Affordable Housing in India Needs and Emerging Solutions

Exploration

Affordable housing in India: Needs and emerging solutions

Please feel free to give us your feedback: Email: [email protected] Blog: www.escale-responsable.com

Escale Responsable - Affordable housing in India : needs and emerging solutions

CONTENTS About this project Who did we consult?

2 3

PART 1/ NEEDS

4

Housing poverty and market overview in India > Housing poverty in India > Affordable housing in India > Market of Affordable housing in India

4 6 6 7

Zoom: Housing needs in Kolkata slums > Why a market study in Kolkata? 1/ Respondant profiles 2/ Housing characteristics 3/ Recent improvements of the house 4/ Housing needs assessment 5/ Construction plans 6/ Financing housing investments

8 9 10 11 12 13 13 14

PART 2/ SOLUTIONS

15

Affordable housing players and their strategies > Overview of Affordable Housing stakeholders

15 16

Affordable housing models illustrated > The 4 different affordable housing models 1/ Slum rehabilitation > SAATH Integrated slum development case study 2/ Slum redevelopment > SPARC Nirman case study 3/ New housing > Mahila Housing Sewa Trust - Awaas Sewa case study > Foliage Real Estate Developers Ltd > DBS Affordable Homes Strategy Ltd > Habitat for Humanity – Habitat Model 4/ Affordable housing finance > Micro Housing Finance Corporation > GRUH Finance Ltd

21 22 23 24 28 29 33 34 38 41 44 49 50 54

PART 3/ CONCLUSIONS

57

> Similarities between all the affordable housing models > Strenghs and weaknesses of each affordable housing model > Our conclusions in 5 questions > Aknowledgements

58 58 60 62

1

Part 1/ Needs Housing poverty and market overview in India Zoom: Housing needs in Kolkata slums

Escale Responsable - Affordable housing in India : needs and emerging solutions HOUSING POVERTY IN INDIA Links between housing and poverty Housing is one of the top priorities for most people, regardless of their income levels. Without the security and comfort of a home, there is no escape to the difficulties resulting from poverty. Adequate housing is considered by many to be a fundamental human right. It is interrelated with other aspects of life such as health and education. For example, children cannot study in a poorly lit house. Respiratory disorders among rural population in India are often the result of inadequate housing and poor living conditions. Asthma and bronchitis are caused by pollen grains, dust, animal wastes and several environmental factors related to bad housing conditions. Poor sanitation and hygiene, inadequate ventilation and smoke inhalation are all associated aspects of poor housing that affect health and social development. Rural housing poverty Most of Indian population is rural and 70% of the poor (225 million) live in villages (1). A National Family Health Survey, conducted in 2000 by the Indian government, reveals that only 19% of the rural population lives in pucca (strong) houses, while the remaining live in kaccha (weak) and semi-pucca houses with mud walls and thatched roofs. 87% of homes in the villages do not have toilet facilities (2). Cooking is usually done inside the house under inadequate ventilation with biomass such as dried cow-dung, fire wood, dry weeds or crop residue, exacerbating the risk of tuberculosis. Urban housing poverty It is difficult to find reliable figures regarding urban poverty in India, but no doubt that its scale is striking. a/ Population living in slums A survey conducted by the National Sample Survey Organisation’s in 2002 showed over 42,6 million people live in 52,000 slums, representing 14% of the total urban population. The slums are developing due to a combination of rural-urban migration, natural population growth, and structural transformation of previously rural areas. As cities grow, increasing pressure is put on urban infrastructure and services, and the lack of affordable accommodation forces the urban poor to reside in unsanitary and hazardous environments, lacking access to even basic facilities. Only 15% of slum dwellers households in India have drinking water, electricity and latrines in their premises. Less than 25% of them have sanitation systems. b/ Population living in the streets As per the 2001 census, the total urban homeless population is 778 599 people – but that number under estimates the reality and other source like an Action Aid report of 2003 estimated homeless population in India is 78 million. Many people chose the streets because paying rent would mean no savings and therefore no money sent back home. Their condition is linked to their lack of adequate shelter. For instance in Delhi, for over a 100,000 homeless people, the government runs 14 night shelters with a maximum capacity of 2,937 people, which is only 3 percent of the homeless people in the city. Private contractors called thijawalahs rent out plastic sheets in monsoon time for five rupees a night (3).

« The researchers expect rate of urbanisation to also increase in the coming years. With over 575 million people, India will have 41 percent of its population living in cities and towns by 2030 from the present level of 286 million. As the urban population in the country is growing, so is urban poverty” UNDP experts

(1)  According to the Indian government and the World Bank (2)  Wharton article (3)  UNDP India-Urban Poverty Report

5

Escale Responsable - Affordable housing in India : needs and emerging solutions AFFORDABLE HOUSING IN INDIA Emerging definition Affordable housing - also called low-income housing - is an emerging segment in the housing sector in India. It is used to describe provision of adequate housing, affordable to people within the “low income” bracket (who don’t have access to current housing services). The industry considers that a house is affordable if it costs less than 40 times the monthly income of the buyer. However as there is no clear definition of “low income bracket”, there is no defined price range for affordable housing. From our research and consultation, we can say that currently, players involved in low-income housing in India are mainly targeting the lower-middle class: people earning Rs. 7 000 ($150) to Rs. 20 000 ($430) per month, which means 30% to 60% of Indian population. As a result, price range of affordable housing units currently under construction is between Rs.300,000 ($6,400) and Rs.1,000,000 ($21,340). Current affordable housing initiatives do not focus on the poorest … Even if there is an increasing interest (and a huge need) to go down the income ladder and reach progressively the bottom of the pyramid, current affordable housing initiatives led by private sector companies or citizen sector organizations don’t reach the 100 million of households earning less than Rs. 7 000 ($150) per month (4). …and target mainly the urban poor Even if the potential size of rural housing market is bigger than the urban one, affordable housing projects are mainly implemented in urban areas. That is due to the low density of rural areas, which makes it very difficult to develop successful affordable housing business models. Indeed, as the people in need of adequate housing are scattered in large areas, transaction costs for housing finance organizations are very high and housing projects have to be individual and not collective, which makes housing unit cost more expensive. We identified only one player focusing on providing affordable housing in rural areas : Habitat For Humanity India. “ 77% of India’s population is rural. and 98% of housing in rural area are done by people” Kirtee Shah, Architect

Point of view: M. Merchant, from Monitor Group’s “For people earning less than Rs. 7,000 ($150) per month, government subsidies are required. But above Rs.7,000 ($150) per month, private participation can make this market work and would require little to no government interventions. We believe it is possible to create a viable business model for the Rs. 300,000 ($6,400) to Rs.700,000 ($14,950) house cost range. For the poorest people, the government is working on a more structured policy to address the needs, and we believe it will take another 2 to 3 years before we see some activity in this segment. The segment we are targeting interests very much some of the biggest corporation in India” Extract from ou interview of M. Merchant on the 3rd May 2010 (4) Source: McKinsey Global Institute

6

Escale Responsable - Affordable housing in India : needs and emerging solutions MARKET OF AFFORDABLE HOUSING IN INDIA Severe housing shortage According to a recent research of Unitus Capital, India has a housing shortage of 40.3 million units, and demand from the low income segment constitutes a large proportion of this shortage. Assuming that five or seven people live in a unit (the Indian average is 5.5 per household), that's more than 250 million people -about a fourth of the Indian population without adequate shelter. Organization we consulted clearly confirm the demand is very high in Lower Income groups (LIG) as well as in middle class. As a result, a key issue for NGOs working in new housing projects is to ensure housing units are not all booked by middle class customers and that LIG have the opportunity to apply. A huge and quasi-untapped market If we focus on population targeted by current affordable housing projects - people in urban area earning Rs. 7 000 to Rs. 20 000 per month ($155 to $440) – a Monitor’s report from 2008 estimates that the demand is 21 million housing units. It means a business opportunity of Rs 1,300,000 crores (approximately $238 billion). However, it is only a small share of the actual affordable housing demand because it excludes rural population and lower income groups (earning less than Rs 7,000 per month) where no profitable business models without government intervention have been identified so far.

“All the housing available in India is only serving 6% of the population. So 94% of the population has no access to housing services (…) The market of affordable housing in India is almost unlimited, the volumes are huge and there is a considerable amount of profit to make” Vishnu Swaminathan, Ashoka India

Figure 1:Low income housing in India, a big business opportunity

Source: Monitor (5) Ramesh Ramanathan, article livemint

7

Part 1/ Needs Housing poverty and market overview in India Zoom: Housing needs in Kolkata slums

Escale Responsable - Affordable housing in India : needs and emerging solutions WHY A MARKET STUDY IN KOLKATA? Objectives We spent a week in Kolkata slums in early May 2010 to do a quick market study with 3 objectives: 1/ To better understand who are slum dwellers and how do they live 2/ To identify what are housing needs and demand of slum dwellers 3/ To identify typical architecture and materials used for housing in slums Panel The following study has been done based on 16 interviews of slum dwellers from different Kolkata slums : Natunbazar, Tollygunge, Howrah, Bahar. As you will see, people we have met often earn less than 2$ per day and are not really the core target of current affordable housing initiatives. However we felt it was interesting to get more knowledge about this «still untapped » market in India. We also decided to interview 3 cement dealers and 2 masons to better understand how they work with poor households. Mindset The aim was more to get a quick insight on housing in slums than to do a detailed survey that would obviously have required more time and more interviews. Our guides in the slums We have been able to go in slums and do our interviews thanks to the help of Gora, coordinator at Hope Foundation and Abeejhit, director of NCRC a microfinance organization supported by the french NGO Entrepreneur du Monde. Both have been working in Kolkata slums for years and have been fantastic guides for us. Watch Escale Responsable video on Kolkata slums http://www.escale-responsable.com/2010/08/28/affordable-housing-in-india/

9


1/ RESPONDENT PROFILES Sex and age > The survey was done with women only > Average age of respondents is 36 years old Level of education: > 69% of them have received a basic education (primary school) and 31% have no education.

Home density: > 4.6 people live under the same roof Revenues: > 50% of the people interviewed earn between $54-118 per month > An average of 1.8 people contribute to the family income

Family revenue per month

Revenue of people interviewed (%)

Average number of people contributing to family income

Average savings per month

< $54

19%

1.3

$10.0

$54-118

50%

1.9

$10.7

$118-160

13%

2.5

$16.0

> $160

19%

1.7

$16.4

Portrait of Bharati Haider Bharati is a Tollygunge slum dweller and live with her daughter, her son and her daughter-in-law in a 9m! house > She works as adomestic and her son is working as messenger boy > The total income of the family is $85/month and they manage to save $4/month > They are renting and do not have any other property > Every month, she repays $4 for a loan that she had contracted for her daughter’s wedding. In the past years, she couldn’t manage to make any improvements in her house because she had no money > She doesn’t have any construction project because as she puts it: “I will never be able to afford building a house. I don’t ever think about doing it. ” > She doesn’t think about borrowing from a MFI because she is afraid of her ability to repay the loan.

10


2/ HOUSING CHARACTERISTICS

Environment > All the people interviewed live in urban or semi-urban areas Size and rooms > The average size of the house is 12,4m! > 88% live in a one floor house > Only 31% have 2 rooms or more > 13% have a kitchen Sanitation > 94% use latrine outside their house Construction materials > 44% have bamboo walls and 19% have walls made of concrete blocks > 94% have a tile roof and 81% have a concrete floor Origins > 81% of the households got the house from inheritance

Roof of a slum house

Latrine and waterpoint in Tollygunge

Sewerage in Howrah

Portrait of Champa Shikari Champa is 30 and lives in Tollygunge slum with her husband, her 2 sons and her mother in law. > She works as domestic and her husband is a vegetable vendor. The total income of the family is $150/month and they manage to save $28/month > The family rent a one-room house of 9m2, dark and humid. The wall are made of bamboos, the floor of concrete and the roof of tiles. > Every day, Champa takes the water in the common faucet and use the community toilet > Her dream is to buy a piece of land and to build her own house.

11


3/ RECENT IMPROVEMENTS OF THE HOUSE 31% of the slum dwellers have made some improvements in their house for an average amount of $70

How did they finance the improvements? Savings

Type of works done: > The improvement efforts were done essentially on repairing the roof (60%) and painting/ plastering (40%) Financing: > All the people that made house improvements used their savings in addition to loans from friends or relatives or grants.

