Ashish Karamchandani

The housing market in India has traditionally focused on the top end of the market, with the lower income segment virtually unserved. In 2006, Monitor Group conducted a study for the National Housing Bank of India with active support from the World Bank, highlighting the fact that this much larger and under-served market comprises over 21 million households with monthly incomes of INR 7,000-INR 25,000. These families rent rooms in slums and low-income neighbourhoods characterised by poor construction, cramped spaces, deplorable sanitary conditions and a lack of basic neighbourhood amenities. They aspire to live in and can afford to buy houses of 250-600 square feet in suburbs at market prices, constituting a potential market of INR 1,30,000 crore (US$290 billion) – almost as big as middle- and high-income housing combined.

The study identified a commercially viable opportunity to provide good-quality housing to the next 35% of India’s urban pyramid, but realised that the key challenge was that such housing was distinctly lacking. Monitor has since been trying to ‘make the market’ in low-income housing through raising awareness of the opportunity, creating the local ecosystem for developers and providing them with end-to-end facilitation support.

During this time, a fundamentally different business model was pioneered, which treated land as inventory and not as a capital asset. The traditional business model for real estate in India treats land as an asset, whereby the developer looks to generate returns primarily through the price appreciation on the land parcel. Construction is incidental to the process and the real value is derived by buying large parcels of land, holding on to them and selling off a limited number of apartments at rising price points. The new model, however, encourages developers to think of land as inventory – to buy relevant parcels as and when required, construct houses on them and sell them off as soon as possible. Here the value is derived from developing a quality product and delivering volumes. This model is aimed at managing the end price for lower-income customers.

Today, there is clearly widespread awareness of the opportunity. With successful entrepreneurs and large business houses increasingly interested in developing low-income housing, the next sticking point is likely to be access to mortgage finance. Existing financial institutions and new players are therefore being encouraged to set up housing-finance companies to provide mortgage financing especially for informal sector customers. In parallel, the ecosystem is strengthened by facilitating broader ‘market innovations’ such as creating customer education modules, addressing unintended consequences, incorporating sustainability elements in low-income housing and supporting government efforts to scale up its low-income housing.

The successful development of this market has the potential to transform the lives of a hundred million individuals financially, as well as to enhance the quality of their lives and provide the emotional security of a home. It could also have a far-reaching impact on urban development by providing a potential benchmark for slum rehabilitation and options for housing that in the long term may help in slum prevention.

After seven years of leading Monitor’s consulting business in India, Ashish Karamchandani now heads Monitor Inclusive Markets which uses market-based solutions as catalysts to create social change. For more information.