Monitor Group

Inclusive Markets: A Home for Everyone | Ashish Karamchandani

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“The biggest thing that has happened in the last couple of years is the entry of housing finance. The fact that there are over 10 housing finance companies giving loans to people from the informal sector in this income group is mind blowing. People of this income level could get a 15-year mortgage at a reasonable price…that’s going to be the biggest driver; because once you actually have finance you are giving people the ability to buy.” – Ashish Karamchandani

Listen in to this podcast conversation with Ashish Karamchandani, CEO of Monitor Group.

Co-create for Sustainability

Khemka Forum Podcast Series: Transcript of the podcast with Ashish Karamchandani

Interviewer: Shivraj Parshad, The PRactice



Shivraj: Ashish Karamchandani, thank very much for speaking to the Khemka Forum on Social Entrepreneurship.

Ashish Karamchandani: You guys have been doing some really good work of spreading activity in this space, so happy to be part of that same platform.

Shivraj: Ashish, how do you define the parameters for low income or affordable housing?

Ashish Karamchandani: Actually I think those are two very different things. So if you think of the real estate market in India, it’s a vibrant booming market and prices have been going up, so a lot of the developers have been constructing housing in 20 to 25, 30-35 lakh etc. Over the last couple of years as the market has started seeing a slowdown and over competition in that space, there’s been a bunch of people talking and some activity in what is called the affordable housing space, more housing in the 10, 15, 20 lakhs. And again I say talk versus activity but then there has been some activity. What we define as low income housing is actually the level below that. That is 5 to 10 lakhs. So that is what I would define as low income housing.

Shivraj: And do you think there is enough happening to create an ecosystem that can push down the threshold for those wanting to access housing finance?

Ashish Karamchandani: That’s an interesting question because if you’d asked me that same question 5 years ago, one of the biggest barriers to housing in that price range would have been finance. Today, thanks to some of the work we did with some of the starting companies like Micro Housing Finance and getting people like Muthoot into the business, there is a plethora of housing finance companies dedicated to providing finance in this sector. So, there at least 10 companies we know of that will give informal sector customers finance for a house of this kind. And the reason I say informal sector, because most of the people who can afford these kinds of houses or want these kinds of houses work in either small companies which don’t give what’s called a normal Form 16 for a housing infra-company to give them a loan or actually have documentation to get a loan from one of the larger housing finance companies.

Shivraj: And so in fact that was bringing me to my next question Ashish, who are these people who you would define as being the buyers of these low income houses?

Ashish Karamchandani: These are typically not the poor, so not a person who is a hand cart pusher, earning 5000 rupees a month. The target for this kind of housing is actually people earning between about 12 and a half thousand a month and 25 thousand a month, and the reason I say that is typically a person can afford to put one third of their income away as payment towards a mortgage. Also most customers at this level, the maximum they can afford to put as a down payment is 20 percent. When you do those calculations and the interest rates which housing finance companies charge in this sector which is about 13 or 14 percent, you land up with the fact that the person can afford a house which is roughly 40 times their monthly income. So if you are earning 12 and a half thousand, you can afford a house which is about 5 lakhs. If you are earning 25 thousand you can afford a house which is about 10 lakhs and the interesting thing is there are lots and lots and lots of people earning in this 12 and a half and 25 thousand who are desperate for housing. But there is no supply or very little supply right now.

Shivraj: And you know at Monitor you seem to be doing a lot of market scanning and intelligence and insights. Do you see any innovation happening in the construction business to be able to create these projects? You know there is all this talk of environmentally friendly and local products in the use of building and constructing these low income houses. Are these feasible?

Ashish Karamchandani: Actually, in our opinion you don’t need to have innovative products or eco-friendly products etc to make this kind of housing. Whenever we try to get a new market started we try not to tweak too many things. So let’s use the normal forms of construction. Even with normal forms of construction and current prices you can actually provide housing in the 5 to 10 lakhs range. Yes, these are smaller units, a little further away from city centre, but as long as they have good social infrastructure around them, schools, access to transport to get to your workplace, they work fine. So, for us the whole push is not been on new innovative technologies or different construction technologies but more on a business model of getting out and starting to construct this housing, which are small units and high volumes.