Remittances Loan from somebody (friends or relatives)

Percentages 100% 20%

Micro-credit

-

Grants/gifts

20%

Others

-

Barrier: > As 69% are renting, they fear the landlord will not let them doing improvements.

Portrait of Drapupadi Halder At 35, Drapupadi is widow and live with her 2 sons in a single room inherited from her family > Her older son and herself manage to earn a total monthly income of $55 > She saves $4 every month that make an overall $106 total savings that she could potentially used to improve her house > Over the past few years, she had to spend $106 to repair the roof damaged by the monsoon. The money came from her own savings and a loan from relatives > As many other slum dwellers, she dreams that one day she will be able to have her own house

12


4/ HOUSING NEEDS ASSESSMENT 50% of the people interviewed are willing to build a new house

What are slum dwellers housing investment plans?

Timescale: > Because they are unable to save enough money or because they have other priorities (e.g. health care of a relative), only 8% plan to invest in their housing in the coming year.

5/ CONSTRUCTION PLANS Slums dwellers interested in housing improvements are considering doing it by themselves or with masons New construction materials: > 75% of the people are considering to use a construction material different from local traditional materials

Portrait of Bechi Nandi Bechi is 45 and live in Howrah neighborhood with husband, son and daughter in law and their 2 children in a 2 rooms house of 13m! that the family owns > She works as a domestic, her son works in a factory and her husband has been ill for several months, > With a total family income of $110, they can’t save any money as they have to spend all their savings in the husband health care and medications. > She would like to repair the house, especially the roof but she has no savings to do so for the moment. 13


6/ FINANCING HOUSING INVESTMENTS Debts > 56% do not hold any loans with banks, MFIs or relatives Assets: > 44% have no assets to use as a collateral > 6% of them have a property in rural area Mindset > 25% declare that they are worried of taking a loan because they doubt of their repayment capacity. Average amount expected to be spent on housing > For new house: $1,734 > To repair the existing house: $267 Financing modalities > The 3 preferred means through which they plan to finance their housing needs are their own savings, loans from relatives or friends and loans from Microfinance Institutions. > 75% of people interviewed declare being ready to consider borrowing from a Microfinance institutions

Portrait of Family Indrani Papni Indrani Papni family lives at 4 in 10m! room in Ahiritola neighborhood > The mum has a sari business, her husband is a car painter and one of her two sons is working as insurance agent > Total income of the family is $215/month and they manage to save $13/month > They rent their home but they also have inherited a piece of land in rural area that they can use as collateral > In the coming month they plan to refurnish their house. > Having already contracted 2 loans from MFIs, they would need an additional loan of $320 to finance their housing project

14

Part 2/ Solutions Affordable housing players and their strategies Affordable housing models illustrated


OVERVIEW OF AFFORDABLE HOUSING STAKEHOLDERS NGOs, social entrepreneurs, developers, banks as well as government bodies are developing solutions to housing the poor in India. Hereafter is a short description of their involvement in affordable housing in India and their strategies. Developers and architects A recent engagement Prior to the economic downturn in 2008, very few developers had entered the affordable housing segment. Indeed, the Indian residential real estate market was experiencing an unprecedented boom. Between 2000 and 2005, Indian residential real estate prices had nearly doubled and the residential prices continued to rise at an average increase of 16% year-on-year. With such rising prices, real estate was seen as an asset for investment and the industry was focusing on the high end of the economic pyramid (upper class and upper middle class). With the global economic crisis of 2008-09, household income fell and so did the demand for houses. The impact was more pronounced in the segment of houses priced over Rs. 6,000,000 ($128,040) (Monitor, 2009). Developers were forced to look at lower income segments from middle-income to the bottom of the pyramid, who are less dependent on “market sentiment” and where a huge demand was still unmet. In addition to the tremendous business opportunity, government incentives to build low-cost housing has been an important driver to encourage developers going down the income ladder. A new range of developers The established market leaders such as Unitech or DLF have largely ignored the emergence of low cost housing market. Affordable housing sector is led by smaller developers such as Matheran Realty, Foliage Developers, Vintron, Taral Bakeri, Neptune Builders or by new players dedicated to that segment such as DBS Affordable homes, Tata Housing or Value Budget Housing Corporation. During our study in India, we’ve heard of many ongoing projects but no one was fully completed at the time. Fundamentally different strategy from the traditional industry Building affordable housing is a challenging move for developers: it is a new market on which little knowledge is available, there is almost no return on experience and the only certitude is that it requires to build drastically cheaper housing units. Traditional residential real estate strategies would not work for that segment and developers have to redefine several financial and operational aspects of the industry.

Key differences between affordable housing and traditional housing for developers !  Priority is to find cheap land, often at the outskirt of cities. In affordable housing projects, land is treated as a cost not as an asset. !  Expect lower margin but more volume (which means executing more projects in a fixed timeframe). Affordable housing projects have to be built faster than traditional projects (less than 2 years instead of 3-4 years for traditional projects) !  Build smaller housing units (between 200 and 700 sq/feet) !  Find cheap building materials !  Work in partnership: >> Partner with NGOs who have the knowledge of - and links with - the poor (for the design phase and demand aggregation) >> Partner with housing finance organizations (MFIs, banks) to ensure customers have access to require finance. Developers like Tata Housing, Shree Vaishnavi Constructions and Matheran Realty have tied up with MFIs like Micro Finance Housing Corp (MFHC) which disburse loans of about Rs. 5 lakhs. !  Look for « cross-subsidies » for the project (by building simultaneously high income commercial or residential development in the neighbourhood). !  Keep overheads low (e.g : no advertising)

16


NGO and social entrepreneurs ASAG, SPARC, Habitat For Humanity India, and SAATH have been among the main pioneering NGOs to focus on housing poverty in India and pilot innovative solutions. ASAG, created by the architect Kirtee Shah in 1968 looked at housing poverty both in rural and urban areas and developed successful housing projects that influenced government housing policies. Similarly, SPARC and SAATH have developed solutions that have been adapted and scaled up through local or national government programmes. SAATH Integrated Slum Development project has been the basis for the Slum Networking Programme implemented by Ahmedabad Municipal Corporation. SPARC Slum relocation model has become the standard in Mumbai and is now replicated in other cities. Development of social-business ventures If most of NGOs focusing on housing poverty are doing projects requiring government intervention, a new trend is emerging: they look more and more at developing market-based solutions and new social business models that would allow them to be more autonomous. NGOs such as Mahila Sewa Housing Trust or SPARC have created private limited companies, or social business ventures, aiming to deliver housing solutions while being financially sustainable (See Awaas Sewa Private Ltd and Sparc Nirman Business cases). Habitat for Humanity India is currently developing Habitat Housing Finance company which aims to develop affordable housing finance in the country while being financially sustainable. Partnerships with developers With the growing interest of developers for lower income groups, citizen sector organizations are also taking the opportunity to leverage their knowledge of the poor’s needs and preferences by selling new services. Mahila Sewa Housing Trust and SAATH are working with developers like Vintron or DBS in Ahmedabad to bring their knowledge and expertise (e.g: housing units design, demand aggregation) in new affordable housing projects. In the same line, Ashoka has built a programme in India called Housing For All which aims at designing new affordable housing models by bringing together private developers and citizen sector organizations. They have been instrumental in 3 housing project in Vatva, in the suburb of Ahmedabad.

17


Housing Finance players While the middle-class and upper class segments of population are well䇲served by the financial community, with various mortgage finance options available to them, there is little or no availability of finance to a huge section within the low income category and the informal sector as a whole. A recent survey from Ashoka among 45 housing finance institutions in India reveals that only 7 of them provide loans to customers from the informal sector : GRUH Finance, Mas Financial Services, Dewan, HUDCO, Mahindra Housing finance, Repco and MHFC (which is the only one to lend without requesting a garantor). Public players and regulatory bodies There are two main public players in housing finance in India : the Housing and Urban Development Corporation (HUDCO) and the National Housing Bank (NHB). > NHB is the is the referent authority for housing finance institutions. It regulates them and also provides refinancing to the financial institutions that provide loans for low-income housing. > HUDCO was created with the goal of facilitating housing finance accessibility to low and middle-income households by financing infrastructure development and increasing credit options. It also provides loans to housing finance institutions which are then lent to low-income households. Commercial banks involved in affordable housing finance don’t reach the informal sector Very few commercial banks have entered the low-income housing market. HDFC, one of the largest housing loan providers in India, has been one of the pioneers in that field in 1988 with the creation of GRUH Finance Ltd, a subsidiary dedicated to servicing low income population. Other banks have also proposed objectives to serve middle and lower income clients such as Dewan Housing Corporation Ltd or Repco. Big banks like SBI, ICICI, MRHFL (Mahindra Rural Housing Finance) have regulated requirement, to invest a portion of their capital for low income population, but they have not been very active in that field so far. The population of poor people, can be divided into 2 categories: the poor people that are formally employed, and who have formal documentation in terms of payslips or bank account and the informal category such as street workers, vegetable venders, which have no formal documentation on their income or the assets that they own. As demonstrated by Ashoka survey mentioned earlier, very few housing finance companies are targeting this latter category of customers. Even in the case of GRUH Finance Ltd, they require clients to be formally employed or business owners with audited financial statements and exclude informal workers. Consequently, « only about 10% of their consumer housing portfolio is directed towards the lower middle and low income groups » (source IFMR, Chennai 2007). Housing microfinance is still at an evolutionary stage in India Among the Non Banking Finance Companies, only a handful microfinance institutions (MFI) explicitly offer housing finance loans and there is no large scale housing microfinance programme in India. « For microfinance institutions, housing finance is completely different job : it means individual loans and the amount of money lent are neither micro, nor short term ». As a result, MFIs involved in housing finance tend to focus on housing upgrades and infrastructure improvements loans, the most notable example being SEWA Bank’s involvement in the Parivarthan slum rehabilitation project in Ahmedabad. Another key barrier for MFI’s is that to comply with Indian regulation, housing finance cannot exceed 20% of the whole amount of money lent. However, housing microfinance is still regarded as a area for development for many MFIs as their clients are demanding affordable housing finance and thus they know their credit worthiness. Many MFIs are currently testing out housing loans such as SKS Microfinance or Sewa Bank (which has just launched a new “Mortgage Housing Loan”) MHFC, first housing finance company dedicated to low-income and informal sector in India MHFC (Micro Housing Finance Corporation), is a housing finance start-up created in 2008 and dedicated to providing home loans to low䇲income individuals (earning less than Rs.20 000 ($430) per month) belonging to the informal sector. For M. Merchant of Monitor, « The entry of MHFC marks a breakthrough in the housing market as it addresses the pressing need for funding informal sector customers in affordable housing ». Following the exemple of MHFC, we have heard that at least 5 companies are willing to enter this market and are in the process of getting regulatory clearance from NHB. 18


Building materials providers Our interviews and research did not show any strong involvement of cement companies in affordable housing. E.g.: we did not came across with any new product dedicated to that market segment. However, some cement companies such as ACC, HOMEX or Gujarat Ambuja Cement are starting to look at ways to get actively involved in the low-income housing segment. ACC is doing a pilot project in Bihar with Habitat For Humanity India (see Ashreya project in Habitat for Humanity India business case). Officially branded as a corporate social responsibility initiative, ACC’s objective behind that project is to better know the low income market and feed its strategy to reach it. During our consultation, we have also heard of Homex - a Cemex subsidiary - willingness to enter affordable housing market in India. Cemex would like to leverage its experience on affordable housing in Mexico (cf. Patrimonio Hoy project) and replicate its model in India. However as discussed with M. Merchant from Monitor Group, “To succeed in India with its model, Homex will need a much stronger housing microfinance sector.” Gujarat Ambuja Cement Ltd is the cement company with the most advanced and ambitious affordable housing project we came across. Its project, called Bengal Ambuja Housing Project is a joint venture between Gujarat Ambuja Cements Ltd and the West Bengal Housing Board. « The West Bengal government initiated the move to rope in private-sector companies into mass housing more than a decade ago and so far Bengal Ambuja has completed three housing projects in the low, middle and high income segments. All the JV companies are provided land at a subsidised rate. This initiative has helped people from lower and middle-income groups to own a home at prices ranging between Rs. 2.5 lakh ($5,340) and Rs. 6 lakh ($12,800). »

