishUP), 2009

Rajiv awas Yojana,

2013-2022

national Urban housing

Policy, 2015

Pradhan mantri awas

Yojana, 2015

1

2

3

4


pradHan mantri awas yoJana (pmay)

The government instituted PMAY aims at providing a home for every household of the country and targets reducing the gap of housing demand in both EWS and LIG categories in both rural and urban areas.

Till date, the government has released approximately 20 per cent of funds, which is INR 20 billion of INR 107 billion4, towards approximately 750,000 units5. There are four verticals to channel the fund that focus on reducing the housing gap in the country. These are as follows:

four vertical of pmay

Source: PMAY Guidelines, 2015

4INR 2,000 crores of INR 10,700 crores5As per 4th July progress report of PMAY (Website: MHUPA)

The policy is proposed to be implemented in phases. The first phase between 2015 and 2017 will cover 100 cities, the second phase between 2017 and 2019 will cover 200 cities and the last phase between 2019 and 2022 will cover the remaining 200 cities. Phase 1 of PMAY will play a crucial role in reducing the housing gap by an estimated 62.45 million.

In this paper, we focus on Affordable Housing and specifically on ‘Housing Finance for Affordable Housing’.

“in-situ” slum reHabilitation

- Land as a resource with private participation

- Additional FSI/ FAR for development

affordable Housing credit linKed subsidy

- Interest subvention for EWS and LIG category or

incremental housing

subsidy for beneficiary-led individual House

constructionState to prepare separate project for EWS people

requiring individual house

affordable Housing in partnersHip

- With private and public participation

- 35% of constructed houses allocated for EWS category


introduction to Housing finance in india

This section provides a brief overview of the complex market of Housing Finance in India. Housing Finance has only gained momentum in the last decade prior to which there were virtually no options available, except through a few national and state agencies.

Before the Reserve Bank of India formed the National Housing Bank (NHB), the Housing finance industry was extremely underdeveloped. Housing Urban and Development Corporation (HUDCO) and Housing Development Finance Corporation (HDFC) were the only public and private players in the market. The only routes through which housing financing could be acquired were the informal ones which included funds from relatives, friends, employers and one’s own fund. After the formation of NHB, house financing became a priority. Now, more institutions have evolved for providing a formal source of housing finance including scheduled banks and co-operative banks.

Source: JLL Research

Note: NABARD- National Bank for Agriculture and Rural Development. SIBDI- Small Industries Development Bank of India

structure of Housing financing in india

bene

fici

ary

agricultural and rural

development banK

regional rural banK

regional grameen

and rural banKs

regional grameen

and rural banKs

development financial

institutions

non-banKing finance

companies

nabard, sidbi

Housing finance

companies

co-operative banKs

scHeduled banKs

urban, district and

state co-operative

banK

private and public

banKs

banKs

financial institutions

otHers

cHannelsub-group of sourcesources groupfinancing sources

formal source

Making ‘The Dream Of Millions’ A Reality 13Making ‘The Dream Of Millions’ A Reality12

47%

INR 1 million to 2.5 million34

%Upto INR 1 million

1NHB, Report of Trend and Progress, 2014

DISBURSEMENT AS PER LOAN SIZE

National Housing Bank (NHB) was formed to channel the refinancing of housing loans that were disbursed by other formal housing finance companies in the industry. NHB regulates, promotes and provides financial as well as other support to the housing finance companies (HFCs) that are specialised lending institutions. As of 2014, a total of 59 HFCs1 have been granted certificates of registration in the country with a total outstanding loan portfolio of INR 347,858 crores1.

National Housing Bank plays a vital role in providing refinancing to the primary lending institutions and making sure that housing finance is available to home buyers in the country. The following chart shows the disbursement patterns by NHB to support other institutions in rural and urban regions and their distribution as per the loan size, disbursed by the lending institutions.

In the last decade, commercial banks have also started housing finance. This has had a very positive impact on the entire market as banks have a wider reach because of their branches in various locations in the country. Commercial banks account for 67 per cent1 of the total market of disbursing housing finance, thereby dominating this sector. This number is more than that of HFCs and any other institution providing housing finance. The addition of housing under priority sector lending has mandated that banks disburse higher amounts for housing purposes.

Although all the financial lending institution try to cater to the entire housing market, many segments and locations remain uncaptured and unserved. The challenges for housing finance are partly related to the target market and various players in the market. These challenges have been briefly explained in the following chapter.

