SESSION 3: Creative Solutions to the Global Affordable Housing Challenge

Transcription

1 SESSION 3: Creative Solutions to the Global Affordable Housing Challenge Sponsored by Lennar International MODERATOR: Raphael Dawson, Principal, Walton Street Capital PANELISTS: Malayappan Murali, CEO, Shriram Properties Alberto Smeke, Senior Associate, Grupo Alsavision

2 Different approaches to two very different markets: India and Mexico Affordable Housing 1. Key market facts and parameters, role of Shriram and Grupo Alsavision 2. What is Affordable housing in each market? Price and product attributes 3. Idiosyncrasies of the markets: Mortgages, government s role and demand drivers 4. Affordable programs past and present: What has worked vs failed? What works now? 5. The Opportunity in the Affordable markets: Future demand 6. How best to meet the demand?

3 Affordable Housing An Indian Perspective M Murali, Managing Director, Shriram Properties Limited, India October

4 Shriram Properties (SPL): An Introduction Promoted by the Shriram Group, amongst leading industrial groups in South India Backed by marquee global investors Completed Projects (Saleable Area: 12.9 mn sft) SPL's Completed Projects Focused on mid-market, affordable housing since commencement of operations in 2000 Among Top-5 developers in the region Luxury, 2.3% Affordable, 24.4% Commercial, 15.8% Mid-Market, 57.5% Focused on growth markets of Bangalore and Chennai; Forayed into Kolkata affordable housing space Asset-light business model with healthy mix of own, joint development and DM projects Source: Company Data Pipeline Projects (Saleable Area: 61.8 mn sft) Impressive track record on project execution Developed ~12.9 Mn sft across 27 projects so far Commercial, 7.5% Luxury, 8.2% SPL's Project Pipeline Strong pipeline of projects 37 projects with aggregate development potential of approximately 62 Mn Sft Plots, 9.6% Affordable, 31.1% Mid-Market, 43.6% 75% share accounted for by projects in the affordable & mid-market housing segment Source: Company Data 4

5 SPL s Affordable Portfolio* Ongoing & Upcoming Ongoing & Upcoming SPL s Affordable Portfolio Completed Projects Location No. of Projects Project Area (mn sft) Sold Area (mn sft) Unsold Area (mn sft) Bangalore Chennai Coimbatore Pipeline Projects Location No. of Project Sold Unsold Vizag Projects Area Area Area (mn sft) (mn (mn sft) sft) Bangalore Growth driven 2 by focus 4.42on partnership To be launched Bangalore Chennai model - Good mix of JDA/JV and own land with increasing thrust on DMA Chennai Kolkata Total Saleable Area 5.46 Mn Sft (24%) Total Saleable Area 10 Mn Sqft (45%) Kolkata Total Saleable Area 6.73 Mn Sqft (30%) Over 3 Mn sft already delivered; ~20 Mn sft underway in the affordable housing space Note: Saleable Area in map above includes completed and pipeline projects * Affordable is defined as projects with majority units below Rs.4 million 5

6 Indian RE Sector: Overview HOUSING SHORTAGE 1.Shortage of ~90 mn homes GROWING MARKET Potential growth rates attracting global investors Better transparency under RERA Investors like Blackstone, Brookfield, GIC etc investing in assets across the country DEMOGRAPHIC DIVIDEND ~10 mn people migrate to cities every year ~35% of population is in the age bracket of years With ~280 mn households, India is the 2 nd largest in the world 2.Bulk of existing housing stock need to be replaced / upgraded 3.Housing shortage pronounced in the low ticket size segment Real Estate Sector Strong Growth Drivers POLICY SUPPORT Relaxation in FDI norms FDI upto 100% allowed for townships, settlement development projects 50 mn houses to be built by 2022 POISED FOR AN UPCYCLE Absorption exceeded new supply in the last 2 years Housing affordability at its best Abundant & low cost financing options FDI FLOWS 4 th largest sector in terms of FDI Housing for All expected to bring $ 1.3 tn by 2025 USA, Canada and Singapore contributed ~84% of capital inflows to the industry 6

7 Significant Demand Potential Total: 167 mn Total: 78 mn Source: Census of India (2011), MoSPI, NSSO, CLSA Latent demand of ~10 mn units per annum Cumulative shortage of ~90 mn units ~96% of housing shortage is for economically weaker section (income < INR 0.3 mn) & lower income group (income < INR 0.6 mn) 7

8 Affordable Housing: Next Big Growth Opportunity in India > Rs.5 mn Rs. 2 5 mn < 2mn Source: CLSA Research Affordable housing market to almost triple to Rs 4.6 trillion market by FY24 8

9 Improving Affordability Source: CLSA Research Loan Subsidy under new federal schemes Industry poised to take off from here! 9