19


Government bodies Concerning housing and infrastructures, the National Government, States Governments and Cities have all their own areas of decision and influence. For example, urban development is a State Government matter while land issues are Cities responsibility. As a result., according to Sheela Patel from SPARC, « The national government of India cannot make a housing policy for the whole country » due to a lack of coordination between government bodies. Many government initiatives have proved to be inefficient or unenforced for that reason. However, as housing - together with education - has become India’s government new mantra in recent years, things are evolving quickly. « Until 10 years ago, housing issues were taken in charge by the State Government. Now pressure is on cities to deal with housing poverty and infrastructures with subsidies coming from National and States Governments » says Mrs Patel. 2 major national initiatives Among the main housing policies implemented in the last decade are the Jawaharlal Nehru National Urban Renewal Mission (JNNURM) and Rajiv Awas Yojna scheme. JNNURM is a 50 000 Crores ($10,6 billion), 7 years long programme initiated in 2005 by the National Government to provide infrastructures and housing for the poor. The first section of the programme managed by the Ministry of Urban Development is related to infrastructures and transformation of the governance of municipalities. The second section of JNNURM, managed by the Ministry of Housing and Urban Poverty Alleviation aims to deal with issues around housing and the urban poor. NGOs we consulted were usually very critic toward that programme because its « did not even cover 5% of people who needed houses » and because the money given to cities is often used in counter-productive ways. M. Joshi, from SAATH considers JNNURM has killed many slum rehabilitation projects because the money has been used to remove slums and build low cost and inadequate houses in the cities outskirts. « Nobody is going to stay in 50% of houses built by government because they are too far away from the city centre, and there is no transport means » say Sheela Patel. The other major initiatives, called Rajiv Awas Yoina has been designed to complete JNNURM and make a slum-free India within 5 years. It includes some measures to tackle land issues (availability of land and property title issues). Indeed, issues over land property are one of the main barrier (especially in urban areas) which prevent affordable housing solutions to scale. Rajiv Awas Yoina provides for example a land title certification of 10 years for all slum dwellers. However this initiative launched by the National government has not really been enforced at city level so far. Some interesting projects at the city’s level We came across 2 success stories in term of government-managed projects. The first one is the award winning Slum Networking Programme undertaken by Ahmedabad Municipal Corporation and SAATH (see Case study SAATH) to rehabilitate and upgrade slums around Ahmedabad. The second one is Mumbai Slum Rehabilitation Policy which gives incentives for developers to build affordable housing. Little steps on the housing finance side Government is also looking at ways to develop housing finance for the low income population. It gives for example an interest subsidy of 1 per cent for one year on loans up to Rs. 1 million ($21,350) for properties worth less than Rs. 2 million ($42,680). However according to Sheela Patel, much has still to be done to facilitate provision of long term loans in India, especially for the low income population.

20

Part 2/ Solutions Affordable housing players and their strategies Affordable housing models illustrated

Escale Responsable - Affordable housing in India : needs and emerging solutions THE 4 DIFFERENT AFFORDABLE HOUSING MODELS Escale Responsable has identified 4 housing models in its study of low-income housing solutions in India: -  Slum rehabilitation: incremental housing in existing slums -  Slum redevelopment: relocation of slum dwellers in new housing units -  New housing: building of housing units affordable to low income households -  Renting model (emerging): building of housing units where a minimum of 40% will be reserved for low income households. All these models, excepted the Renting model, require development of affordable housing finance to be successful. Consequently Escale Responsable has considered it was critical to identify solutions in this field too. Figure 1/ Landscape of housing solutions Landscape of housing solution for the poor in India

1

SLUM REHABILITATION

2

SLUM REDEVELOPMENT

3

NEW HOUSING

4

RENTING MODEL

AFFORDABLE HOUSING FINANCE

H

Figure 2/ Models and areas in which organizations we have consulted are involved. Slum Rehabilitation

Slum redevelopment

New housing

Affordable housing finance

SAATH MHT SEWA Bank GRUH MHFC ASHOKA FOLIAGE DBS HABITAT FOR HUMANITY INDIA Kirtee Shah (Architect) MONITOR SPARC

22

1/ Slum rehabilitation

Slum rehabilitation model Slum rehabilitation (or slum upgradation) consists of improving the existing infrastructure, e.g. water connection, sanitation, drainage, street pavement and light, and electricity, up to a satisfactory standard. Usually rehabilitation does not involve home construction, but it offers optional loans for home improvements. Further actions include the removal of environmental hazards, providing incentives for community management and maintenance, as well as the construction of clinics, schools or community centre. UN-Habitat has developed five indicators for slum upgradation: security of tenure, access to water and proper sanitation, enough space for everyone to live and houses made of durable material Case study >> SAATH Integrated Slum Development

23


Case study – SAATH Integrated Slum Development About SAATH SAATH is a non-governmental organization, created in 1989 with the aim of integrating Ahmedabad’s slum residents into the formal economy while improving their living conditions. SAATH conceptualized the Integrated Slum Development Programme to provide infrastructures and basic services in slum through the creation of public-private partnerships. Since then it has aimed at facilitating participatory processes that would improve the quality of life for the urban and rural poor. SAATH runs programmes for women, children, men and youth in areas of livelihoods, capacity building, health and education, physical infrastructure improvement, slum development and natural resource management. It also has Urban Resource Centre which provides documentation, research and development support to other organisations or corporations.

INTEGRATED SLUM DEVELOPMENT Launch date Location Targeted population Number of beneficiaries

: 1989 : Ahmedabad : Slum dwellers : 45 000

EXECUTIVE SUMMARY Integrated Slum Development (ISD) programme was conceptualized by SAATH (and M. Himanshu Parikh from Ahmedabad Municipal Corporation) in 1989 to transform the slums and improve the quality of life of its inhabitants by providing both social services (education, health, community development) and basic infrastructures. It takes a participatory approach, with the community involved both in contributing towards the cost of the programme and also being closely involved in its implementation. First tested out in a slum named Sanjaynagar Mukhi ni Chali, ISD has then been completed with the Slum Networking Programme (SNP) implemented by Ahmedabad Municipal Corporation. SNP Infrastructure package contains household connections for water supply and drainage, individual toilets, and slum level storm water drainage, paving of internal roads and street lighting. Home upgradation or extension investments are a consequence of ISD programmes which create an enabling environment (secure tenure, infrastructure, access to finance…). ISD and SNP: clarification Following its ISD experience, Saath along with Ahmedabad Municipal Corporation designed Slum Networking Programme (SNP), the municipality’s programme to provide slums with basics infrastructures at large scale. SNP is the infrastructure part of ISD and has been implemented and co-ordinated by two NGOs: SAATH and Mahilan Housing Trust (Sewa Bank sister organization)

24


Case study – SAATH Integrated Slum Development STRATEGY ! A comprehensive solution: ISD aims to address all development needs of health, education, economic activities enhancement, infrastructure upgradation and human aspirations. ! A multi-stakeholders partnership: ISD is based on a public-private partnership involving NGOs, the municipality and the private sector. Indeed the nature of investments (eg. water connection, road pavement…) falls under the municipality’s responsibility; the amount of money to be raised requires diverse sources of fundings, and the diverse fields of actions (health, education, construction, economic development…) makes it necessary to involve specialized organizations. !  A market-based approach: Slum dwellers have to pay for the package of infrastructures that are provided at household level.

« SAATH was the first NGO in the 90’s, to say that poor people were able and willing to pay for basic infrastructures and services » Rajendra Joshi, SAATH founder and managing trustee ISD APPROACH

1

2

Step1/ Understanding priority needs and mobilizing the slum community: SAATH usually builds up a group of local youth to carry out surveys regarding basic physical infrastructures, housing, health and education needs. It then empowers the slum residents through the creation of community based associations aiming to get organized in order to improve the quality of life in the slum. Step2/ Implementation of social services in the slums: SAATH brings other NGOs and government bodies to improve health conditions and education in the slum. Through local youths participation, it helps each household understanding its rights and applying formally to existing municipal schemes for sanitation or water connection (when available). When there is no existing municipal scheme, SAATH enables the community to get organized in order to facilitate infrastructure investments, in particular in term design and financing.

3

Step3/ Provision of basic physical infrastructures at household level: Through its partnership with the municipality and sometimes the private sector, SAATH provides each household with a package of basic infrastructures. Infrastructures are implemented by the municipality and the investment cost is shared between slum residents (1/3 of the amount required) and the municipality. In return the municipality gives them a 10 years non eviction guarantee. SAATH deals with the payment collection and ensures infrastructure works are correctly designed and delivered.

4

Step4/ Development of income generating activities: SAATH launches new actions to enable economic development and job creation (micro-finance services to boost income generating activities, cooperative of women, vocational training to help young people get a job…).

5

Step5/ Facilitation of private sector BoP activities in the slum: Proper infrastructures combined with social services create an enabling environment for business and economic development. As a result, slum residents become potential customers and an untapped market opportunity. Through its Urban Resource Centres, SAATH provide corporations with information regarding local needs, habits and facts and figures. 25


Case study – SAATH Integrated Slum Development MAIN STAKEHOLDERS NGOs (SAATH or MHT) -  Do the link between all stakeholders (facilitator) -  Mobilize communiity -  Provide social services (health, education… -  Capacity building of local organizations -  Organize slum dwellers financial contribution -  Finance part of the project -  Organize vocational training and create jobs

ISD/ SNP

SLUM DWELLERS: -  Participate in infrastructures design -  Pay part of infrastructure services

MUNICIPALITY (AMC) -  Manages and finance part of infrastructure work (through SNP) -  Gives 10 years non eviction garantee to slum dwelllers -  Ensures maintenance MICRO FINANCE INSTITUTIONS (Sewa Bank) -  Provide micro-credit or house upgrading loans

CONTRACTORS - Infrastructure building

Aid agencies and foundations (USAID, Gates foundation, OXFAM…) - Provide funds to the municipality and NGOs to implement the programme

FINANCING > Subsidy-based: infrastructures investments are mainly funded by the municipality (usually 2/3 of the cost). The municipality get funding from aid agencies for SNP implementation. > Cost-sharing sharing model: All infrastructures and services are provided at household level; slum dwellers pay for 1/3 of the cost of the infrastructure package. Payment collection is done by SAATH and microfinance institution like SEWA provide loans to slum resident when needed. In the first ISD projects, the infrastructures package cost was Rs 6,000 ($130) per house, out of which Rs 2,000 ($45) had to be paid by beneficiaries. SNP funding breakdown between 1995 and 2005 Ahmedabad Municipal Corporation

Slum dwellers

SAATH and Mahilan Housing Trust

Over $20 million ! 98,5%

$301,600 ! 1,48%

$9,206 ! 0,05%

Source: AMC

SOCIAL IMPACT Main social benefits > Improved quality of life: almost all households have regular water supply, drainage connections and a toilet. > Secure tenure: people are reassured they won’t be evicted from their homes and start feeling secure. > Surplus income due to: - Reduced expenditures on health thanks to a healthier living environment - Women have more time for productive activities. > Access to financial services: Slum residents can open a bank account by using their 10 years non-eviction certificate delivered by the municipality > Job opportunities through vocational training Facts: In Ahmedabad: > SNP has been undertaken in 41 slum communities covering 8703 households benefiting 43,515 people (source AMC). > SNP has enabled access to water, electricity and road infrastructure to over 6,000 households on a feepaying basis (source AMC). > Saath’s Vocational training programmes have placed 25,000 youths and housewives into formal sector employment (source SAATH)

26


Case study – SAATH Integrated Slum Development The model has been replicated in other cities in Gujarat State, including Surat in 2004 and Vadodara in 2005, providing services to more than 100 000 slum dwellers (source: CHF). SAATH is currently launching Jamngar Slum Development Initiative to upgrade and Hanuman Tekri slum in Ahmedabad (5,748 inhabitants)

MELDI NAGAR-BEFORE

MELDI NAGAR-AFTER

IMPACT ON HOUSING SAATH did a detailed impact survey in the slum of Pravinagar – Guptanagar to see the changes after ISD. The study demonstrate that the project has allowed housing upgradation (increasing the number of rooms, or making a concrete roof and brick walls, or making lasting flooring). After Pravinagar – Guptanagar ISD, almost 40% have made changes in their houses and about 33% were planning some changes in the coming one-year. Average amount actually spent per household for house upgradation during and after slum networking project has been Rs. 50,250 ($1,070) Among the households that have upgraded their houses: -  72.73% have added or redone house fittings -  69.70% have rebuilt floors and walls; -  60.61% have built an additional room; -  54.55% have redone the roof -  27% have raised the plinth of the house and/or built another storey

DETAIL ON INTERVIEW AND CASE STUDY Person consulted: Rajendra Joshi Position: Founder and Managing Trustee Date of interview: 19/05/2010 Other sources: www.schwabfound.org Case of pravinagar-guptanagar, by R. Joshi

SAATH CONTACT DETAILS Tel: +91-79-26929827 Website: www.saath.org Email: [email protected] Address: SAATH, O/102 Nandanvan V, Derasar Jodhpur Charasta, Ahmedabad 380015

27

2/ Slum redevelopment

Slum redevelopment model Slum redevelopment occurs when slum dwellers or pavement dwellers have to be relocated either in another place or in the same location but in different housing units. It always involves the demolition of slum dwellers homes. Slum redevelopment motivations include: > The slum is located too close to railways, an airport, an industrial zone or a river and is subject to safety issues > The land owner wants to take back his land for another use: e.g.: road construction, airport extension, valorisation of a well located land... > The local authorities wants to demolish and to relocate slum dwellers in ‘proper’ vertical buildings in the same location. It is called in-situ redevelopment Slum redevelopment is often done in two phases: slum dwellers move in transit homes while their permanent home is being built or arranged. Authorities are always involved in redevelopment projects, and diverse public funds have been created to finance slum redevelopment or resettlements .