DISBURSEMENT PATTERN BY NHB

Source: NHB Trends and Report, 2014

2009-10

54%

46%

2010-11

51%

49%

2011-12

61%

39%

2012-13

56%

44%

2013-14

57%

43%Rural Urban

Source: NHB, 2014; JLL Research Note: Rounded off figures may not add up to 100%

NATIONAL HOUSING BANK AND DISBURSEMENT PATTERN

18%

Over INR 2.5 million


cHAllenges And oPPortunitiesDespite having a wide network of commercial banks and other housing finance institutions across the country, the affordable segment market still lacks access to housing finance. The development of affordable housing has consistently been a challenge due to reasons such as land cost and availability, practicality of affordable housing definition, complicated regulatory process for approvals, etc. These issues form major supply side constraints for development of affordable housing.


cHAllenges fAced by suPPly side of tHe mArketThere are several challenges that the financing segment faces for the provision of loans to both the demand and the supply side. First we discuss the supply side constraints for getting financing and these are detailed as follows:

• Land availability: Affordable housing is not possible in the city centres of the country because of unavailability of land parcels.

• Infrastructure availability: Development of affordable housing project usually falls in the peripheral region of the city creating connectivity vacuum with city centers and infrastructure nonavailability.

• Financial Viability: Higher land and financing costs make these developments financially nonviable.

• Delay in approvals: Delay in approvals of Affordable housing projects increases the cost making the project financially nonviable.

A majority of developers use conventional construction methods, which are time consuming and the projects often face time and cost over runs, Increase in the time period increases the cost of financing. Adopting new technologies (like Pre-Fab Construction Technology) and industrial approach can convert this sector into housing manufacturing and can help developers avoid delays in project delivery.

Land price currently forms 30-50 per cent of the cost of the project within city limits. However, RBI regulations do not allow banks to fund land purchase. Developers, therefore, are left with only few options, either forming a joint venture (JV) with the land owner or getting funded through NBFCs, which is often expensive.

The real estate sector in India is in the early stages of maturity. Many developers entering the business don’t have adequate credentials, therefore banks and other institutions, deny loans to such developers.

lack of financing oPtions foR land

acqUisition

lack of financing oPtions foR land acqUisition

adoPtion of technologY in constRUction

adoPtion of technologY in constRUction

develoPeR’s cRedential

develoPeR’s cRedential

PRacticalitY of

affoRdable hoUsing

PRacticalitY of affoRdable hoUsing


Source: NHB, Report of Trends and Progress, 2013

cHAllenges fAced by demAnd side of tHe mArket

under-developed mortgage finance marKet

The mortgage market in India has been growing at a steady rate in the last couple of years. This is attributed to a stable operating environment and stable property prices, etc. As seen in the chart below, India has one of the lowest levels of penetration in the mortgage market as depicted by the low mortgage to GDP ratio compared to other countries.

Presently, most of the housing finance institutions provide loans to the HIG and MIG classes of society. EWS and LIG categories are generally not given access to loans because of many reasons including lack of proper documentation, higher credit and default risk, unavailability of guarantor, etc. Also, the income of this category is either uneven throughout the year or is below the ‘viable threshold’ to ensure the repayment of the loan.

The housing segment faces serious demand side issues especially access to housing finance. This impacts the ability of LIG and MIG aspirants to buy a house in the unorganised sector9. While some of these issues have been mitigated others require concentrated efforts by all the stakeholders to collectively lift the sector up.

Access to housing finance is a critical aspect to making housing more affordable. Increased availability of housing finance creates more demand for such homes. On the other hand, since we do not have a developed market for financing home buying, it results into lackluster supply because developers of affordable housing face a slowdown in absorption of constructed units.

uK

88%

Hong Kong

41%

thailand

17%

usa

81%

Taiwan

39%Korea

26%

Singapore

32%

Pakistan

1%

india

9%

china

20%

indonesia

2%

Sri Lanka

6%

total mortgage to gdp ratio

SoLuTIon:

Government should try to merge various policies at a point to address housing shortage issue. Jan- Dhan Yojana, which mainly target lower end of the pyramid, should be used to provide housing finance to the account owner, thereby directly catering to the targeted segment.

