Low-Income Housing: an Attractive Business Opportunity June 2012

BEIJINGCASABLANCA CHICAGO HONGKONGCAMBRIDGE DELHI DUBAI JOHANNESBURG A I LSANGELES MADRIDPARISLOS MUMBAI MUNICH NEW YORKMOSCOW RIYADHLONDON SAN FRANCISCO SÃO PAULO SEOUL SHANGHAI SINGAPORE TOKYO TORONTO ZURICH

Low-income Housing: An attractive business opportunity June 2012

Copyright © 2011 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 Agenda

 Huge demand for low-income housing in India

 Low-income housing is an attractive business opportunity

 Current low-income housing activity in India

 Case examples of 2 successful low-income housing developers

 Conducive policy is being drafted to catalyze low-income housing

Developers

HFCs

• Ministry of Housing & Government Urban Poverty Alleviation

• Interviewed over 3,000 customers over the last six years in multiple cities across Customers India • Low income customer interviews focused on understanding housing demand, formality and variability of income, typical household expenditures, etc.

CAS-COD-Prez-Date-CTL Copyright©2011MonitorCompanyGroup,L.P.—Confidential 3 Over Rs. 1,000,000 Cr Opportunity The low-income housing segment (MHI of Rs 7,500 – 25,000) is estimated at 22 Million households with an estimated opportunity size of Rs. 1,100,000 Cr (USD 245 Billion) and is largely underserved Urban Income Pyramid Offering & Supply of Housing Supply of Housing Finance 1 MHI  Price of unit2 > Rs 25 Lakh  Various mortgage finance options (Rs) available for segment 1%  Potential demand from ~2 M HHs with >80,000 (0.7MM) estimated Market Size of ~Rs 500,000 Cr  Potential size of mortgage market ~ Rs

 Various mortgage finance options 400,000 Cr 5% available for segment 40,000–80,000 (3.4MM)

 Price of unit: Rs 10–25 Lakh  Mortgage finance available broadly 4% 30,000–40,000  Potential demand from ~5 M HHs with  Potential size of mortgage market (2.7MM) estimated Market Size of ~Rs 900,000 Cr ~Rs 675,000 Cr

 Mortgage finance available broadly 5% 20,000–30,000 (3.4MM)  Price of House: Rs 5–10 Lakh  Severely constrained supply of

 Potential demand from ~ 22 Mn3 HHs housing finance for informal sector 22% 10,000–20,000 (15.0MM) with estimated Market Size  Finance available for MHI > Rs 12K in ~Rs 1,100,000 Cr the formal sector, limited availability below MHI of Rs 12K for formal sector 31% 5,000–10,000 and 20K for informal sector (21.1MM)  Potential size of mortgage market ~ Rs 8,80,000 Cr 33% <5,000 (22.4MM)

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 Rs 1,200 per Lac (at 12% interest for a 15 year loan); 3 Conservative estimates that 60% of total households in MHI of Rs 5–20K (36Mn) are renting and looking to buy a house of their own. Source: NHB Trends in Housing; CRIS Infac Report; Monitor Research

ZMK-IND-RILLIH20100108vGK-010910-SS Copyright©2010MonitorCompanyGroup,L.P.—Confidential 4 Customer Perspective: Social Need and Willingness to Pay (16 Focus Groups and over 2,000 potential customers) 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 Appalling conditions Profile — Ganesh of Slum-Dwellers  Steady job as a factory  Self-employed Mechanic in Mumbai worker in a textile  Live in poorly  Monthly HH enterprise in Ahmedabad constructed small income ~ Rs 15,000,  Monthly HH income cramped houses savings up to ~Rs 13,000, savings up to  Poor sanitary Rs 1800 p.m. Rs 1300–1,800 p.m. conditions - shared  Lives in 150 sq. ft. toilets, bad room in slums, Rent Rs 3,100  Lives in 1 RmK in low income drainage, water  Married with 2 children neighborhood, Rent Rs 2700 logging during  Family size: 5 (mother, wife, 2 children) monsoons  Assets – Bank Account, LIC (Rs 1.5L), Refrigerator and PC  Assets – Bank Account, LIC (Rs 3L), TV  Lack of facilities —  Education: Both children attend  Education: Both children attend private properly planned Gujarati medium schools access points, English-medium school  Rent: Has seen significant & frequent  Rent: Increased by 50% in past walkways, gardens, 3 years, has moved every dedicated schools increases in rent, has moved house 5 2 to 3 years etc. times in 12 years