Case study >> SPARC Nirman

28


Case study – SPARC-NIRMAN About SPARC The Society for the Promotion of Area Resource Centers (SPARC) in alliance with NSDF and Mahila Milan are one of the larger Indian NGOs working on housing and infrastructure issues for the urban poor. The underlying focus are the right to the city of all its inhabitants with a focus on land security, access to housing and basic services. Created in 1984 by Sheela Patel, SPARC’s main role is to support two community based organizations: - The National Slum Dwellers Federation (NSDF): Set up in 1974, NSDF is a national organisation of community groups and leaders who live in slums/informal settlements across India. Its main objective is to mobilise the urban poor to come together, articulate their concerns and find solutions to the problems they face. Today the NSDF has a membership of over 750,000 poor households spread over 70 towns and cities in India. -  Mahila Milan (MM): Created in 1986 by 500 pavement dwellers women in Mumbai, MM is a decentralised network of poor women's collectives that manage credit and savings activities in their communities. MM has strong links with the NSDF, and the two networks work together to enable poor people to share experiences through exchanges, train each other in financial management, construction techniques and other relevant skills, and develop the confidence and opportunities to take on leadership roles within poor communities. Today MM counts over 300,000 members. The collaboration of these 3 organizations is known as the Indian Alliance, whose goal is to ensure secure housing and infrastructure for the urban poor. Since 1986, the Indian Alliance has embarked on numerous shelters and infrastructure initiatives. Currently the alliance works in more than 70 cities in India.

SPARC SAMUDAYA NIRMAN SAHAYAK (SSNS) -- ALSO KNOWN AS NIRMAN Launch date Location Targeted population Number of beneficiaries

: 1998 : Mumbai : Slum and pavement dwellers : Over 750,000 (SPARC)

EXECUTIVE SUMMARY SPARC Samudaya Nirman Sahayak, means SPARC's assistance to community-led construction. Called Nirman for short, it is a non-profit construction company set up in 1998 by SPARC to support the Alliance in undertaking housing and infrastructure construction. Nirman is involved in technical aspects and financial support, with the aim of developing new strategies for the poor to access affordable housing and infrastructure. CONTEXT In 1998, after more than a decade of operations, the NSDF and MM networks had considerably grown. Having demonstrated that its community-led strategy to seek a wide range of in-situ and relocation solutions for those facing evictions was actually successful and has the potential to work at scale, the 29


Case study – SPARC-NIRMAN possibilities of communities taking on construction themselves became apparent. Rather than support the needs of communities through SPARC, the Alliance realised that they needed to set up another institution that could manage all the formal issues related to construction and facilitate the scaling up of the model. STRATEGY > Leveraging synergies with NSDF and MM: The NSDF along with SPARC negotiates for land. Nirman focuses on handling the financial and technical assistance that the communities need, while the federation provides them the grassroots and leadership support. For community finance, microcredit or housing loans distribution, Nirman usually operates through Mahia Milan network. > Working in partnership: In order to bring the required financial and technical support to enable slum dwellers driving their own development, Nirman has to build up multi-stakeholder partnerships. These partnerships usually involve financial institutions, state and municipal agencies, and development organisations. > Leveraging slum dwellers’ wasted-spending on housing: as they don’t have any other options, the poor develop their own housing in very resourceful ways. Without security of tenure, most informal settlements start with building their houses with recycled materials and while this is affordable, it requires more routine maintenance (e.g.: each year they have to repair their houses affected by the monsoon) and end up spending consequent amounts of money in construction materials. Nirman’s objective is to build on this informal process, so that the poor’s capacity and housing spending are used in a more constructive and durable way. Once security is assumed, the strategy is to invest in incremental formal upgrading so money used in repair produces the house which requires no yearly repair SPARC SLUM RELOCATION APPROACH For those communities whose quest for land security can never be possible where they stay, the Alliance begins an exploration for a community driven relocation strategy.

1

Community mobilization: The federation (NSDF) assists communities to gather information and explore potential relocation lands. Community-led surveys are done both as an organization strategy (to bring people together) and as a useful basis for negotiations with local authorities. Groups of 50 households are created and leaders are chosen to facilitate coordination. Mahila Milan initiates women savings and credits groups to anticipate futures issues (and costs).

2

Move to transit camps: When the time comes to move, depending on whether the relocation housing stock’s availability, households shift in groups to transit homes where they will stay during the construction phase of their permanent homes. They had previously selected the date for the move and planned how they would organize the move. The slum area can then be demolished and redeveloped

3

Creation of housing cooperatives: in transit camps, future neighbours are regrouped into housing cooperative societies which deal with subjects like cleanliness, sanitation, relationships with the municipality… Residents are expected to contribute to maintenance costs and have to pay a monthly maintenance charge (including electricity and water bills).

4

5

Community-led housing design and construction: In the event that the housing is to be constructed by the communities themselves, Nirman involves the housing cooperative societies in the design and the construction of their new housing units and related infrastructures. Move to permanent homes : when their permanent housing units are done, housing cooperative groups leave their transit homes to move in their new homes. The alliance assists them in their new lives supporting them to develop management capacities to pay their collectives taxes, manage their water pumps and maintenances and collect dues from members and the alliance continues to provide social services, savings schemes, community representation through the 30 NSDF…


Case study – SPARC-NIRMAN MAIN STAKEHOLDERS NSDF - Mobilizes and organizes slum dwellers communities - Does the link between communities and local/ national authorities - Lobbying to protect/ defend slum dwellers community

CLIENTS (cities and local authorities) - Give regulatory approval - Contract Nirman for the construction works - Give subsidies to Sparc Nirman for assisting poor communities in their relocation

BENEFICIARIES (low income households) - Access to housing finance through Nirman networks - Participate in housing and infrastructures design - Are sometimes contracted by Nirman to do the construction work MICROFINANCE INSTITUTIONS (MM, MHFC…) - Organize credit and savings women groups - Organize the housing cooperative societies savings - Provide housing loans

SPARCNIRMAN

BANKS (Citi Bank…) - Lend money at low interest rate - Facilitate financial movements of the Alliance

DONORS (Homeless International, UK Department For International Development (DFID), Swedish International Development Cooperation Agency (SIDA)…) -  Created CLIFF* hosted by Nirman -  Give grants - Invest in Sparc Nirman revolving fund

*CLIFF The Community-Led Infrastructure Finance Facility (CLIFF) is a financial mechanism that provides slums community-based organizations direct access to the venture capital they need to develop creative and sustainable solutions to housing and infrastructures issues. The objective is to give them the opportunity to demonstrate to the city that their solutions work and can be scaled up, and to financing institutions that their initiatives are financially viable. CLIFF is funded by UK Department for International Development (over $9,8 million) and the Swedish International Development Cooperation Agency ($4,3 million). Nirman is the implementing partner of CLIFF in India. It has provided substantial capital for Nirman’s projects. These funds contribute the bridge financing needed to start projects before sor other funding comes in. FINANCING Nirman operates as SPARC financial and technical sister organization and uses diverse sources of financing for its projects: > Contracts : as a construction company, Nirman undertakes infrastructures, resettlement programs and housing projects. Its main clients are federal states, cities and local authorities. Nirman largest contracts include the Bombay Municipal Corporation‘s (BMC) Rs.440 million ($9.4 million), Mumbai Slum Sanitation Project and the MMRDA's Mumbai Urban Transportation Project which aims to resettle and rehabilitate over 10,000 households along the railway tracks. > Subsidies : central or local government gives Nirman subsidies to work with the poor communities to construct houses and provide infrastructures . > Grants are given by donors to cover Sparc and Nirman’s general expenses and core administration costs and to finance revolving funds. Indeed, due to usual delays for loans (contracts and subsidies) prefinancing is required to start on a project while waiting for the entire amount to come. A revolving fund is then created by Nirman, where donors (Homeless International, Selavip, Cordaid, Miserior…) lend out money to projects and receive interests upon repayment. > Community contributions: savings that poor communities can use to pay for their housing and infrastructure needs. They are used to subsidize a project, stand in as collateral for a loan, prove commitment to maintaining community assets and to repay loans. 31


Case study – SPARC-NIRMAN > Loans: Loans for construction come at regular commercial rates from banks who sometimes seek guarantees if they consider the risks high. Homeless International, Selavip and other northern NGOS have guarantee facilities from which these are provided. These are project loans for 5-7 years. The loans that SPARC provides to MM to manage savings are developed on short term lending terms and SPARC borrows from various specific facilities and disperses short term economic loans through MM groups. SOCIAL IMPACT Nirman has been involved in many projects since its creation in 1998. Hereafter are some examples of housing projects it has carried out : > Rajiv Indira – this is the first housing project in SRA which has been designed and managed by residents cooperative, where slum dwellers redeveloped houses where they lived in situ. ! Over 219 families have been accommodated in 5 new buildings and the remaining tenements sold on the open market. > Sunnuduguddu, Bangalore – the Rajiv-Indira Housing scheme in Mumbai inspired a similar project in Dharavi in a very difficult central part where again communities designed and managed the project. > Sunnuduguddu, Bangalore –when slum dwellers were facing eviction, the MM in Bangalore agreed to help residents build houses if the city acquired the land from a private developer. 160 houses have been constructed in a slum called Sunnuduguddu. > The Mumbai Urban Transport Project (MUTP) : relocation of 20,000 families who lived on land next to the railway tracks. Since February 2000, the Alliance has resettled more than 11,000 families. Out of these families, more than 6,000 were resettled in transit accommodations and the rest in permanent housing (mostly in small apartments in eight-storey buildings). Nirman was commissioned to build 2,500 of the 6,000 transit tenement buildings. This strategy set a precedent and MMRDA then constructed the rest of the transit houses commercially. > Oshiwara, Mumbai – through a partnership with a private land owner, Nirman construction of 5 sevenstoried apartment buildings for over 700 households in an area called Goregoan, in the north west of Mumbai, bringing in non-state land into the domain of housing stock for the relocated households. > Mumbai Urban Infrastructure Project: financed by the state government. This project focuses on roads and highways, and has required the resettlement of some 30,000 families, mostly pavement dwellers. The Alliance has been invited to manage the resettlement of most of these families and Nirman is currently engaged in constructing some 3,000 housing units.

