Transforming Affordable Housing in India with Rishi Anand

Vivek Anant: Hello, everyone! Welcome to another episode of Bazaar and Beyond, where we deep dive into the world of finance, investing, and more to help you make smart investment decisions. I’m your co-host, Vivek Anant.

In today’s episode, we have a special guest who is the MD and CEO of affordable housing finance company Aadhar Housing Finance. The affordable housing sector has seen constant demand recently, but supply issues have cropped up. Rishi Anand has worked in various roles across ICICI Bank, Reliance Capital, G Countrywide, and others. Thank you so much for joining us, Mr. Anand.

Vivek Anant: I want to start off with the IPO. It’s just been one year since your IPO. What have been your learnings in terms of dealing with analysts, investors, and journalists? Could you share some of your insights?

Rishi Anand: I would say, you know, we’ve just completed our anniversary of the IPO on 15th May. It’s been a great journey. On a lighter side, life has changed, at least for the top two or three people in the company. We’ve started to spend more time with analysts, investors, media, etc. But, from a purely governance perspective, we were always a highly governed company. So, I would not say that life has changed. Life is as usual. You know, you have to be a little more cautious, a little more governed, and that’s what we’ve been doing throughout. So, I wouldn’t say that life has changed after the IPO when it comes to company parameters, but yes, from a time perspective, for the top two-three people in the company, we’ve started to invest more in the market now.

Vivek Anant: I was just checking the numbers before this conversation and the launches for affordable housing units have come down over the past year or 18 months. The research reports put out by real estate analysts show that affordability is an issue for affordable units in large cities, especially, even though there is high demand in the affordable housing segment. What is your prognosis for this sector?

Rishi Anand: We first have to understand that the term "affordable housing" is being very loosely used these days. Primarily, the way the industry is divided is: premium housing, affordable housing, and low-income housing. I represent a segment called low-income housing. Is there an impact on affordable units being launched in the new category? Yes, because there is a surge in demand in the premium category. The developers are coming into areas where there is demand, and they will launch new projects.

What’s happening in my segment, however, is that my customer does not buy developer-construction. My customer is a consumer who does more of self-construction. He has a plot, constructs on it, or buys independent resale units. I am not disturbed by or moved by what is happening in the developer segment.

Vivek Anant:
Still, let’s dive deeper into the affordable segment per se. In terms of how we see the numbers being put out, I was talking to you earlier about the number of units that have gone down. A lot of real estate research analysts have been reporting that number. How do you see that, vis-à-vis the number of units in the premium segment?

Rishi Anand: Yes, as I just indicated, there has been a surge in demand in the premium segment. To cater to the demand, the supply side in the premium market has gone up. Now, affordable housing—you're right—the number of units has gone down because the demand for affordable projects by developers has decreased. If you look at what the developers are offering, for example, in cities like Mumbai or Delhi, they are offering an affordable housing project flat at, let’s say, 1 crore. Is that an affordable housing project? That's the question, and I’m sure developers have their own restrictions and complications around it.

What is happening is that the customer is shifting towards the outskirts of larger cities. My consumer, the affordable housing finance consumer, is shifting to the outskirts of larger cities, where he’s looking at independent housing options—row houses, independent resale options. That's why the number of units on the supply side has dropped.

Vivek Anant: Right. So, your AUM in the last financial year grew over 20%. The affordable finance segment also saw a lot of growth. But because of this affordability issue, you don’t foresee any negative impact on the growth of the industry?

Rishi Anand: No, I personally feel there will be no negative impact on growth because there are two or three things happening. From a government perspective, there are multiple initiatives already in place. For example, the PMAY (Pradhan Mantri Awas Yojana) scheme 2, which is an interest subsidy scheme that has been relaunched. There’s also the Swami scheme, where ₹15,000 crores of infusion has happened to construct affordable housing. There’s a credit guarantee scheme that has been launched. And, there are income tax benefits available up to ₹12 lakh.