Both share a dream . . . “A house of their own” Can afford a 250–350 sqft. house, willing to make 20% down payment and pay 35% of monthly income as EMIs to realize their dream

Source: Primary Research (n=2000), Monitor Analysis

ZMK-IND-RILLIH20100108vGK-010910-SS Copyright©2010MonitorCompanyGroup,L.P.—Confidential 6 Sample 1 BHK Unit Layout Low income housing requires innovation in design to maximize efficient use of space and minimize cost

KITCHEN

 Huge demand for low-income housing in India

 Low-income housing is an attractive business opportunity

 Current low-income housing activity in India

 Case examples of 2 successful low-income housing developers

 Conducive policy is being drafted to catalyze low-income housing

WB-NHB-111121-AK Copyright©2011MonitorCompanyGroup,L.P.—Confidential 8 Innovative Business Model for Low Income Housing The developers entering the low income housing market have different approaches than those used in the traditional real estate sector

Traditional Developer Low Income Housing Developer

Buy Land Buy Land

Incremental Construction

Sell Allgg Units

Sell Units

Wait for Land Value Construct Completely Appreciation

Land as Asset Land as Inventory Longer life cycle Short life cycle Very high but uncertain returns High IRR 20-40% Construction is incidental Good Margins ~20%

Source: Monitor Research, Monitor Analysis

ZMK-IND-RILLIH20100108vGK-010910-SS Copyright©2010MonitorCompanyGroup,L.P.—Confidential 9 A 5000 Cr LIH Business With an overall revenue potential of ~Rs. 4,800 Cr in year 5, the estimated EBIDTA is at 19% and project IRR is 40% using conservative assumptions and inputs

60 55 Key Points and Assumptions 50 Number of Projects 48  A large scale player can grow exponentially Revenue (Rs. ’00 Cr) 40 initially to about 55 projects by year 5 (assuming 30 30 26 each project of 10 acre size)  This can generate a year 5 revenue of about 20 15 13 Rs. 4,800 Cr 10 7 6 2 2  We made the following assumptions to remain 0 constant or at least negate each other over a 10 Year 1 Year 2 Year 3 Year 4 Year 5 year business duration – Land Cost remains at ~Rs. 400 Overall Realization of Business (Rs. Cr) Year 3 Year 5 – Construction cost remains at ~Rs. 1200 Revenue from different Sources – Selling Price remains at the average rate of ~Rs. 2000 per sq. ft Residential 1,178 4,320  Personnel and Admin cost have been Commercial 124 255 benchmarked to a couple of listed real estate Overall Realization of Business 1,302 4,774 companies with similar level of revenue Costs from different Sources Cost of Land 400 719 Construction Cost 784 2,875 Estimated IRR 20-30% Sales and Marketing 33 119 Operating costs 50 143 EBIDTA (Year 5) 19.2% Overall Cost of Business 1,063 3,856 EBITDA 239 918

 Huge demand for low-income housing in India

 Low-income housing is an attractive business opportunity

 Current low-income housing activity in India

 Case examples of 2 successful low-income housing developers

 Conducive policy is being drafted to catalyze low-income housing

ZMK-IND-RILLIH20100108vGK-010910-SS Copyright©2010MonitorCompanyGroup,L.P.—Confidential 11 World Bank / NHB Study Supply of Formal Housing – Activity Across India Upto May 2010 Concentration of LIH activity was in Ahmedabad and Mumbai upto May 2010