DETAIL ON INTERVIEW AND CASE STUDY Person consulted: Sheela Patel Position: Founding director Date of interview: 29/05/2010 Other sources: - Towards a Pro-poor framework for slum upgrading in Mumbai by Sundar Burra 2005 -  Nirman’s website (www.sparcindia.org)

SPARC- NIRMAN CONTACT DETAILS Email: [email protected] Tel: (91 22) 23865053 Website: www.sparcindia.org Address: 2nd Floor Khetwadi Municipal School, Khetwadi 1st Lane, Khetwadi, Girgaum, Mumbai 400 004 INDIA

32

3/ New housing New housing model New housing model consists of building new housing units at affordable price for the poor. New housing projects dedicated to the poor usually involve citizen sector organizations (CSO). According to Ashoka India, there are 4 engagement models between CSO and the private sector : -  CSO as marketing agent of the project: the developer manages all the phases of the housing project and partner with a CSO to market its housing units to the poor and to organize adapted housing finance (loan collection). In return CSO get agent fees from developer. Example: Vintron with CHL (Community Housing Limited) project in Ahmedabad -  CSO on the management board of the project: the developer takes in charge all the financial aspects (land acquisition, infrastructures) as well as the construction process. However a CSO representative is invited to the management board of the project to bring its knowledge of the poor and and can influence some decisions (e.g. Housing design) Example: Umang Lambha project (DBS/SAATH) -  Joint venture between the developer and the CSO: equity of the project is shared between the developer and the CSO. Example: Swapna Shrihti project (joint venture between Awaas Sewa and Vintron) -  The developer as a contractor for the CSO: sometimes CSOs own lands, have access to potential clients for housing projects but don’t have the expertise to manage a construction project. The developers are then only involved in the construction phase as a « contractor ». This model is still being explored by Ashoka. Case studies >> MHT, Awaas Sewa Private Ltd >> DBS Affordable Home Strategy Ltd >> Foliage Real Estate Developers Ltd >> Habitat for Humanity India, Habitat Model

33


Case study – Mahila Housing Sewa Trust - Awaas Sewa About Mahila Housing Sewa Trust Mahila Housing SEWA Trust (MHT) was established by Self Employed Women Association (SEWA) in 1994 with the overall objective of improving the housing and infrastructure conditions of poor women in the informal sector. One of the first MHT project has been to work as a coordinator along with SAATH and the Ahmedabad municipality to develop and scale up the Slum Networking Programme. The main activities of MHT are: > To improve housing, infrastructure conditions and overall living environment of SEWA members including construction of low cost housing and infrastructures. > To create improved access to important services such as shelter finance, legal advices, technical assistance, information on housing material market and shelter related income, and employment opportunities for poor working women. > Lobbying to influence housing and infrastructures related to urban and rural development policies and programmes.

AWAAS SEWA PRIVATE LIMITED Launch date Location Model: Targeted population Number of beneficiaries

: 2009 : Ahmedabad : for profit : Slum dwellers : N/A (1st project in progress)

EXECUTIVE SUMMARY MHT has launched Awaas Sewa Private Ltd, a for-profit real estate company aiming at building a undertaking affordable housing projects designed with the poor and dedicated to them. With this new vehicule, MHT « wants to go from a mobilizer and contractor for the poor to a developer for the poor ». Awaas Sewa is a collaborative organization, which leverages synergies with its sister organizations (MHT and Sewa Bank). CONTEXT > After 20 years of activity, Sewa Bank acknowledges that many of its clients have reached a level of incomes that allow them to buy or build cheap houses and leave the slums. Moreover, the JNNURM* law has engendered a higher eviction risk for slum dwellers, many of whom are indicating they are ready to move for a more secure home, even if it is outside of the city. > The demand for housing is so high in India that poor people (and Sewa members) don’t have access to affordable housing because all housing projects are pre-booked by middle-class families or speculators. This is true even for housing projects targeting specifically the BoP population. > MHT is already involved in all aspects of housing for the poor (slum rehabilitation, house upgrading, infrastructures construction...) excepted real estate development --> Awaas Sewa Private Ltd has been created to cover this aspect and build up a completely market-based approach to affordable housing. *JNNURM: Jawaharial Nehru National Urban Renewal mission: Governement initiative aiming at improving urban infrastructure and services

34


Case study – Mahila Housing Sewa Trust - Awaas Sewa Lessons learned from a previous experience of MHT in affordable housing construction: MHT has already been involved in an affordable housing project where it played a facilitating role to enable Sewa members to buy some of the flats in construction. However 80% of units had been booked in advance by middle-income families and speculators and among the 80 Sewa members selected by MHT, only 20 had been qualified to buy housing units. As a result, MHT understood that the only way to have an impact was to take financial stakes in housing projects.

STRATEGY > Dedicated to low income families: Awaas Sewa projects are sold in priority to Sewa Banks members (clients). To avoid speculation, sales are not open, and no marketing is done. > Customized housing finance: Awaas Sewa has persuaded Sewa Bank to create a new “Mortgage Housing Loan”. Credit assessment of potential clients is made by Sewa Bank and a brainstorming is ongoing regarding housing loan accessibility (collateral required, repayment modalities…). > Participative process for housing units design and key decision making: Awaas Sewa (through MHT) mobilizes the community of new clients to facilitate the design process: by giving a cost to every optional element of the housing unit, Awaas enable the community to really adapt the design to their needs. Ex: for Swapna Srishti project, Awaas Sewa recently asked the community if they want a loft which would cost Rs.5,000 ($110). They also asked them to choose between common or separated toilet-bathroom. > High quality standards at lower costs: for Awaas Sewa, “Low cost housing doesn’t mean low quality”. To reduce costs as much as possible, Awaas Sewa uses several means: - Choice of cheap land - Tax exemption by organizing its projects under a Housing Cooperative status - Lower profit margin (20%) compared to other developers (around 50%) - Smaller super built up area (20%) compared to similar projects (35% to 50%) - No charge of maintenance deposit: usually developers charge Rs.20,000 ($430) to Rs.50,000 ($1,070) deposit for maintenance. The interest of the overall amount collected is then used to pays maintenance services. Awaas Sewa decided to let the future owners community decides. > Collaboration with an experienced partner: As it has no experience in real estate development activities (eg. finding a land, getting clearance from government, building completely new housing …) Awaas Sewa has created a joint venture with and experienced developer (Vintron Infrastructures) for its first project. “We are in a capacity building phase and the collaboration with Vintron will help us gaining expertise in the fields. After 2 or 3 projects, we will be able to be an independent developer”. Definitions: > Carpet area is the net area of the premises > Built-up area means carpet area plus the area occupied by walls of the premises > Super Built-up means the area of the premises plus the areas used for all common amenities (lift, stairs, passages, basement parking, etc.). It is divided among all users.

35


Case study – Mahila Housing Sewa Trust - Awaas Sewa MAIN STAKEHOLDERS REAL ESTATE DEVELOPER ( Vintron Ltd) - Joint venture partner - Co-manages construction process - Brings know-how and experience to Awaas Sewa

SHAREHOLDERS (MHT, Affordable Housing Institute…) - Invest in Awaas Sewa - Participate in key decisions

CLIENTS (low income households/ slum dwellers members of Sewa Bank) - Participate in housing units design - Take a housing loan from Sewa Bank

CONTRACTORS - Do the construction works

AWAAS SEWA

SEWA BANK - Brings customers - Credit assessment of potential customers - Provides housing loans for clients MHT - Mobilizes and organizes community of buyers - Organizes consultation for key decisions (unit design, cost issues…)

LOCAL AUTHORITIES - Give project approval - Can be a future client ( e.g. for slum redevelopment projects)

FINANCING For profit real estate company Awaas Sewa Private Ltd is a for-profit company with an initial capital of Rs.400,000 ($8500). As any real estate developer, Awaas Sewa works project by project and generates profit from the sales of housing units it has designed and built. The main difference with traditional developers is the social goal of Awaas Sewa which focuses on low income clients and expects a profit margin of 20% by projects instead of 50% in the industry. Swapna Shrishti, first project (in progress) Awaas Sewa currently works on its first real estate development project called Swapna Shrishti. This project is a joint-venture with Vintron infrastructure Ltd, an experienced developer based in Ahmedabad. Swapna Shrishti requires an investment of Rs.100 million ($2,1 million). Rs.40 million ($854,000) are provided by Vintron Ltd, around Rs.40 million ($854 000) are provided by customers loans, and a minimum of Rs.20 million ($427,000) have to be invested by Awaas Sewa by the 30th June 2010. DATA & FIGURES AWAITING FOR VALIDATION So far Awaas Sewa’s has raised Rs.10 million ($214,000), divided as follows: -  Rs.100,000 ($2,140) from the 3 directors. Remark: none of the directors will take dividends or shares of the profit. Profit shares owned by the directors will be is reinvested in the Awaas Sewa programs. -  Rs.2,5 million ($53,350) from Affordable Housing Institute -  Rs.4 million ($85,400) from MHT core grants: the condition was that Awaas Sewa would do only affordable housing projects targeting effectively the poor. -  The rest from a MHT technical assistance grant from where payments will be made directly to the architects and designers as Awaas Sewa’s contribution to the project. Looking for Indian-based patient capital As it is not allowed to bring in foreign equity in real estate industry in India, Bijal Bath, MHT’s director has no choice but approaching Indian private investors. However, so far, most of them are asking for a minimum of 20% profit margin, which correspond to the overall profit of Swapna Shrihti project. Discussions are ongoing with various social investors. Plan to build its capital over the time According to Bijal Bath, Awaas Sewa will build up its own capital from profits that will be made in its first projects. 36


Case study – Mahila Housing Sewa Trust - Awaas Sewa SWAPNA SHRISHTI PROJECT (dream wall) Location: Lambha, 7 to 10 kms from Ahmedabad city centre Launch date: officially, housing units sales will be open from 30th June 2010. However, Awaas Sewa has already opened booking to Sewa members and 115 have already booked and paid a deposit of 15% of the unit price. Advancement: awaiting clearance from the government Targeted population: Sewa members in priority ! people working in the informal economy with revenues ranging from Rs.8,000 ($170) to Rs.15,000 ($320) per month. Typical jobs include auto rickshaw drivers, vegetable vendors… Operating model: Joint venture with Vintron Infrastructures Ltd (private developer) Investment: Rs.100 million ($2,1 million) - to be finalized by the 30th June 2010. Expected profit margin: 20% (for Awaas Sewa) Description: Construction of 250 affordable flats in 3 stages buildings: > 147 housing units of one-room-kitchen > 67 housing units of 2-rooms-kitchen > 36 housing units of 3-rooms-kitchen Price of the cheapest housing unit: Rs. 351,000 ($7,500) Other specificities: > Participative design to ensure housing units are adapted to the needs (e.g.: alcove, loft, storage space….) > No marketing, clients are found among Sewa members > Smaller super build-up area than for traditional projects > Relatively low deposit margin for booking: 15% of the housing unit cost (instead of 20% traditionally) > No maintenance deposit charge > Green building: Awaa Sewa considers implementing green alternatives if cost-free (energy efficient electricity lines design, water recycling…)

DETAIL ON INTERVIEW AND CASE STUDY Person consulted: Bijal Bath Position: MHT director Date of interview: 20/05/2010 Other sources: -

MHT CONTACT DETAILS [email protected] Email: contact details Email Tel: 91-79-26560558 Website: www.sewahousing.org Tel: Website 401-402, Akashganga Complex, Address: Adress Navrangpura, Ahmedabad - 9, Gujarat, India

37


Case study – Foliage Real Estate Developers Ltd

Launch date Location Model: Targeted population Number of beneficiaries Staff

: Early 90’s : Ahmedabad : For profit : Low income population and middle class : N/A (1rst affordable housing project in progress) : 35

EXECUTIVE SUMMARY Foliage developers have been involved in the construction and development for almost 20 years mainly in the state of Gujarat. Their expertise includes conceptual planning, project scheduling, co-ordination of architectural and engineering services, zoning regulation review and approval, management and total project costing, pre-construction services, conceptual estimating, value engineering, construction administration and cost estimating. Historically, the company was more involved in construction of high end houses and commercial buildings in the city of Ahmedabad for middle class and upper middle class people. However, in 2009, feeling a good business opportunity with a huge demand and therefore huge growth potential, they have decided to enter a new market: the affordable housing market. Today, Foliage is managing 4 different projects in Gujarat including its first affordable housing project called Navjivan project located in the suburbs of Ahmedabad. It employs around 35 people (260 including contracted staff).. STRATEGY Lower margin but more volumes: After Navjivan pilot project, Foliage plans to do several similar affordable housing projects each year. Contrary to traditional project, it targets volumes instead of margin Secure Repayment: -MFIs partnership that manage the installments -30% of the global amount being paid upfront Cheap land value located in the suburbs of the city

Foliage Affordable housing model

Reduction of costs of construction materials by: -Manufacturing the bricks themselves -Partnership with cement companies to have better prices -Using alternative products e.g. mud blocks, etc. -Mix 20 to 30% of fly ashes to cement

Cheap and standardized building : -Elevated buildings (5 to 6 floors) -Simple and cubic design for space optimisation - Short construction time

38


Case study – Foliage Real Estate Developers Ltd MAIN STAKEHOLDERS CLIENTS ( low and middle income households) -  Buy housing units - Take housing loans SHAREHOLDERS - Invest money in project

FOLIAGE

SUPPLIERS - Supply of construction materials (e.g. cement)

HOUSING FINANCE (GRUH, MAS FINANCIAL SERVICES) - Help marketing the project through their networks - Credit assessment of potential customers - Provide housing loans - Secure the loan repayment LOCAL AUTHORITIES - Give project approval - Implement infrastructures connections (water supplies, roads, transports, etc.)