10 Affordable Housing Programs in India Brief Summary Successive central governments launched schemes to increase the supply of low cost housing: National Housing Policy (1994) JNNURM (2005) National Urban Housing & Habitat Policy (2007) Rajiv Awas Yojana (2013) These were unsuccessful because of: difficulties with assembling land lack of clarity on the responsibilities of urban local bodies and lack of ability to implement these silo based approach at the Central & local levels one-size fits all approach lack of community participation lack of microfinance implementation delays and cost overruns, Reluctance of financial institutions to lend to lower income groups Pradhan Mantri Awas Yojana (PMAY) addressed the issue holistically 10

11 PMAY Housing for All by 2022 Housing for All by 2022, by providing central assistance to implementing agencies through States Affordable homes with water connection, toilet facilities, 24x7 electricity supply and complete access 50 mn houses to be built across the nation Targeting EWS, LIG and MIG sections of the society 2 mn non-slum urban poor households proposed to be covered Supply Push Developer Incentives Customer Benefits Leverage the land under slums Extra FSI/FAR/TDR to be provided to make the project viable Vast tracts of land under several Government authorities planned to be released 100% deduction of PAT (MAT applicable and carried forward for 15 years) Exemptions for state subsidy, stamp duty, EDC/IDC, excise duty on RMC Central assistance of INR 0.25 mn/unit in affordable housing projects Infrastructure status to affordable housing projects (lower cost of funds) Interest subsidy for eligible home buyers Central assistance of INR 0.15 mn for individuals wishing to construct their own house Carpet area limits enhanced to 160 sq. m / 200 sq. m. for MIG 1 /MIG 2* segments Reduction of holding period for computing long term capital gains to 2 years Lower effective GST rate of 8% * MIG 1/MIG 2 refers to annual household income limits of INR 1.2 mn / INR 1.8 mn respectively 11

12 PMAY: Strong Incentives for the Supply Side Project Eligibility: Approval during Jun 1, 2016 Mar 31, 2019 Project completion within 5 years of approval Project should be constructed on plot area not less than: 1000 sq. m, where the project is located within the 4 metros (Mumbai, Delhi, Chennai, Kolkata) or within 25 km from the municipal limits of these cities 2000 sq.m, for projects located in other places Should be the only housing project on the plot of land, and separate books of accounts for the project to be maintained Only one residential unit to be sold to any particular individual or his/her family members 35% of units for EWS category, and minimum 250 such units in the project Max. carpet area of 30 sq. m (4 metro cities) and 60 sq. m (other cities) 12

13 PMAY: Strong Incentives Drive Affordability for Customers 13

14 PMAY Accomplishments Households sanctioned (mn) Houses approved: 5.1 mn Grounded: 2.8 mn Completed: 0.8 mn Affordable Units launches: 2017: 23,700 (+37% YoY) INR 600 bn National Urban Housing Fund to finance Housing for All Dedicated funds being set up by PE investors to fund affordable projects 14

15 Challenges and Improvement Areas Challenges Initiatives being taken / Being Considered Land Availability Lack of residential zoned land parcel High prices of residential zoned land Substantial land parcels held by Govt. entities Green / No development zones being opened up for affordable housing (ex. Mumbai) Unlocking Railway land & private participation Land held by PSUs planned to be unlocked Statutory Approvals Multitude of approvals (20-30 clearances) from different authorities Takes 2-3 years to obtain all approvals Single window clearance for affordable housing projects Set up in Rajasthan, approval in 2 months Building permits approved online within 40 days in Mumbai under Ease of Doing Business policy Policy Gap Inconsistency in affordable housing policies between Federal & State Governments Inadequate trunk infrastructure development States empowered to implement affordable policy Additional measures needed to eliminate grey areas Costs & Project Risk EWS units to be handed over to beneficiaries on noprofit-no-loss basis (below market rate) High cost of construction & labour High cost of finance (PE funds are much costlier compared to bank funding, which is limited) Lack of suitable Govt. incentives Central Assistance of INR 0.25 mn/unit, but inadequate. Increased assistance required as trade-offs for development of affordable housing projects IT relief on unsold inventory 1 year after completion Support needed in case of inability to offload stock Capacity of Developers Lack of adequate assistance for low cost technologies already piloted, emerging or can be adopted High cost to be incurred for availing low cost construction technologies Building Materials & Technology Promotion Council constructing demo housing projects using emerging technologies & disseminating technical know-how 15

16 Thank You 16

17 Different approaches to two very different markets: India and Mexico Affordable Housing 1 Key market facts and parameters, role of Shriram and Grupo Alsavision 2. What is Affordable housing in each market? Price and product attributes 3. Idiosyncrasies of the markets: Mortgages, government s role and demand drivers 4. Affordable programs past and present: What has worked vs failed? What works now? 5. The Opportunity in the Affordable markets: Future demand 6. How best to meet the demand?

18 Housing that is Affordable - Institutionally Managed Multifamily Rentals Mexico Alberto Smeke Managing Partner Multifamily Division, Grupo Alsavision

19 Development Pipeline Condesa Sur A residential development project in the heart of the Tacubaya District in México City. Being in a central neighborhood allows to be one block away from Condesa, one of Mexico s top neighborhoods, and a mile away from the Reforma corridor which is not only the countries most important avenue, but the place where all the new skyscrapers are being built. Reforma 35 The project consists of two residential towers (one for sale and another for rent) with commerce and lodging. The different components are communicated through a central patio and a commercial passage that will offer culinary options, entertainment and neighborhood commerce, allowing the natural connection between the Paseo de la Reforma and the Monument to the Revolution.

