It is established that creating low cost homes is a good oppportunity and the size is gigantic even if partly successful. It is also backed by govt intent. There seems to be a competition b/w state govts with gujarat taking the lead.
Some themes that emerge after talking to purchasing managers are as follows
Granites - staircases, pathways, frames etc will need granite . Shahbad stone is the cheapest.
Doors - readymade doors. Bloom decor and euro doors are some names that manufacture cost effective doors.
Fabrication big opportunity. MS steel cheaper so Grills and window frames in ms steel amd not ss steel.
Paints - dry distemper cheapest. Some names like Jotun were mentioned.
Pumps and panels. Both LT panels and HT panels.
Firefighting equipment is a mandatory for any project and rajkot is the market leader in manufacturing. So sprinklers, hydrants, strainers , pipelines etc
Transformers - since lots of homes in one project higher capacity transformers will be needed
Wires and switches - some names polycab havells vinay wires
Lifts - depending upon the state they are mandatory beyond certain floors (+5 in mah). Some names like omega in the low cost category
In addn there is the usual cement steel bricks etc
There are many others like tiles and sanitaryware fittings but it seems china is doing a good job supplying those. So unsure about opportunity there but still the opportunity wont completely bypass the organized players. They will benefit.
It is in the interest of developers to do affordable housing even if margins less because many other benefits like faster approvals, greater fsi, IT benefits etc. It will be easier with developer buy in. However govt can very well do this on their own so investing with developers not a good idea as no clarity on plans. However some developers exist with fully paid for land in locations that are tailormade for AH schemes.
By no means this is the complete set of opportunities but still lots of time to flesh out specific areas.
Among listed companies, dtill the biggest beneficiary, i see currently from checking sources on ground is NBFCs lending in 5-20 lakh segments in states like Gujarat, Rajasthan. A colleague who handles lending in one of well performing states for a NBFC in low ticket sise home loan used these words that “people are willing to bribe to take loan”. However, i forgot to ask if loans were for self made home or builder based but after seeing gujarat n rajasthan contributing 45 percent of affordable housing execution around 12-15 lakh ticket size product, now, i am able to cinnect the points.
Veto switchgear is a player which caters to Rajasthan market. Again, anyday, i would like to have a crompton consumer in portfolio for brand n financial quality but i think veto might be rightly positioned in high affordable housing states catering to the market segment in focus. @bheeshma any possibility to check if veto supplies to AH market segment ?
Here is the latest interview with Manappuram Finance MD & CEO VP Nandakumar: http://economictimes.indiatimes.com/markets/expert-view/we-expect-a-20-aum-growth-for-fy18-vp-nandakumar-manappuram-finance/articleshow/59351600.cms. As per him, Manappuram has a large customer base spanning around 3.5 million. Company is planning to cross sell affordable housing to those existing customers. Can we consider this as a MOAT against the other established HFCs? Customers of Manappuram (gold loan, MFI) would mostly likely be having an yearly income of less than Rs. 6 lakhs. As I understand, maximum subsidy (6.5%) under the affordable housing scheme is offered to those whose annual income is less than 6 lakh rupees (EWS/LIG category). With 50 million houses as the target, I think, the above category of customers are likely to be the main beneficiaries of the affordable housing program. I do not think that, other established HFC`s have many customers with less than Rs. 6 lakhs of annual income
I think the choice of financiers is largely driven by the real estate developer. Generally projects get pre approval from several banks and customers would generally pick the lowest rate of interest or a reputed name. Manappuram is anyway not going to waive off processing fee for its existing customer. Hence I think there is no Moat as such.
Based on these numbers by C&W, new affordable housing project launches grew by only 10% nationally. But interesting to note is, Mumbai-Pune together account for more than 50% of new housing launches. Does it mean Western parts will have a bigger pie in this sector going forward?
I’m no expert in RE, but I believe builders like Godrej and Kolte Patil have more exposure to this region than Eldeco or Parsavnath or DLF for that matter.
As alluded in my topic post there is a lot of talk on AH. Developers have still yet to fully put their weight behind this govt objective because even with all the sops its still not stacking up financially for them.
This is followed by a striking insight which is at the operational level is a big big barrier - "Pricing of affordable housing is primarily driven by the cost of construction & not land"
The obvious conclusion is that there needs to be a major shift in the construction technology used by developers as opposed to the standard RCC based techniques. However, this is easier said than done as there is a neat ecosystem around RCC based techniques which is not going to go away in a hurry as the entire value chain will have to unlearning and relearn new skills. However the report does give an indication about where the future may lie ( PreFab & Precast) and in my opinion herein lies the opportunity.
To be sure, construction technology that builds home faster and cheaper is feasible ONLY if the slab cycle matches the sales cycle. There is no point in building faster if the sales are slower. However the flip is that if sales are faster ( as will probably be the case with cheaper costing homes ), the maximum profit for developers will be in building faster
Unfortunately there is always gap between Projections and reality. Q1- narrative on AH was not hunkydory. With Q2 also not expecting a better picture with lower than normal crop season and GST mess. We need to understand , it is with people with lower income and self-employed who are eligible for AH
While supply may be there, demand has to come in too.
From Ashiana Housing’s Q1 FY18 concall regarding Affordable segment -
Right now we DO NOT have any projects within the Affordable Housing Scheme and there are multiple Affordable Housing Schemes, there is one of the State Specific Scheme, there is a Tax Scheme, there is Interest Subvention, PMAY, there is CLSS Scheme, RBI’s Definition of Affordable Housing, there are multiple of those. Currently none qualify for tax advantages. For that we are looking at opportunities but not very aggressively. So, we might have a project to come in that ambit. Otherwise all our projects qualify for the Interest Subvention Scheme, the Credit Link Subsidy Scheme so that continues. And we are not looking at any of the State Specific Affordable Housing Schemes which are more in the Rs. 10 lakhs - Rs. 20 lakhs a unit price brackets.
Few more things relevant to overall housing market -
We are trying to understand if we can utilize debt to free up some of our capital that is blocked
in completed inventory. Looks like they are struggling with very limited off-take
Gurgaon under construction market is “dead”. Yes, this is what he said in the concall.
Overall sense - Very muted concall. No projections, no set plan. I think this industry is still struggling, and i do not think there is any visible light for at least net few qtrs.