FINANCING Foliage works as any other developer companies: they initiate and manage construction projects and generate margins out of it. They typically invest between $600,000 to $1 million per project with additional capital provided by its partners and lenders. Their strategy is to have more projects than other developers and to build houses more quickly so they increase their profitability (see strategy above). Their targeted return is minimum 20% per annum.

NAVJIVAN PROJECT

Location: Vatva, in the south of Ahmedabad (industrial area) Investment: not communicated Launch date: October 2009 Advancement: construction has started (cf pictures) Expected profit margin: over 20% Targeted population: lower class or more specifically the “top of the bottom of the pyramid” i.e. people with a family income between Rs.7000 ($150) and Rs.15,000 ($320). Description: 420 housing units spread in 1 five-storied building with and 8 six-storied buildings on a 27,000 sq feet land (2,510m2). 39


Case study – Foliage Real Estate Developers Ltd 3 types of flats with a surface area from 220 sq feet (20m2) to 750 sq feet (70m2) will be developed: > 1 room kitchen including toilets and shower > 1 bedroom kitchen including 1 living room, 1 kitchen, 1 bedroom, toilets and shower > 2 bedrooms kitchen including 1 living room, 1 kitchen, 2 bedroom, toilets and shower The 1st and 2nd floors of 2 buildings located along the street being reserved for commercial use (shops for the neighbourhood and small businesses). Price of the cheapest housing unit: The apartments will be sold within the range of Rs. 300,000 ($6,400) to Rs. 650,000 ($14,000) and 30% of the global amount is required to be paid upfront when booking the property. Other specificities: > The MFIs play a key role in this project as they will help communicating to the targeted customers and secure the repayment. Foliage is currently approaching some MFIs in order to create special partnerships. > The price of the land is < Rs. 300/ sq feet or an equivalent of $6,5/sq feet or $70.5/m2. > The project includes incorporation of green design concepts in all stages of development and electricity, sewage and drainage installations.

DETAIL ON INTERVIEW AND CASE STUDY Person consulted: Balakumar Rajagopalan Position: Affordable housing project manager Date of interview: 20/05/2010 Other sources: -

FOLIAGE CONTACT DETAILS SAATH contact details Email: [email protected] Email Tel: +91-79-40322065 Tel: Website: www.foliage.in Website Address: Sanithya A, 3rd floor, Adress 100 ft road, Prahalad Nagar, Ahmedabad, Gujarat, India

40


Case study – DBS Affordable Home Strategy Limited


: 2009 : Ahmedabad : for profit : Low income population and middle class : N/A (1rst project in progress) :6

EXECUTIVE SUMMARY DBS Affordable Housing is a developer based in Ahmedabad, dedicated on creating community housing for Indian’s population who have no access to the formal real estate market. DBS mission is « to establish an efficient, viable and transparent system for the Large-scale Massproduction of Houses that are Affordable and Financed through Savings and Credit Systems that are Accessible to the Bottom half of the Socio-Economic Pyramid” STRATEGY DBS strategy is based on 3 elements: > Design and production of community housing: build house type from one-room to three rooms units with work spaces, crèches, community resources centres > Housing Finance : through partnerships with Micro Housing Finance Corporation and other MFIs, DBS aims at developing customized finance solutions to its clients, including mediated person-to person loans and flexible repayment schedules > Community Development : Through partnerships with NGOs like SAATH, DBS wants to create livelihood opportunities, enhance skills and education… MAIN STAKEHOLDERS SHAREHOLDERS (DBS partners) - Invest money in project - Strategic management of DBS

CLIENTS (low income households) - Are consulted for housing design - Take housing loans

NGO (SAATH) - Brings knowledge on the poor - Brings customers for each project and help them save and pay back regularly - Organizes consultation for key decisions (unit design, cost issues…)

DBS


HOUSING FINANCE ( Micro Housing Finance Corporation) - Credit assessment of potential customers - Provide housing loans

R&D (DBS ASHRAM*) - Research, publication and training on affordable housing

LOCAL AUTHORITIES - Give project approval

*DBS Academy for Sustainable Habitat Research And Management

41


Case study – DBS Affordable Home Strategy Limited FINANCING For profit real estate company Even if it targets low income populations, DBS expects the same profitability on its projects as for traditional housing projects. However M. Sanjay Shah, co-founder of DBS, reckons that the pay-back time might be longer than for traditional projects. A new model of land acquisition The key barrier to low cost housing is the high cost of land acquisition. DBS has come up with a different way of handling this problem by treating land as a cost and not as an asset (like traditional developers). DBS does not speculate on land. Their strategy is to “buy the land accordingly with the project’s objective”. So far they have been looking for cheap but attractive land (close to industrial area providing jobs, with good connectivity, not too far from city centre).

UMANG LAMBHA PROJECT Location: Vatva, in the south of Ahmedabad (industrial area) Investment: NA Launch date: First offering launched on 2nd may 2010. In one day 220 flats have been booked. Avancement: construction should start in the next weeks (June 2010) Expected profit margin: same as for a traditional project, however pay back time is longer. Targeted population: very low revenue and lower middle class. Majority of DBS customers have no regular/formal revenues, no access to housing loan. 60-70% of housing units are reserved for customers coming through SAATH (NGO). The open category is only 30 to 40%. Description: 1,404 housing units on a 5,8 acres land. 3 types of flats : > 1 room kitchen, the smallest 315sq/feets (30m2) > 2 rooms kitchen, > 3 rooms kitchen The 1 room kitchen flats are in four storied buildings, while the other two categories have five floors above parking. Price of the cheapest housing unit: The lowest price (1 room kitchen on the top floor ) is about Rs. 351,000 ($7,500). This is for a flat measuring 316 sq.ft (30m2) in « super built up area » so an equivalent of 227 sq.ft (21m2) for actual built up area. Other specificities: > Marketing strategy: radio spots, banners and SAATH which communicates through its networks in slums. DBS pays fees to access SAATH reservoir of customers. > Consultation of NGOs and targeted population for design of the housing units > Partnership with SAATH and Micro Housing Finance Corporation. SAATH will ensure poor people can book housing units and will manage community organization. MHFC will ensure credit assessment and loan for poor customers. > No innovation in term of construction material and process 42


Case study – DBS Affordable Home Strategy Limited

DETAIL ON INTERVIEW AND CASE STUDY Person consulted: B.R. Balachandran and S. Shah Position: Associates Date of interview: 19/05/2010 Other sources: -

SAATH contact details DBS CONTACT DETAILS Email Email: [email protected] Tel: Tel: +91 79 65135066 Website Website: www.dbsaffordablehomes.com Adress Address: 1, Sun Villa, Hebatpur road, Thaltej, Ahmedabad – 380 054

43


Case study – Habitat for Humanity India – Habitat model About Habitat For Humanity India Founded by Millard Fuller and his wife in Georgia, USA in 1976, Habitat for Humanity International is an ecumenical Christian global housing organization that seeks to eliminate poverty housing around the world. Operating in 93 countries, Habitat for Humanity has built 350,000 homes providing an estimated 1.75 million people with decent homes. Habitat for Humanity India began operations at Khammam, Andhra Pradesh in India in 1983 and has since become one of Habitat’s largest country programs impacting the lives of around 165,000 people with over 33,000 houses. The organization works through Regional centers called Habitat Resource Centers, based in Bangalore, Chennai, Delhi and Mumbai. Their programs operate mainly in the rural area which represents almost 80% of their activity. Today Habitat for Humanity India employs 73 permanent people and relies on a community of almost 2,450 volunteers. To support its activity, Habitat for Humanity India have created an umbrella program called IndiaBUILDS which is a strategic initiative to provide better housing for 50,000 low-income Indian families so 250,000 people by 2012. The program has 4 main objectives to achieve: > Create shelter: build houses for 50,000 families and 250,000 people > Create inspiration: mobilize one million volunteers > Create capital: raise funds from government, businesses, individuals and other donors and raise community resources, build partnership with businesses and leverage government schemes. Create a community housing revolving fund. > Create capacity: Develop a network of individuals, corporations, civic groups, NGOs and governments committed to finding shelter solutions.

HABITAT MODEL Launch date Location Model: Targeted targeted population Number of beneficiaries

: 1983 : India (17 states) : Not for profit : Rural poor : 165 000

EXECUTIVE SUMMARY Habitat for Humanity India has designed a model called Habitat Model, specifically developed for India’s housings needs in rural areas and implemented in all IndiaBUILDS projects. In partnership with local grassroots organization (NGO or MFI) working with people living in inadequate housing, HFH brings housing finance and technical support through its network of architects and volunteers. To get a new house, beneficiaries have to be land owners and to contribute both financially and in kind to the construction process. 44


Case study – Habitat for Humanity India – Habitat model STRATEGY > Targeting the rural poor: Habitat beneficiaries have to be low income families (income below Rs.6,000 per month - $133) living in inadequate housing in rural areas. Typical jobs of beneficiaries include daily wage earners, low-income factory workers, agricultural workers, small and marginal farmers. One of the key condition is land title: Habitat beneficiaries are all land owners. > Designing and building affordable houses: -  Property are between 22 sq meter to 35 sq meter -  The price of the house does not exceed Rs.150,000 ($ 3,200). -  Workforce (carpenters, masons, painters) come from the community -  Construction materials vary depending on local climate and topography, however it usually include stone and cement for foundation, brick with cement plaster for walls, tiles or steel sheets or RCC slab for roofs. > Providing technical skills: Habitat has a network of architects and technical engineers involved from design stage to delivery of the house. > Involving beneficiaries both financially and physically: beneficiaries have to bring a minimum of 1/3 of the house cost (in cash or in kind – e.g. wood, tiles…) and have to provide a minimum of 200 hours of « sweat equity » (participation in the construction process) > Providing free housing finance : Habitat for Humanity India provides beneficiaries with housing loans (up to 40% of the house cost) with 0% interest. The repayment starts only once the house is completed and is done on a monthly basis - on average between Rs. 500 ($10) and Rs.800 ($17). Housing loans distribution and collection is outsourced to local NGOs and microfinance institutions. MAIN STAKEHOLDERS DONORS ( foundations, corporate partners, Indian government…) - Finance IndiaBuilds

BENEFICIARIES - Bring 1/3 of the cost of the house - Take a 0 % interest loan from HFH India - Participate in the construction of their house CONTRACTORS (local masons, carpenters…) - Do the construction works VOLUNTEERS - Help coordinating project on the field - Help building houses

HABITAT INDIA

LOCAL PARTNERS (NGOs and MFIs) - Identify needs and do the linkage with local communities - Bring 1/3 of houses cost (often through government schemes) - Do Habitat housing loans distribution and collection - Ensure follow-up of the project

LOCAL AUTHORITIES - Involved in legal aspects (e.g. land tenure) - Help providing infrastructures

CORPORATE PARTNERS - Provide expertise and training - Support and facilitate creation of community business

45


Case study – Habitat for Humanity India – Habitat model FINANCING Habitat for Humanity India housing model is based on a 1/3rd partnership model: ! 1/3 is funded by beneficiaries in cash, construction materials and « sweat equity » ! 1/3 is funded as a 0% interest housing loan provided to the beneficiaries by Habitat for Humanity ! 1/3 is funded by partner NGO (usually through government subsidies) Mortgage payments collected through Habitat housing loans contribute to a Fund for Humanity, which in turn provides the money to build more houses. NEW LINE OF CREDIT On the 1st of July 2010, following a new partnership with a bank (which name is still confidential), Habitat for Humanity India will have access to a line of credit of Rs.300 million ($6,4 million) for 3 years with an 8% interest on borrowing. In accordance with the Habitat model, HFH India will provide 0% interest loans to the beneficiaries to build their homes. The 8% interest rate requested by the partnering bank and any non performing assets (default of payment) up to 8% will be covered by the ASK foundation up to Rs.14 million ($300,000). This new line of credit will allow HFH to build 7,500 extra houses.