20 Existing Portfolio and Development Pipeline Alsavision owns six assets in operation with a portfolio occupancy above 90%. The properties are comprised of 2,200 residential units distributed in: 935 Lofts, 583 one bedroom, 517 two bedrooms, 160 three bedrooms or more. PROPERTIES MONTERREY PROPERTIES MEXICO CITY Latitud La Capital Garza Sada 1892 PROPERTIES IN DEVELOPMENT MONTERREY Garza Sada PHASE II La Capital PHASE II Nomad Living Lago Alberto Nomad Living Santa Fe Nomad Living Mítikah PROPERTIES IN DEVELOPMENT MEXICO CITY Condesa Sur Project Reforma Project

21 Marriage Age Male Average Age of Marriage Female Average Age of Marriage Marriage Rate and Household Size The Opportunity- Capturing a mismatch between supply and demand of apartments for rent Currently Mexico s working age population represents 64% of the total population which generates a strong demand for worker housing within the major cities in Mexico. Household size has decreased from 5 occupants per home to 3.9 yet the average size of units has remained the same The states with two of the most important metropolitan cities Distrito Federal, Nuevo Leon have the highest inter-state mobility in the country, meaning workers move between state lines for work delaying marriage decisions. The number of divorces is increasing at CAGR of 5.2% in the years between 2000 and 2011, generating new single occupant household formation. Crude Marriage Rate Average Household Size

22 Mexico City Rental Market is Mainly Comprised of Larger Units Operated by Single Unit Owners 614,000 4,000, , , Single Family Households Owner Occupied Apartments Rented Apartments Institutionally Managed Rented Apartments Houston - Population- 6.4 million - Nominal GDP- $449 Billion - Rental Apartment Units- 520,000 Mexico City - Population- 24 million - Nominal GDP- $441 Billion - Rental Apartment Units- 2,500

23 Most of the rental demand comes from a short term consumer who is priced out of buying Years Renting Reason For Renting 1 year or less 1-2 Years 2-3 Years 3-6 Years 6-10 Years Years years years Years 30+ Years No Answer Cant afford to own Cannot get IMSS financing No opportunity to acquire Don t have enough points Became independent I like the area Rental is better for my income Havent found anything I like Location of the home Need to move around Because of family Saving to buy later Rather rent In tramiting In process of acquiring a home No Answer

24 FOR SALE FOR RENT Larger apartments with finishes meant for an owner user instead of a product which is meant to turn over More efficient units that are built for the needs of renters, making them smaller and giving the renter a lower absolute rental price compared to a larger owned unit Multifamily vs Shadow Market Outside mature markets, institutional quality rental housing is lacking around the world. Therefore those who cannot afford to own, are left to the shadow market and must rent condominiums owned by individuals. The main differences between both of these products are: Longer lead time to secure a lease with many dated and unnecessary requirements Maintenance can be costly and delayed and the renter is usually at the mercy of the landlord and its unknown external contractors Lack of economies of scale which usually mismatches tenant to landlords and once a bad tenant is in, it is very difficult to evict Subjective rents/inefficiently priced Easier closing: A standardized lease contract and requirements make the process of signing seamless An onsite team at the asset to address any concern a tenant can have More effective commercialization, as the landlord holds a larger amount of units, more resources can be allocated to marketing in order to get the units occupied and rented to good tenants reducing the amount of problem tenants and need of eviction Rents based on market and a wider data set/ efficient pricing Operational expenses are higher and the single unit owner has less control of the maintenance expenses required by the condominium A single property owner will be able to have more predictable operational expenses thanks to the standardization of processes and uniformity of the units.

25 2001 Campaign by President Vicente Fox created initiatives to build homes for 1/6 of Mexicans in the affordable housing sector for first time buyers By 2010 they discovered that millions of those homes were abandoned as they were built in remote locations, with poor infrastructure and increasingly cut corners to increase profitability. The average home price was about $24,000 USD. These created swamp communities In 2011 following these findings, the Sociedad Hipotecaria Federal, a government funded institution began attractive lending to incentivize developers to build vertically with greater proximity to the cities. This wave of vertical construction in areas with higher densities and shorter commute, provide a sense of security and community within the residents. Considering the heavy concentration of people in the cities and the lack of public transportation alternatives, we want to reduce the distance from homes to the workplace.

26 Different approaches to two very different markets: India and Mexico Affordable Housing 1 Key market facts and parameters, role of Shriram and Grupo Alsavision 2. What is Affordable housing in each market? Price and product attributes 3. Idiosyncrasies of the markets: Mortgages, government s role and demand drivers 4. Affordable programs past and present: What has worked vs failed? What works now? 5. The Opportunity in the Affordable markets: Future demand 6. How best to meet the demand?