9Refers to households settling in illegal hutments and slums; congested living spaces

Making ‘The Dream Of Millions’ A Reality 1710Basis point (100 bps is 1 per cent)

tedious Kyc norms

The provision of the loan to beneficiaries is guided by Know Your Customer (KYC) guidelines published by the RBI. This requires intensive due diligence of documents and guaranteed ability of the individual to repay the loan amount. According to Ministry of Labour and Employment, approximately 65-70 per cent of workers in urban areas are employed in the unorganised sector. Since they are paid in cash and lack formal documents of identification, address and income, they remain underserved by HFCs and Banks. The potential beneficiary is either denied a loan or left with no option but to finance through own funds. In either case the potential buyer is forced to remain in the same residence.

SoLuTIon: Government intervention and specifically RBI intervention in this case is vital. Relaxing the norms specifically for the affordable housing segment can boost the depth and width of the housing finance market. For e.g. make state mandated Aadhar card an acceptable identification for getting a loan.

co-ordination and marKeting of policy

Policies planned rarely reach the target as they remain limited to discussions in conferences on their flaws and possible improvements. Many government policies like, PMAY, IAY, etc., are aimed at the bottom of the social pyramid, but don’t reach the actual beneficiary because of many issues pertaining to improper marketing, inappropriate channel of implementing the policy, partner selection to mainstream the idea, etc.

SoLuTIon: The stakeholders group for promotion of these policies should involve more Self-Help Groups (SHGs) and NGOs to reach out to the beneficiary and roots where housing shortage is prevalent.

HigHer cost of funds for Hfcs

Banks have the advantage of getting funding for loan disbursement at lower costs. This is typically higher for HFCs, because they have funding rate of 100- 200 bps10 more than that of banks. Here the banks have the upper hand in terms of lower input cost, however, they are stringent when it comes to lending to the affordable housing segment.

SoLuTIon: Opening up options for long term funding of HFCs will help provide the level playing field for banks and other HFCs. This would increase the penetration in the market as both the institutions lend to different income categories.

Also, current construction finance that is currently provided is for tenure of 2-3 year. This should ideally be increased to 5-7 years so that it reflects sales cycle of the apartment sales in these projects.

Making ‘The Dream Of Millions’ A Reality 19Making ‘The Dream Of Millions’ A Reality18

DECODING REGULATORY ASPECT OF AFFORDABLE HOUSING

Owing to the high land cost in city centres as well as the suburbs, many projects are either upcoming or are proposed in the city outskirts in affordable pockets12.

Since land cost forms approximately 30-50 per cent of the total cost, releasing more land parcels for development by private partnership. This will substantially reduce the

cash flow burden for developers and thus encourage more participation by private players. The participation can

also be encouraged via provision of more incentives to private developers with additional Floor Space Index (FSI),

subsidy allocation and tax relief to the developers, etc.

India ranks 130 out of 189 countries with respect to bureaucracy and getting construction permits13. On an average, permits take between 30-36 months to get approval from 40 departments (revenue, fire, airport authority, etc.). This leads to increase in costs. Single window clearance for project approval will significantly

reduce the approval time needed for development.

GOVERNMENT’S VISION OF ‘HOUSING FOR ALL BY 2022’

To reach the goal of ‘Housing for All by 2022’, affordable housing finance plays an

important role to aid supply of housing stock in the market. With this goal in mind, the

government has invested in and formulated various funds. In

order to improve the availability of credit for house buying,

the government has allocated a total of INR 200 billion11 to

National Housing Bank, Urban Housing Fund and Rural

Housing Fund. It has also set aside assistance for PMAY of

INR 107 billion.

OPPORTUNITIES AND SOLUTIONS

There is increased interest in accessing the untapped market of housing finance in affordable housing. The opportunities arise from the shortage of housing and huge gap in availability and accessibility of finance in this segment. There are certain challenges due to which this opportunity remains untapped. The following section provides opportunities and suggestive solutions to make affordable housing finance accessible to beneficiaries.

UNDER-DEVELOPED AND ENCROACHED LAND AS

AN OPPORTUNITY

State and Central Government possess majority

of land parcel in the most of the city centres in the

country. These land parcel provides huge opportunities for the development towards

affordable housing.

Slum encroachment is an alarming issue in the major cities where it is difficult to avail affordable housing

option. For e.g Dharavi Slum in Mumbai covers almost 500 acres (200 hectares) of land parcel in Central Mumbai.