IndiaBuilds overall budget is Rs. 2 billion provided by different donors (corporations, foundations, Habitat International, individuals…). Administration costs are kept under 14% of the overall budget of Habitat India.

SOCIAL IMPACT > Since its creation in 1983, Habitat for Humanity India has built over 33,000 homes including more than 11,000 houses under its tsunami-response program launched in 2005. > Between July 2008 and June 2009, the NGO has built, rehabilitated or repaired 5,126 houses across India.

> The ambition of Habitat for Humanity India is to serve 24,000 families by the end of 2012.

46


Case study – Habitat for Humanity India – Habitat model ASHREYA PROJECT Launch date Location Model: Targeted targeted population Number of beneficiaries

: November 2009 : Jorgama Village – Bihar State : Not for profit : Rural poor : 72 families (project in progress)

EXECUTIVE SUMMARY In partnership with a local NGO, the cement company, ACC and Hindustan Unilever Limited (HUL), HFH India launched in November 2009 its first integrated project called Project Ashreya. In addition to building 72 houses in the village of Jorgama, HFH India, will develop revenue generating activities and run capacity building actions. CONTEXT In August 2008, the State of Bihar experienced one of the worst flooding in the history of the state that displaced more than three million people. HFH India joined hands with the state government’s shelter sector coordination committee, to take an active role in planning and coordinating housing needs of the affected families. STRATEGY Ashreya project aims to build up on the success of Habitat Model, by adding new initiatives that make it a comprehensive solution to housing poverty in rural area. As a result 2 main new elements have been added to traditional habitat housing projects: > Empowering the community: In collaboration with a local NGO, HFH formed groups from the community and is implementing trainings and capacity building activities to help the community to access existing government schemes and negotiate with competent government department to develop livelihood projects. > Creating revenue generating activities (involving corporate partners) : -  ACC programme: training a local group to hand operating machine to manufacture hollow brick blocks, fly ash bricks, and pavement blocks used to build houses. After Ashreya project, products will be sold on the market through ACC dealers. the product transportation will be done by micro-entrepreneurs using cycle rickshaws. -  HUL programme: Training 20 women of the community to become entrepreneurs and sell HUL products. HFH India will provide seed capital to these women, so they can start their micro-entreprises. MAIN STAKEHOLDERS ACC - Fund 50% of the project - Provide subsidized cement for building low cost housing - Provide training to masons - Provide technical support for the production unit of concrete product - Provide linkage to ACC dealers for sale of concrete product - Employee volunteering on site HINDUSTAN UNILEVER LIMITED - Fund 50% of the project - Employee volunteering on site - Train 20 women to become entrepreneurs COMMUNITIES - Help building the houses - Manufacture of building materials

ASHREYA PROJECT

HABITAT FOR HUMANITY INDIA - Ensure quality of the houses and meeting of timelines during the implementation of project - Ensure involvement of the beneficiaries and local stakeholders in the project - Implement drainage and sewage installations for the livelihood - Mobilize resources and establish linkages with relevant Govt depts. for livelihood projects. - Select the beneficiaries based on some Habitat Model criteria as agreed with the other stakeholders. LOCAL NGO - Coordinate the implementation of the project with other stakeholders - Ensure the linkage with the local communities - Ensure the continuity of the project after the implementation

47


Case study – Habitat for Humanity India – Habitat model FINANCING Ashreya project’s overall budget is Rs. 16 million ($341,500). Hindustan Unilever Limited and ACC are providing 50% each of the required fundings as corporate social responsibility initiatives. However, Ashreya will provide them knowledge on BoP potential market and will help them identify business opportunities. SOCIAL IMPACT (EXPECTED) Benefits for the communities are: > 72 families will live in appropriate houses > Living conditions of 300 families that will indirectly benefit from the project (availability of low cost building materials, Unilever products, etc.) > Increase of capability building of villagers > Development of non farming activity and income generating activities (around building materials fabrication and transport and by giving women by the opportunity to create their own business) > Prevention of people migration to the cities > Empower the community to gain access to government schemes through advocacy Ashreya is a pilot project; if successful, the model will be replicated in other areas with similar needs.

HABITAT HOUSING FINANCE COMPANY Acknowledging that affordable housing finance is one of the main barriers to housing for the poor, Habitat has just set up his own Housing Finance organization, the Habitat Housing Finance Company (HHFC) based in Chennai. The aim of this new organization is to develop affordable housing finance in the country by financing the creation of housing microfinance programmes. The HHFC will lend will lend money to microfinance institutions at very competitive rates, expecting them to pass on that benefit to the poor.

DETAIL ON INTERVIEW AND CASE STUDY Person consulted: John Thattil Position: Director Date of interview: 25/05/2010 Other sources: -

HABITAT SAATH contact FOR HUMANITY details INDIA CONTACT DETAILS Email [email protected] Email: Tel: + 91-22-29209851 Tel: Website www.habitatindia.in Website: Adress 303, Dhanthak Plaza, Address: Makwana Road, Marol, Andheri (E), Mumbai -59

48

4/ Affordable housing finance

Affordable housing finance is not a housing model as such, however it is a key component for each model we have studied (excepted rental model). Affordable housing finance, means housing finance products accessible and adapted to low income population. It can be done by microfinance institutions or traditional finance institutions like banks. Mainstreaming affordable housing finance is a necessary condition for affordable housing market to take off in india Case studies >> Micro Housing Finance Corporation >> GRUH Finance

49


Case study – Micro Housing Finance Corporation


: 2008 : Mumbai : For profit : Low income population (max Rs.20,000/ month so $430) : 200 so far : 27

EXECUTIVE SUMMARY Micro Housing Finance Corporation Limited (MHFC) is India’s first housing finance company dedicated to providing home loans to low䇲income individuals belonging to the informal sector and who traditionally have had no access to finance from established banks and financial institutions. Created in 2008 by 3 former investment bankers, MHFC has received the necessary regulatory clearance from the National Housing Bank (“NHB”) and has started its lending operations in May 2009 (the first client has been repaying for 13 months). According to Monitor « the entry of MHFC marks a breakthrough in the housing market as it addresses the pressing need for funding informal sector customers in affordable housing. This will allow development of the low䇲income housing market which could result in housing for 10–15 Million households in the next 5–8 years and potentially represents a $75 Billion market that is commercially viable. » STRATEGY > Focus on urban areas: in urban areas density is high, infrastructures are good quality and most of the population, even in the informal sector, has a bank account (or can easily get assisted to open a bank account). As a result, marketing and loan collection are easier with urban customers than with their countryside counterpart. > Target the informal sector: India’s informal sector is a huge untapped business opportunity for housing finance. It is estimated that in India, 90 percent of all employment is in the informal sector. Typical customers targeted by MHFC are self-employed, earn between Rs.10,000 ($215) and Rs.20,000 ($430) per month but don’t have access to loans from established banks because they don’t have adequate documents or formal salary slips. MHFC is creating a credit assessment model adapted to the informal sector customers by building databases by profession and by location. E.g.: statistics on auto rickshaw drivers revenues in Mumbai, or vegetable vendors in Ahmedabad. > Project led: MHFC ties up with builders that have a similar focus on affordable housing (defined by MHFC as flats which have a final price of Rs.500,000 to Rs.600,000; $10,670 to $12,800) and lend money to their potential low-income buyers. However, MHFC does not get involved randomly in affordable housing projects. It has established a project screening model, which not only check the legal and technical parameters, but also look at social parameters such as location, transports links, infrastructures (schools, markets, hospital…). > No branches, no mass marketing : as it is project led, MHFC marketing strategy is tailored to each project and usually done in synergy with developers commercial strategy and/or local NGOs. To reach its customers, MHFC has one employee staying in each project/ builder’s location and welcoming customers. Currently, there are 25 projects in progress. 50


Case study – Micro Housing Finance Corporation MAIN STAKEHOLDERS AUTHORITY (National Housing Bank) - Give regulatory clearance - Provide cheap money for refinancing

MHFC CLIENTS ( low income households) - Take mortgage loans from MHFC - Help MHFC build up its database and knowledge of informal sector customers BANKS - Provide infrastructure for MHFC loan repayment (monthly electronic payment)

NGO (Sparc, SAATH, MFIs) - Brings their knowledge of low income potential customers - Bring customers from their networks - Sometime brings new affordable housing projects that require housing finance

DEVELOPERS (DBS, - Provide affordable housing projects - Bring customers needing housing loans - Help MHFC market its product SHAREHOLDERS (IFIF, Dell Foundation, MHFC directors) - Own MHFC capital

FINANCING MHFC has raised a capital base of Rs.330 million ($7 million) of which Rs.250 million ($5,3 million) came through venture capitalist funding as equity in its first round of external funding from the India Financial Inclusion fund and the Dell Foundation. In its first financial year, MHFC incurred a loss of Rs.917,000 ($19,600). However M. Menon, MHFC Chairman, estimates that the company should be at break-even by the end of 2010, if it reaches the provision of 1,500 loans as planned. Objectives are to provide 50,000 loans worth Rs.20 billion ($426,8 million) in the next 5 years. SOCIAL IMPACT MHFC focus on people that don’t have access to housing finance in existing banks and financial institutions in India. In May 2010, the company had 200 clients and was getting involved in 25 affordable housing projects all over India. The objective of MHFC is to lend 50,000 loans within the next 5 years and as a result to improve living conditions of over 300,000 persons. MHFC PRODUCT Launch date:

May 2009

Targeted population:

Urban low-income population belonging to the informal sector and in the process of buying a new house/flat. Family income between Rs.10 00 ($215) to Rs.20,000 ($430) per month.

Number of clients:

200 (as in May 2010)

Purpose of the loan:

buy new apartments of house

Loan Amount:

Maximum Rs.500,000 ($10,670). The loan size is usually 3 to 5 years annual income.

Length :

max 15 years

Interest Rate:

Between 12% and 14%. However, actual rate of interest on a loan depends on individual circumstances, especially on the amount of borrower contribution and the loan tenor requested. Further, it should be noted that the loan rate is floating and is revised from time to time, in line with market conditions.

51


Case study – Micro Housing Finance Corporation Loan to Value:

In most cases, 75% to 80%. The borrower has to provide a margin of at least 20% of the value of the house upfront.

Security:

Mortgage of the house being financed

Repayment modalities:

Through monthly automated bank electronic clearing system

Other Conditions:

MHFC expects the borrower/s to have a bank account, also to take out life / permanent disability / property insurance (MHFC will help facilitate the bank account and the insurance).

DETAIL ON INTERVIEW AND CASE STUDY Person consulted: Madhu Menon Position: Chairman Date of interview: 28/05/2010 Other sources: -

SAATH contact details MHFC CONTACT DETAILS Email Email: [email protected] Tel: Tel: +91 22 2266 0130 Website Website: www.mhfcindia.com Adress Address: #3, Victoria Building, SA Brelvi Rd, Mumbai - 400 001, India

52


Case study – GRUH Finance Ltd

Launch date Location Model: Targeted population Number of clients Staff

: 1988 : Western India (7 states) : For profit : Low income population : Over 90,000 : 350

EXECUTIVE SUMMARY GRUH has been created in 1988 as a subsidiary of HDFC, one of the main private banks in India. GRUH’s objectives were primarily to provide long term finance to individuals for Construction/ Purchase /Extension/ Repair/Renovation/Shop loans of their homes but the company is now also engaged in loans to professionals for office premises. The targeted population is mainly low income housholds earning less than Rs 10,000 per month ($215) living in rural and semi urban areas. With a network of over 80 retail offices, spread in western India across Gujarat, Maharastra, Rajasthan, Madhya Pradesh, Karnatala, Chattisgarh and Tamil Nadu, GRUH gathers a customer base of more than 90,000 customers and employs almost 350 people.