So, there are multiple initiatives from the government that support this. Also, as I indicated, the consumer has a lot of options. Today, as we speak, look at the RBI report and data. There is a 3 crore unit shortfall in the country when it comes to EWS (Economically Weaker Sections). So, is there demand? Yes, there’s a lot of demand. Is there supply? There is an abundance of supply available. Are there government initiatives supporting this supply? Yes, there are. Are there housing finance companies supporting these consumers? There are 67 companies in the affordable segment, or as we call it, low-income housing finance.

Vivek Anant: So, do you think that this is a trend we’ll see in tier-2, tier-3 cities as well?

Rishi Anand: Yes, there are multiple reports and discussions by industry experts that say the real India lies beyond tier-2 cities. I think we all, over a period of time, have started believing in that. Today, if you look at Aadhar Housing Finance, we’ve started expanding our footprint to tier-3, tier-4, and tier-5 locations. We have 580 branches across 22 states. So, we are present in every nook and corner of the country. What tier-1 gives you, tier-2 and tier-3 cities offer very different consumer profiles, property types, etc. The real growth is happening in, let’s call them emerging markets—tier-3 and beyond.

Vivek Anant: You spoke briefly about the borrower profile. Could you expand on that? How does it differ from consumers in tier-3 and tier-4 cities?

Rishi Anand: If I were to look at the consumer profile in the larger, top-15 cities of the country, they are more salaried consumers, whether they are formally salaried or informally salaried. When you move the footprint to tier-4, tier-5 locations, they are more self-employed consumers.

The requirement of loans shifts with the location. For example, in my company, when I move to tier-4 and tier-5 locations, the average loan size falls below ₹6 lakh. In metro locations, my average loan size is around ₹25 lakh. So, that’s the shift in the requirement and the consumer profile. The salary ratio shifts drastically as well. In metro locations, the ratio could be 60:40, but when you move to non-metro locations or tier-4, tier-5, 80% are self-employed.

Vivek Anant: So, a lot of what you're doing in terms of your business helps in financial inclusion because people who could not get loans are now able to access them. How do you assess the cash flow and asset quality, specifically for this segment?

Rishi Anand: Yes, we’ve specialized over the last 15 years in understanding the cash flow of the consumer. I’m dealing with consumers who are at the bottom of the pyramid. We go and create something called a "cash flow" for the consumer. Most of the larger companies in the country would be doing loans based on documents. We do something called a product called "NIP" (No Income Proof Lending). So, while we don’t require income proof, we assess the cash flow, which is key.

Vivek Anant: Is self-construction driving down demand for pre-built homes?

Rishi Anand: Yes, there’s a varied pool of customers. Within affordable and low-income housing, my customer is broadly doing two things. Historically, he might have inherited the land from his grandfather or father, and now he wants to construct. Today, about 35% of my portfolio is self-construction, which is a growing trend. The other part of my portfolio is resale, so a lot of customers prefer self-construction over pre-built homes.

Vivek Anant: Finally, how is affordable housing finance different from the construction side of the business?

Rishi Anand: A lot of companies and individuals think affordable housing is very easy, but it’s not. It’s an expertise that has to be built. It’s all about risk appetite. Cash flow assessment, for example, is not everybody’s cup of tea. You have to build expertise in your organization over time. It’s not as easy as it looks. This is a needy consumer, and you have to stand by him.

Vivek Anant: Does serving underserved customers lead to higher profits for Aadhar Housing?

Rishi Anand: Yes, this is a high-opex business. You have to be on the ground, engage with people, and as a result, your returns are slightly higher than regular housing finance companies. But does it increase the probability of losses? I wouldn’t say it increases significantly because you are still secured by property. However, compared to premium customers, losses may be slightly higher, but it’s not disturbing. 

Vivek Anant: Thank you so much for taking the time to join us today, Mr. Anand. We really appreciate your insights on the affordable housing finance sector.

Rishi Anand: Thank you, Vivek

Vivek Anant: And that wraps up another episode of Bazaar and Beyond. Stay safe, and remember to invest wisely.

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