Source: Micro-mortgages: A Macro opportunity in Low Income Housing Finance, Monitor Inclusive Market; JLL Research

HUGE MARKET FOR AFFORDABLE HOUSING

Increased allocation of funding from the government is the most pressing need at the moment. According to the Monitor Inclusive Market, the loan market in the range of

INR 0.3 - INR 1 million is worth almost INR 11,000 billion.

REDUCTION OF INTEREST RATES

The Government needs focused measures in order to provide

housing to each and every citizen in the country. Empowering EWS/ LIG categories with lower interest rates for home loans will reduce

inventory in the market and ultimately benefit the buyer of the house. Another way to increase

housing supply is by reducing the cost of financing for developers.

Finalizing various long-term funding options like Real Estate Investment Trusts (REITs) and

Real Estate Mutual Funds (REMFs) will help them avail cheaper project

financing for development of the projects. This will however be

contingent on developers having good track records.

HOUSING FINANCE MARKET MAP

HOME

LOA

N SI

ZE

BANKING INSTITUTIONS, HFCs AND HOUSING MFIsLowest risk in the entire category, lower cost of evaluation, relatively lower cost of financing to buyer.

E.g. SBI Bank, HDFC Ltd, Indiabulls HF, LIC HF, Axis Bank, etc.

Loan size: INR 0.7 million and above

SELECT HFCsHigh risk of lending, higher cost of evaluation, high cost of interest to buyer.

E.g. Dewan Housing.

Average Loan size: INR 0.6 - INR 1.0 millon

LOW-END FOCUSSED HFCsRelatively lower risk, higher cost of evaluation, higher cost of financing to the buyer.

E.g. GIC HF, Gruh HF

Average Loan size: INR 0.4 - INR 0.6 million

HOUSING MICRO-FINANCE COMPANIESLargely Unserved Market, but many micro-finance lenders have entered this space lately.

E.g. Au Finance, Micro Housing Finance Ltd.

Loan size: INR 0.2 - INR 0.7 million

EASE OF RISK ASSESSMENT

The red box shown in the above figure shows the deficiency of market players catering to the target market with home loan size in between INR 0.2 - INR 0.7 million. HFCs and lending institutions should try to tap the opportunity and clearly demonstrate the vastly

underserved market for housing micro finance companies.

10 L

AKHS

7 LAK

HS5 L

AKHS

2 LAK

HS


wHAt is tHe future AHeAd?In this chapter we will look at two major aspects of the future of affordable housing and housing finance in India. First, we will look at several case studies of housing finance companies in the market and then we will look at the latest progress in the affordable housing market and share recent highlights of the housing finance market.

CASe unDerSTAnDIngS:

The following case studies have been discussed with an objective of providing housing finance for lower income households in urban India. These housing finance companies also have provisions for informal sector either with company owned policies or on government initiatives.

Housing finance cases

Source: Company websites

CuSToMerS:• Average MHI: INR 8,000 to 20,000• Primarily employed in the informal sector• Average HH Size: 5• Households with multiple earning members• Currently living in rental housing or illegal

tenementsProDuCTS:• Loan Amount - Maximum of INR 1 million• Time Frame: Maximum 15 years • Interest: MHFC’s Prime Lending Rate

(“PLR”) is currently 12%. • Loan to Value: Maximum of 80%current status• Total Application Received - 1218• Total Loans Sanctioned - 1020• Total Amount Sanctioned - INR 411.5 million• Average Loan Size - INR 0.4 mn• Number of Approved Projects - 35

micro Housing finance corporation ltd.

CuSToMerS:• Low and middle income segment• Households in semi urban and rural areasProDuCTS:• Finance for Purchase: to purchase

individual dwelling units flats in low cost buildings, detached and semi-detached units, cluster units, residential units, and also applicable for properties under construction or ready built property.

• Finance for Construction: Offers loan for construction on a plot of land or residential unit.

• Finance for Home Extension: Provides loans for extension, improvement or renovation of existing house/ building of borrowers.