STRATEGY GRUH has identified 4 different segments of clients and therefore has developed 4 different products based on an individual risk assessment method called Credit Rating Model. This model consists of 21 parameters (age, income, stability of income, savings, assets and liabilities, etc.) to enable appraising potential customer's financial and repayment capacity. The interest rate of the loans depends on customers credit rating score. MAIN STAKEHOLDERS DEVELOPERS - Take loans for financing their housing project - Bring new clients

AUTHORITY (National Housing Bank) - Give regulatory clearance rate o - Provide refinancing

GRUH CLIENTS ( low income households in urban or rural areas) - Take loans from GRUH (for construction, purchase, extension, repairs or renovation of houses)

SHAREHOLDERS (HDFC, banks, institutional investors…) - Own GRUH capital

53


Case study – GRUH Finance Ltd FINANCING GRUH is a subsidiary of the Housing Development Finance Corporation Limited (HDFC) which holds 61.49% of its capital. The company has been recognized by National Housing Bank (NHB), the organization that regulates the Housing Finance Industry in India and is mainly refinanced by NHB.

Source: http://www.gruh.com

SOCIAL IMPACT GRUH targets the people who are not covered by other housing finance companies. They have regular income with no formal income slips and work in the informal economy. 64% of GRUH customers have a family income of less than Rs. 10,000 ($215) per month and 60% of the loans disbursed so far are of amounts less than Rs. 300,000 ($6,402).

54


Case study – GRUH Finance

55


Case study – GRUH Finance

DETAIL ON INTERVIEW AND CASE STUDY Person consulted: Mr. Ashish Sutaria Position: Area Manager Date of interview: 21/05/2010 Other sources: -

GRUH CONTACT DETAILS Email: Tel: + Website: www.gruh.com Address: Sakar IV, Second Floor Opp, Ellisbridge Ahmedabad 380 006

56

Part 3/ Conclusions

Escale Responsable - Affordable housing in India : needs and emerging solutions SIMILARITIES BETWEEN ALL THE AFFORDABLE HOUSING MODELS Although affordable housing models have different approaches to solve the housing needs, we can nonetheless highlight at least 3 similarities between them: > Multi-stakeholders approaches: affordable housing projects are complex projects involving more stakeholders than traditional housing projects. Communities, NGOs, housing finance institutions, and local authorities are among the main stakeholders of any affordable housing project. They usually rely on partnerships between for profit and non profit organizations and are difficult to coordinate. One of the main challenge for the project leader is to make these two « worlds » speak the same language and work together efficiently. > NGOs involvement: in every affordable housing project aiming to have a genuine social impact, NGOs and social entrepreneurs are involved to a certain extent. Their input can be variable - from project leader or simple « marketing agent » - but their role is often critical to the success of the project : - They bring the knowledge of the poor - They facilitate relationships between the poor and others stakeholders and can market the project in the community - They ensure the project is in line with the needs of the poor and facilitate their participation in the process - They ensure the follow-up of the project > Availability of affordable housing finance options: as shown in the previous pages of this report, housing finance is essential to any affordable housing project. The 3 models highlighted include affordable housing finance options and involve specialized organizations. NGO’s again, play usually a critical role to aggregate the demand, organize saving groups, do credit assessment of potential customers and collects loans.

STRENGHS AND WEAKNESSES OF EACH AFFORDABLE HOUSING MODEL We propose hereafter a short analysis of the different models according to 4 key criteria: social impact, economic viability, scalability and potential synergies with private sector organizations. The objective is to highlight strengths and weaknesses of each model. SLUM REHABILITATION MODEL SOCIAL IMPACT

ECONOMIC VIABILITY

+ Target slum dwellers ! very low income + Keep social fabric and economic activities of slum dwellers + Social benefits have been measured and include better health, education, economic development

-  Subsidy-based model

SCALABILITY

SYNERGIES WITH PRIVATE SECTOR

+ Mass market and slum dwellers already spend money on (temporary) housing improvement (e.g. before mansoon) + Slum rehabilitation projects have already been implemented in several cities - Major barrier is absence of property rights for many slum dwellers -  Dependant on political will as local authorities have to be involved (e.g. for infrastructure works and fundings) -  Current trend is to demolish slums and relocate slum dwellers in order to use the land

+ Slum rehabilitation projects create an enabling environment for BoP approach + Strong links between slum rehabilitation projects and housing spending of slum dwellers + Particularly interesting for construction material providers as housing upgrading are done by the people

58


SLUM REDEVELOPMENT MODEL SOCIAL IMPACT

ECONOMIC VIABILIY

+ Target the poorest segment of the population (including pavement dwellers) - High risk of negative social impact unless communities are involved in the whole process

- Often subsidy-based model

SCALABILITY


+ Slum dwellers relocation is a major trend in India since the government has fixed a 0 slum objective. - Dependant on political will

+ Business opportunities for private sector are mainly found in the construction phase of new housing units

NEW HOUSING MODEL SOCIAL IMPACT

ECONOMIC VIABILITY

= Projects in progress are impacting mainly the top of the “bottom of the pyramid” as housing units are often booked by middle class customers instead of BoP customers - Many uncertainties regarding integration of former slum dwellers in new housing regarding their integration in their new social environment, impact on their incomes and economic activities (new transport costs, business opportunity destruction…) -  Some projects are realized without the communities consultation ! risk of inadequate housing - Risk of the speculation

+ For profit business model (but no return on experience so far to validate its profitability) - Doubts regarding repayment capacity of poor customers

SCALABILITY


+ Mass market and strong demand : need of 21 million new housing units in India) + Affordable housing projects are mushrooming in every cities of India

+ Led by private sector organizations + Several required partnerships with other private companies : Housing finance organizations, contractors, material providers etc.

AFFORDABLE HOUSING FINANCE SOCIAL IMPACT

ECONOMIC VIABILITY

+ Loans benefiting to low income families coming from the informal economy -  The social impacts remain low as it is an emerging industry that benefits to a small number of people - Still no housing finance solutions for the very poor (BoP)

+ Profitable and self sufficient model + Huge market opportunities - High risk of this business (repayment risk, no real collaterals (business creation) like for MFIs) - Need to gather more customer to increase the profitability

SCALABILITY


+ Mass market and important need for housing -  Dependent on legal aspects (clear land tenure) or affordable housing projects - No real return on experience as the model is being experimenting in few cities

+ Housing finance is a key and mandatory partner in all the affordable housing projects that are currently being experimented

59

Escale Responsable - Affordable housing in India : needs and emerging solutions OUR CONCLUSIONS IN 5 QUESTIONS 1/ Are current affordable housing initiatives potentially able to solve the problem of housing poverty in India? Even if they scale up, current affordable housing initiatives will only bring solutions to a small portion of Indian's population in need of adequate housing. As mentioned earlier in this study, India is still very rural with 70% of the population living in the countryside and count 101 million people earning less than Rs 7,000 ($150) a month. Housing needs of these two segments of population – the rural poor and the very poor – are massive – only 19% of rural population live in strong houses and India counts more than 200 million homeless people – but unmet by market-based initiatives (excepted Habitat for Humanity). To solve housing poverty in India, affordable housing initiatives will have to tackle the very poor and the rural population. As the sector is still very young, we are confident that players will seek more and more to reach these two segments of population. However it can happen only if the Indian government creates an enabling environment (facilitate access to ownership, create incentives for private sector to get involved in housing solutions for the poor). 2/ What are the main barriers to the development of affordable housing solutions? The 3 main barriers for affordable housing market growth are the following: > Access to land property : Establishing homeownership in India is difficult due to a lack of clear land titles, in particular in urban areas where there is few transparency on property transactions and widespread disputes and litigations. The government has been struggling to solve land title issues for the last 20 years without any clear result so far. Land title uncertainties and the associated fear of eviction are a major barrier to housing investments in slums. > Availability of housing finance: The growing supply of housing for the poor is constrained by the fact that they still don’t have access to housing finance. As explained earlier in this study a recent survey from Ashoka India among 45 housing finance institutions reveals that only 7 of them provide loans to customers from the informal sector : GRUH Finance, Mas Financial Services, Dewan, HUDCO, Mahindra Housing finance, Repco and MHFC (which is the only one to lend without requesting a guarantor). Among the Non Banking Finance Companies, only a handful microfinance institutions (MFI) explicitly offer housing finance loans and there is no large scale housing microfinance programme in India. > Lack of incentives to build houses for the poor: The Indian Government has been unable so far to provide efficient incentives to build low cost houses excepted in Mumbai which has developed an efficient Slum Rehabilitation Policy which incites developers to build affordable housing.

3/ Why should multinational corporations get involved in affordable housing in India? The first point that comes to our mind after this study is « because the market is huge and still untapped ». All the for-profit organizations we have met have no doubt about the business opportunity behind affordable housing. The demand for housing is so high that when building new housing units for the poor, the main issue is to make sure it will really go to the poor initially targeted by the project. Our second point is that the market is far from being saturated: there is space for new players – but for how long? During our time in India, we felt that affordable housing was the « hot topic » of the moment. It is everywhere: in the press, in the ads and each month bring its lot of new players and projects. If players already involved are taking bigger risks they also learn how to successfully make business while serving the poor and will benefit of a first mover’s advantage.

« Five years ago, no one builder was speaking about affordable housing. Today everybody speaks about it »

“The companies are used to serve the top and middle of the pyramid. As they don’t know the low income population, they think there is no market!”

Kirtee Shah, Architect Vishnu Swaminathan, Ashoka 60

Escale Responsable - Affordable housing in India : needs and emerging solutions 4/ What are the risks of getting involved in affordable housing? Affordable housing is a fragmented market. Strategies and business models differ based on whether customers are urban or rural, from lower income groups or low middle income, working near their home or not…There is not much return on experience on affordable housing projects and all players are still in “pilot stage” which means: higher cost and higher risk of failure. Reaching the poorest customers often requires radically new approaches and many traditional construction and real estate development corporations have taken the “wait and see” option. As a result, most of the players involved in affordable housing projects are start-ups (e.g. DBS Affordable Homes or MHFC), new entrants (e.g. Tata Housing), or non profit organizations (e.g. SAATH or MHT). 5/ How can private sector get involved? > Work with social entrepreneurs and non profit organizations is almost a pre-requisite for any company willing to successfully get involved in affordable housing because they usually have the knowledge of the poor and because the poor trust them. Choice of the partner(s) organization(s) and type of partnership depends on the company's objectives and profile. In our study we came across many types of partnerships between for-profit and non-profit organizations. Hereafter are the 3 most interesting: •  Joint venture: The company invests in a common project with the NGO, like Vintron Developers has done with Awaas Sewa, In Ahmedabad •  Bring expertise and/or fundings to an NGOs project: see ACC and Habitat For Humanity •  Buy NGO’s marketing agent services: the company uses the NGO as the interface with its potential customers: ex using SAATH Urban Resources Centres to test a product in a slum > Learn before looking for profit: serving the poor has to be a long term commitment and companies should not expect making profit in the short term. As they usually have little knowledge regarding the poor’s preferences, needs, ability to pay…they need to learn in the first place. Staff immersion can be a possibility. Another one is to test out solutions on small scale projects like ACC does currently with Habitat For Humanity. > Be participative: a key success factor is to make people participate in the whole process. As Sheela Patel put it « community engagement is key, because people have to feel the project is an improvement compared with what they do by themselves ». All projects of our case studies (excepted Foliage) includes a community involvement component. E.g.: Awaas Sewa Private Ltd is consulting potential customers to ensure the design of its housing units fulfils their needs. Sparc slum redevelopment projects are comanaged by the slum community. > Think out of the box : be flexible and open to new ideas. Housing units dedicated to the poor are very different from housing units traditionally sold to middle and upper class customers. As explained by Sparc, « Its ok for rich people to live in 60 floor buildings, but not for poor people. You have to build ‘walk-up houses’, you have to build communities, you have to build neighbourhoods… ». Building or upgrading housing units is not enough to serve the poor efficiently. As shown by our business cases, affordable housing projects have to be comprehensive and bring community services as well as housing finance options.

“Never look at housing, look at living conditions and poverty. Homelessness is not because people don’t have housing, but because they are poor and they have no means of revenues” Kirtee Shah, Architect

61

Please feel free to give us your feedback: Email: [email protected] Blog: www.escale-responsable.com

Affordable Housing in India Needs and Emerging Solutions

Recommend Documents