Bhiwadi, Rajasthan  Avalon Homes, Avalon Group  Dev City, Arun Dev Builders Bawal, Haryana  Ashray Homes, Surefin Builders

Ahmedabad, Gujarat  Om Shanti Nagar - 2, Santosh Associates  Navjivan Housing, Foliage  Gokul Galaxy, Galaxy Developer  New Maninagar Apartments, Dharmadev Builders  Umang Lambha, DBS Affordable Home Strategy Ltd.  Karnavati Apartment, Shree Ram Developers

Mumbai, Maharashtra  Swarajya, Neptune Group  Samruddhi Complex, Poddar Housing  TMC, Matheran Realty Nagpur, Maharashtra  Pink City and Star City, Rashmi Housing  Shridhar Empire AC, Shridhar Buildcon  Shubh Griha, Tata Housing  Karjat Land Developers  Sathya Nagar, Conglome Techno Construction Pvt. Ltd,  Lok Amber, Lok Group  Vaishnavi Sai Complex, Shubh Aangan Realty Bangalore, Karnataka  Valram Vatika and Valram Ashish, Valram Constructions  Shubha, Janaadhar  VBHC

Chennai, Tamil Nadu Pune, Maharashtra  Atulya, Annai Builders  Anandgram, Vastushodh Project Private Ltd.  Large Chennai Conglomerate  Shalini Lakeview, Trishul Builders

Note: Projects represented are those that were selling units priced between Rs. 3 – 7 lakhs; VBHC & Large Chennai Conglomerate have since raised their prices Source: Primary Research

WB-NHB-111121-AK Copyright©2011MonitorCompanyGroup,L.P.—Confidential 12 World Bank / NHB Study Supply of Formal Housing – Current Activity Across India (1/2) Supply of LIH units has grown but is still concentrated in the same regions as in 2010…

Ahmedabad Jaipur  3 projects from large  Umang Narol, DBS builders and 7 from  Aakruti Township, Aakruti Apartments Local Builders and Naiyya, Aroma Realty Delhi NCR  Shreenath Residency, Shreenath  Dineshnagar, Garg Group Developers

 Foliage Real Estate, Geratpur  Satva II, Satva Galaxy Group Meerut, UP

 15 projects from large builders and 7  Spice Homes, Spice Group from local builders

Indore, MP Surat , Baroda and 11 other cities in Gujarat  Dream City, Goyal and Singhal Infra  Karol Bagh Grand, KBG Life Infra  Foliage Real Estate, Ankleshwar  Natraj Township, Surat Kolkata  Shri Tirupati Balaji Town, Jeetu Builders, Surat  Pushpakalay, Pushpak Infrastructure  Priyanka City Gold, Surat  Fortune Township, Fortune Group  Suryam Residency, Shree Ayojan Developers, Surat Nagpur

 Navkar Agam, Navkar Builders, Surat  Kanchan Ganga, Vishal Infrastructure  Akash Prithvi, Jayveer Builders, Surat  7 Local Builders  Shantivan Residency, Surat Bangalore  Rajdeep Society, Surat  Janaadhar  73 projects from large builders and 213 from local builders, operating across the entire price spectrum Chennai

 Aayush, Marg Properties  4 local builders Mumbai

 Samruddhi Complex (Badlapur), Poddar Trichy Housing Pune  SRR Township (Trichy), Malar Group  Shubh Griha, Tata Housing  Anandgram Talegaon, Nasik and 3 other cities in Maharashtra  6 projects from large builders Vastushodh Pvt. Ltd.  2 projects from large builders and 10 from local builders Note: Projects represented are those that were selling units priced below Rs. 10 lakhs Source: Primary Research

WB-NHB-111121-AK Copyright©2011MonitorCompanyGroup,L.P.—Confidential 13 World Bank / NHB Study Supply of Formal Housing – Current Activity Across India (2/2) …however the price point has moved up from Rs. 3 – 7 lakhs to Rs. 5 – 10 lakhs