• The loans for affordable housing for women from low income group will be offered at an interest rate of 10 - 12.5%

current status• Lower ticket size Housing loans• Around 90% of loan portfolio is less

than INR 1 million.• Loan Size - INR 0.2 - INR 2.5 million

au Housing finance limited

CuSToMerS:• Maximum loan size up to INR 2.5 million• Underserved Tier II and Tier III locations• Potential semi urban and rural housing

locations

ProDuCTS:• Loans availed to acquire a ready/

under construction residential property/ construction

• Loan Amount range: INR 0.2 million to INR 2.5 million

• Loan Tenure: Minimum Tenure: 5 Years

tHrougH mala (maHila awas loan FroM ASPIre) ProDuCT: • Small ticket loans with maximum size up

to INR1.2 million• Loan Amount: Minimum: INR 0.2 million,

Maximum: INR 1.2 million• Interest Rate: 10.00% to 13.00%

current status• Loan Outstanding (In INR): 20.88 billion• No of Live Accounts: 20,935• Average Ticket Size (In INR): 1 million• Salaried: Self Employed (No of

Customers): 58 : 42• Average Loan to Value Ratio: 64.28%

aspire Home finance corporation limited (aHfcl)

• Strategy to focus on underserved and unreached category of customers. • Focus on not only urban locations but rural and suburban locations.• In-depth assessment of income cycle of the customer being served. • Investment in technology based process to improve turnaround time and avoid duplication. • Focus on serving market of loan size INR 0.2 to INR 2.5 million

Key learnings from THe CASe STuDIeS:


• Highlights from the Budget 2016-17: The current financial year budget gave a huge push to various aspects of affordable housing. Developer will be given 100 per cent deduction in profits for developments of upto 30 sqm in tier 1 cities, and up to 60sqm in other cities. However, only Minimum Alternate Tax (MAT) will be applicable to such developments.

• As relief to first time home-buyers, an additional deduction of INR 50,000 on home loans of up to INR 3.5 million.

• International Finance Corporation (IFC) to invest in 3 Affordable Housing Finance firms: IFC will invest in 3 affordable housing firms that focus on lending housing finance to low income households. Aspire Housing Finance Corporation, Micro Housing Finance Corporation and Aptus Value Housing Finance India Ltd are the companies in which IFC will invest USD 38 million.

• IFC to invest in Repco Home Finance: In another investment in housing finance company, IFC will invest USD 40 million through Non-Convertible Debentures. IFC has recently backed many housing finance firms including AU Housing Finance, PNB Housing Finance, Dewan Housing Finance Ltd and affordable housing company Tata Housing Development Corporation.

• HDFC recently launched the HDFC Capital Affordable Real Estate Fund-1 (HCARE-1). It raised USD 405 million to invest in mid-income housing projects across India.

• Essel Finance, in 2015, invested in two affordable housing projects in western suburbs of Mumbai. It invested INR 400 million in two projects of Rashmi Housing in Mira Road and Naigaon.

• Pune-based Vastushodh Projects, received funding of INR 200 million for the affordable housing project in Bhandgaon on Pune-Solapur Highway.

• Encouragement from the government coupled with the ever-increasing interest of private developers and increasing participation of housing finance companies, will culminate into a bright future ahead.

1

2

3

4

6

7

8

5

In recent years, several facilitators have increased activity in this segment and are pushing developers to increase their footprint: • Public authorities such as NHB, RBI, MHUPA, etc.• International Development Agencies such as International Finance Corporation (IFC), World Bank and Asian Development Bank (ADB)• International NGOs such as Michael and Susan Dell Foundation• Some private equity players have specific investment focus on affordable housing segment like Brick Eagle Capital.

In lines with that, several highlights are noted below which show level of interest this segment attracts from investors and various stakeholders in this segment of real estate.

recent HigHligHts - AffordAble Housing industry


conclusionDevelopment of affordable housing on large scale is the greatest necessity of India today. Indian cities and rural regions lack the organised development approach leading to growth of slums and unorganised habitation. This is detrimental to the economy overall, given that real estate is a major employment generator and has multiplier effect on the growth of other sectors. To curb such unorganised developments in and around any locations, faster implementation of policies at government level and faster execution of projects at the developer level is the key.

Government has not been able to incentivise the private sector and improve their involvement in development of affordable housing. The policies implemented currently lack a definitive approval window, provision of land for the development of affordable housing project and lack of availability of land funding for the developers. The similar upliftment of the affordable housing finance companies is the need of the hour. Housing finance need for the home buyers also needs to take care of in the entire process.