Shivraj: And are you worried about the market forces, because you know typically where developers and other buyers step in once they have been bought by low income or people who can afford these developments, they do sometimes also sell to other buyers pushing prices up, so what is the buffer against market forces stepping in and not making it that tenable?

Ashish Karamchandani: If you are really playing with the market, you can’t control the market and that does happen, in fact what we have seen are a couple of different things. So one thing we have seen in some of the projects, in this target range you have investors come in who are doing exactly the same, coming in and buying early in the game when the project is still not up and there is a perceived risk and when the project is up they sell the housing. Or they even keep the housing with the idea of longer term sale. The interesting thing is that now that we have gone in and studied these projects after they have been completed, we find that quite often the investors actually rent out the housing. And so that is not a bad thing, we need more rental supply. So a) we are not against investors as long as they help these projects go up, they create more supply even for rental, that’s great. Your second point about prices going up, hey that’s natural, there will be prices which will go up but then new areas will open up and at this stage we see so much land around every city we’ve been in, that we are not that concerned about it.

Shivraj: You know there is a perception that the real estate industry in India is a rather opaque one. From Monitor’s perspective are you also foreseeing some sort of matrix being built around low income housing, pricing, land acquisition and sort of statutory requirements that you would see keeping it in that low income bracket?

Ashish Karamchandani: I don’t think so, because first of all the whole idea behind the kind of focus we are thinking about in low income housing and we are really promoting is, that it’s a natural market that’ll arise. Just like there is a market for scooters and motorcycles, which is a separate market from cars, there is a separate distinct market for low income housing and as activity increases, there will be competition which will bring prices down and not by artificial constraints. Yes the government can do a lot to facilitate this, so for example it could speed up approvals and processes for actually low income projects. It could reduce some of the constraints like the by-laws which require parking for low income projects. So the government can facilitate it but we don’t look at it as a control environment. We look at it more like a market that develops because there is a business opportunity there.

Shivraj: Do you think that there could be statutory regulation and laws that could come in to create the environment or social infrastructure for low income housing?

Ashish Karamchandani: So I think there have to be some basic regulation, so for example if you want the fast approvals, your projects will have to fill some norms, the number of small units. But I think when you start getting into over regulating that this should be the pricing or this will be the margin, that’s very very difficult to then have a natural market come in. So I think, given that you want to do stuff that works well within the confines of the normal system, right now the government does have an approval system. And they also do have a check at the end of the project before they give you an occupancy certificate. So as long as you have followed the norms of the project you will get certificates. So all those processes are in place I would certainly not suggest additional sets of processes but within these conforms if some benefits could be given to people doing more low income housing that will be fantastic. And I think another thing the government can do is actually increase the floor space index of the utilisation and how high you can go in city centres, because that’s where land is more valuable. And if you open up the access to land in those city centres, then land in further away places should become cheaper which is exactly what is good for low income housing.

Shivraj: And finally from Monitor’s perspective what has been the biggest trend in the low income housing space? What is it that is really gaining traction and what do you foresee now happening in the future?

Ashish Karamchandani: What I see is the biggest thing that has happened in the last couple of years is the entry of housing finance. The fact that there are over 10 housing finance companies giving loans to people from the informal sector in this income group is mind blowing. It’s never happened in the world before. That people of this income level could get a 15 year mortgage at a reasonable price. And that’s going to be the biggest driver moving forward because once you actually have finance you are giving people the ability to buy. So when you have converted a demand into an actual purchasing demand and I think developers will, who are not yet there, more and more of them will flock in and the housing finance is the fuel that will really bolster this market into its real potential down the road.

Shivraj: And where do you see entrepreneurs – not for profit and even profit – stepping in to perhaps sustaining this trend?

Ashish Karamchandani: Well that’s an interesting one, because I think at some level fewer developers will get into this, because most developers want to continue with their own business model. What I am hoping is new players will enter this space, like Jerry Rao has, from a completely different space. They’ll bring new thinking and that’s where we are going to get the biggest innovation and the pushes, not from the old guys who are doing things the same way.

Shivraj: Ashish Karamchandani, thank very much for speaking to the Khemka Forum on Social Entrepreneurship.
Ashish Karamchandani: My pleasure.


Views expressed here are solely that of the person interviewed and may not represent the views of The Nand & Jeet Khemka Foundation.