Ahmedabad No. of LIH Units LaunchedJaipur Key Highlights  3 projects from large  Umang Narol,(From DBS developers MIM contacted) builders and 7 from  Aakruti Township, Aakruti Apartments Local Builders and Naiyya, Aroma Realty 25,000  Increasing supply of low income housing compared to the Delhi NCR  Shreenath Residency, Shreenath earlier study Dineshnagar, for NHB Garg and Group World Bank in 2010 (~25,000 units Developers

 Foliage Real Estate, Geratpur launched from June 2010 – November 2011 as compared to  Satva II, Satva Galaxy Group ~14,500 overMeerut, the UP preceding 30 months)  15 projects from large builders and 7  Spice Homes, Spice Group from local builders – An additional ~11,500 may also have launched during that time period, though MIM has been unable to contact those Indore, MP developers in the current timeframe Surat , Baroda and 11 other cities in Gujarat  Dream City, Goyal and Singhal Infra  Karol Bagh Grand, KBG Life Infra  Foliage Real Estate,14,500 Ankleshwar – ~4,600 further units are expected to launch by March 2012  Natraj Township, Surat and over ~6,500 units through theKolkata remaining of 2012 that  Shri Tirupati Balaji Town, Jeetu Builders, Surat MIM is aware of  Pushpakalay, Pushpak Infrastructure  Priyanka City Gold, Surat  Fortune Township, Fortune Group  Suryam Residency, Shree Ayojan Developers,  A significant amount of supply is focused in the same Surat geographies (with extensionsNagpur to surrounding smaller towns) and  Navkar Agam, Navkar Builders, Surat  Kanchan Ganga, Vishal Infrastructure  Akash Prithvi, Jayveer Builders, Surat at an increasing price point(shift7 Local from Builders Rs. 3 – 7 lakhs to Rs. 5  Shantivan Residency, Surat – 10 lakhs and higher) Bangalore  Rajdeep Society, Surat  Janaadhar  73 projects from large builders and 213 from  13 out of 21 developers who began in LIH have continued with local builders, operating across the entire price further projects beyond their pilots spectrum Chennai  Activity reported is primarily drivenAayush, Marg by large Properties developers though in many small cities local 4 local developers builders have sprouted, Mumbai building complexes with less than 100 units – they are however  Samruddhi Complex (Badlapur), Poddar Dec 2007 - June 2010 - Trichy Housing Pune difficult to map May 2010 November 2011  SRR Township (Trichy), Malar Group  Shubh Griha, Tata Housing 1  Anandgram Talegaon,2 (30 months) (18 months) Nasik and 3 other cities in Maharashtra  6 projects from large builders Vastushodh Pvt. Ltd.  2 projects from large builders and 10 1 LIH Price Range defined as projects with units selling for under Rs. 7 lakhs from local builders 2 LIH Price Range defined as projects with units selling for under Rs. 10 lakhs Source: Primary Research

 Huge demand for low-income housing in India

 Low-income housing is an attractive business opportunity

 Current low-income housing activity in India

 Case examples of 2 successful low-income housing developers

 Conducive policy is being drafted to catalyze low-income housing

ZMK-IND-RILLIH20100108vGK-010910-SS Copyright©2010MonitorCompanyGroup,L.P.—Confidential 15 Vastushodh Projects Pvt. Ltd., Pune Developer Overview Vastushodh, active in the real estate business for last 12 years operates across three different segments in the city’s real-estate market. Anandgram & Urbangram are its affordable housing offerings

Developer Operations Details

Housing  All LIH developments are marketed as ‘Anandgram’ for Low  Priced in the range of INR 4-15 lakhs for lower-income families Income Group  Ongoing 2 Anandgram projects are at different stages of completion

 Together with ‘Anandgram’, ‘UrbanGram’ completes Vastushodh’s Housing offering in affordable housing sector

for Middle  Priced in the range of INR 15-30 lakhs for middle-income group of Income families Group  Developer has so-far developed 3 million square feet and plans to further develop 10 million square feet under its two umbrella brands