Government should act in a proactive manner to get rid of these bottlenecks for improving greater private sector participation. Reforms should be implemented by the government on various fronts such as:

These proactive reforms will revive the private sector to invest more in this segment.

There also needs to be more focused reforms for increasing the lending for affordable housing segment. More license should be given out to new housing finance companies, financing to HFCs should be done at lowest cost possible to increase the lending done by HFCs, catering to uncaptured market in need of housing finance and relaxation in the documentation necessary for KYC.

India has huge potential if affordable housing supply and affordable housing finance summed up. Government intervention in relaxing few rules, taking a proactive approach towards implementation of others and incentivizing private sector’s participation in a much larger way, will help tap the highly untapped market of affordable housing.

better use of newer tecHnology leading to faster completion of tHe proJects

options availability for land financing

opening up of government owned land parcels in all tHe maJor cities

single window clearance witH a cap for deemed clearance

catering to Home buyers in need of financing witH relaxation in documentation

incentivizing tHe lenders to cater to informal segment of Home buyers


Sanket Kothari Senior Analyst [email protected] +91 91 9819 360 109

Sanket joined JLL in 2015 and is part of the Strategic Consulting and Valuation Advisory team. Based out of Mumbai, he has successfully led and executed several consulting and valuation assignments in West India for top developers and private equity funds. He is currently involved with the latest initiatives on Affordable Housing and Infrastructure and is passionate about understanding the evolution of the land market in India. Prior to joining JLL, he has worked with India’s leading ratings agency where he actively tracked private equity and land investments and trends in the real estate sector, particularly for the top 10 metros of India.

Sanket holds a Bachelor’s degree in Management Studies, specialising in Finance from the University of Mumbai.

Authors Profile

Acknowledgment: Abirami Subramaniam, Robin Selvamani, Niharika Bisaria, Poonam Agarwal, Simon Thomas, Suvishesh Valsan and Rohan Sharma

Shankar ArumughamHead of Operations - Strategic Consulting [email protected] +91 99400 66869

shubhranshu paniManaging Director - Strategic [email protected]+91 98205 19899

ashutosh limaye National Director - Research and REIS (India) [email protected] +91 98211 07054

Subhankar Mitra Head - Strategic Consulting (West India)[email protected]+91 9324 292 144

Strategic Inputs

about Jll

JLL (NYSE: JLL) is a professional services and investment management firm offering specialized real estate services to clients seeking increased value by owning, occupying and investing in real estate. A Fortune 500 company with annual fee revenue of $5.2 billion and gross revenue of $6.0 billion, JLL has more than 280 corporate offices, operates in more than 80 countries and has a global workforce of more than 60,000. On behalf of its clients, the firm provides management and real estate outsourcing services for a property portfolio of 4.0 billion square feet, or 372 million square meters, and completed $138 billion in sales, acquisitions and finance transactions in 2015. Its investment management business, LaSalle Investment Management, has $59.1 billion of real estate assets under management. JLL is the brand name, and a registered trademark, of Jones Lang LaSalle Incorporated. For further information, visit www.jll.com

JLL has over 50 years of experience in Asia Pacific, with 34,000 employees operating in 92 offices in 16 countries across the region. The firm won 15 awards at the International Property Awards Asia Pacific in 2016 and was named number one real estate advisor in Asia at the 2015 Euromoney Real Estate Awards. www.jll.com/asiapacific

about Jll india

JLL is India’s premier and largest professional services firm specializing in real estate. With an extensive geographic footprint across 11 cities (Ahmedabad, Delhi, Mumbai, Bangalore, Pune, Chennai, Hyderabad, Kolkata, Kochi, Chandigarh and Coimbatore) and a staff strength of over 8500, the firm provides investors, developers, local corporates and multinational companies with a comprehensive range of services including research, analytics, consultancy, transactions, project and development services, integrated facility management, property and asset management, sustainability, industrial, capital markets, residential, hotels, health care, senior living, education and retail advisory. The firm was awarded the Property Consultant of the Decade at the 10th CNBC-Awaaz Real Estate Awards 2015 and the Best Property Consultancy in India at the International Property Awards Asia Pacific 2016-17.

For further information, please visit www.jll.co.in

Jones Lang LaSalle Property Consultants (India) Pvt Ltd © 2016. All rights reserved. All information contained herein is from sources deemed reliable; however, no representation or warranty is made to the accuracy thereof.

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