Premium & Luxury  Vastushodh, continues to develop premium properties – terrace Housing homes, designer bungalows, row-houses – in city-centre locations

Source: Developer Meeting, Company Website, News Prints

Anandgram Yavat

Source: Company Website, News Prints

ZMK-IND-RILLIH20100108vGK-010910-SS Copyright©2010MonitorCompanyGroup,L.P.—Confidential 17 Vastushodh Projects Pvt. Ltd., Pune LIH Progress Vasthushodh’s Anandgram projects are at different stages of completion; the developer plans to launch phase-2 of its Talegaon project

Name of the Total # of Price/per Unit Price Current Launch Date Product Mix Project Units square foot Range Status

1RK - 29% ANANDGRAM INR 4 -11 Possession Jan-2012 720 1BHK - 29% 1,600-1,800 Yavat LAKH Handed Over 2BHK - 42%

Under ANANDGRAM 1RK – 16% construction; Talegaon INR 5-9.75 1 June 2012 310 1BHK – 35% 1,600-1,950 possession Dhamdhere (phase LAKH 2BHK – 49% planned for 2) June 2013

1RK ANANDGRAM 1BHK 1st July 2012 INR 4-15 LAKH Vakhri (Chaufula) 2BHK

Developer is keen to expand its Anandgram offering across India in states like Gujarat, Andhra Pradesh, Orissa and Madhya Pradesh

Source: Developer Meeting, Company Website, News Prints

ZMK-IND-RILLIH20100108vGK-010910-SS Copyright©2010MonitorCompanyGroup,L.P.—Confidential 18 Foliage Developers, Ahmedabad Developer Overview FOLIAGE GROUP Foliage, a known player in Ahmedabad real-estate market, has evolved a distinct legal, operational and organizational structure to address the LIH opportunity in a sustainable and profitable manner

Developer Operations Details

 Navjivan brand setup as a separate SBU in 2008 after Foliage’s recognition of LIH as a long-term strategic opportunity Housing  Making housing available in the range of INR 5-10 lakhs for Low NAVJIVAN  Has successfully completed the first project; two projects are in Income construction phase and one more is in launch stage Group

 Setup in 2006; works as a separate SBU Premium  Focused on traditional construction & development of high-end & Luxury ORANGE residential properties Housing  Both SBUs kept operationally distinct and financially ring-fenced from each other

Source: Developer Meeting, Company Website, News Prints

Navjivan Vatva

Source: Company Website, News Prints

ZMK-IND-RILLIH20100108vGK-010910-SS Copyright©2010MonitorCompanyGroup,L.P.—Confidential 20 Foliage Developers, Ahmedabad LIH Progress FOLIAGE GROUP Foliage Group has successfully completed its first project; three more projects are at different stages of completion

Name of the Total # of Price/per Unit Price Current Launch Date Product Mix Project Units square foot Range Status

1RK – 35% INR 3 -10 Navjivan Flats, Handing over Oct. 2009 425 1BHK – 56% 1005 LAKH Vatva of possession 2BHK – 9% (at launch)

Under 1 BHK – 20% construction; Navjivan Park, 2BHK – 68% Dec 2010 226 1300 INR7-12LAKH possession Bavla Commercial – planned for 12% Sept 2012

Navjivan Vihar, 1RK – 27% Under Feb/March 2012 360 1406 INR5-10LAKH Geratpur 1BHK – 73% construction

1RK – 41% Navjivan Homes, Construction 525 1BHK – 51% Ankleshwar hasn’t started 2BHK – 8%

Source: Developer Meeting, Company Website, News Prints

 Huge demand for low-income housing in India

 Low-income housing is an attractive business opportunity

 Current low-income housing activity in India

 Case examples of 2 successful low-income housing developers

 Conducive policy is being drafted to catalyze low-income housing

 Please feel free to contact us for more information

 [email protected]