Ideas for today and tomorrow

Being the best in Real Estate Development

• To make Real Estate one of the most respected industry sectors

• To make Real Estate one of the most profitable industry sectors

• To make Real Estate an evergreen industry

• To make Real Estate an efficient and transparent industry

• To make Real Estate more affordable year on year

• To bring unique Innovations in the industry – innovative sales, innovative designs, innovative constructions

Vision Statement

• Transform the design and materials (materials that use less of water, less of sand, less of cement, less of steel)

• Transform the construction method and technology (need to bring down overheads from 40% to 10% - by increasing productivity, no reduction of manpower)

• Transform the sale process (focus on GTM, and leverage e-platforms)

• Transform Project Costing, Monitoring & Control Processes

Goal and Objective

What's happening?

2005 2010 2015

1000

2000

3000

4000

Cost

Price

Salary/ Affordability

Not buying

Buying

5000

• Today, the real estate sector is under debt with the debt crossing the annual revenue. Sales are down, inventory is at all time high, and PAT is going down.

• Delhi has almost 4.5 yrs of inventory, Mumbai has 3.5 yrs, Chennai and Bangalore have about 1.5 yrs of inventory.

• Many projects are starved of cash, and completion schedules have overshot.

• Response getting better only for compact units. Premium segment is still not responding. Deep discounts upto 30% have been given by some developers under stress.

• Real Estate Regulatory Bill has come out with tough measures, increasing the potential liability of developers. Customers gain strong position.

Today’s Situation

• Change in market – From a builder’s market in 2005, it has flipped to buyer’s market now. The price is no more in control of developers.

• Increasing Input Prices – Input material costs have gone up drastically in last 5 to 7 years. Cement, Sand, Steel, Aggregate, Tiles costs almost doubled in this duration. Labour and water have become scarce and costly.

• Slowing Down New Launches – Many realtors stop launches during lean time and hence run out of cash cows.

• Pre-loaded Payment Plans – About 95% of cash is collected by the time project reaches 50% completion. This excess money is diverted elsewhere (in land etc) resulting in cash drought during second half of the project, often going for debt funding. Hence, the debt kept on rising.

• Lower productivity - Lower efficiency of project execution (slow completion of projects) means the overhead per unit of output goes up. Real Estate Industry in India has high overheads of 40% to 50% incl. S&M). Other similar industries have about 20%. As the input prices have spiraled up, and the salaries have not gone up, the price is not moving northwards. Hence the margins are squeezed to bare minimum.

• Not much of Innovation in Design, Construction or Sales

How Did We Get Here?

• Buyers can demand compensation for delays in delivery.

• Developers may have to pay 11.2% interest to buyers. (2% above Prime Lending Rate).

• Carpet Area defined as one including internal walls and excluding external walls – a not so common definition in business which can create confusion

• New norms for starting sells – should one build and sell ? (similar to commercial properties)

Now the Add On - Real Estate Regulatory Act

• Available options –

• Reduce overheads to 20% of construction cost

• Innovate in Sale & Pricing Strategies

• Bring down the cost of construction by 50%,

• Overhead cannot be reduced without change in construction method. It is tied to technology and method of construction.

• Pricing strategies of deep discounts and deferred collections are not sustainable solutions. They eat into margins.

• Cost of construction cannot be reduced beyond 5%-10% without changing the materials used in construction of the product. 5%-10% us not enough to solve the problem.

Available Options

• Increase Productivity – Institute monthly Integrated Project Review by Management. A central review covering progress, contracts, design, drawings, materials, labour and risks. Can double the productivity within two years.

• Benefit – As the productivity doubles, overhead becomes half without reducing manpower. Saving of ~Rs 400/sft of saleable area.

• Key activities:

• Set up the framework and structure of reporting project progress

• An initial training to all Project Managers on Project Management & Reporting (PMI)

• Monthly collection of data, preparation of reports & validation

• Conduct review meeting with top management, departments and PMs

• Capture actions items, follow up till closure.

Recommendation –Increase Productivity

• Build Business Process Map – Conduct process mapping workshop with sales/ marketing/ CRM, projects/ engineering/ contracts, land/ legal/ liaison & finance/ accounts.

• Map Problem Areas – Identify specific process areas which need de-bottlenecking.

• Debottleneck Congestion Areas:

• Run the analysis through the top management, Get approval.

• Work with the respective departments to redraw process maps in congested areas

• Run the redrawn process maps with the management

• Once approved implement and monitor the processes/ improvements

Recommendation –Debottlenecking the Organization

• Monthly New Launch Review by Management – New launches are the most complicated and relatively less controlled processes in realtor companies. It involves management, land, legal, architect, marketing, projects, contracts and liaison – all independent departments to work together to get a launch done. Hence a monthly review is required to ensure timelines are met. The RERA bill makes it even more wanted than ever.

• Plan Launches at Regular Intervals – New launches should be scheduled at regular intervals irrespective of market sentiment. The size of launch may vary though. This is critical for success of business & regular cashflow.

Recommendation – Expedite New Launch Plan

• Always Look for alternate materials – There needs to be a look out for alternate materials of construction which can help reduce the cost & time e.g. FRP/ GNF/ CFRP rebars, gypsum wall panels, curing less cement, Etc. Use of wireless technology can reduce the wires and IP camera can reduce the cost of traditional video doorbells and CCTV.

• Alternate should mostly be a natural material- The longevity of alternate materials is important. Natural materials will last longer. FRP boards and door panels have less life than wooden doors.

Recommendation – Use of Alternate Materials/ New Technology

• EVM Based Project Progress – Many companies struggle to find the exact progress of a project and cost-to-go. Earned Value based progress and cost measurements are the most accurate and trusted practices world-wide.

• Direct & Indirect Project Costs - In real estate projects, project based costing and P&L is not so matured. The direct cost becomes the driver in most of the cases. There is need for establishing a proper costing framework so that the real cost per project can be measured and proper profitability can be measured. It also helps manage cashflows for every project.

Recommendation – Set up Project Costing & Accounting Framework

• Framework for Calculation of P&L ProjectWise– Real Estate Projects run for three to six years in India. Lot of these project are signed on JD but may be on loss overall. However, such projects go undetected as project-wise P&L is not done. Hence setting up a P&L calculation framework will help monitor project health upfront.

• Development Management- Development Managers are P&L managers for each project. This concept brings focus on project sales, efficiency, cashflow, profitability and progress. Real Estate Companies need to bring this concept soon.

Recommendation – Manage P&L Project-wise

• Annual Business Plan – Real Estate Projects run for three to six years in India. Due to this the practice of having an annual business plan is not matured in realtor companies. Hence, the business decisions are driven by market sentiments. A structured business plan approach will ensure stability to business and alignment of all functions.

• Target Setting For Departments/ Projects- The annual business plan is broken down into departmental and project targets. Each of these targets are reviewed every month for achievement against the plan and catch up measure put in place. This will bring alignment of functions and focus towards the business goals of the rather than individual department goals.

Recommendation – Annual Business Plan & Target Setting

• Engineering –IIT Kanpur, Management – IIM Kolkata, PMP – PMI/ USA

• Design, Engineering, Construction of large projects in Steel Industry, Oil & Gas Industry, IT Industry and Real Estate Industry

• Rs 800 cr worth of projects in Steel Industry, Rs 3600 cr worth of projects in Oil & Gas, USD 700 million worth of work in IT industry, and Rs 2200 cr worth of work in Real Estate.

• Worked Across 17 Countries in the World. Well travelled and managed multi-lingual, multi-cultural people.

• Managed design, projects, global business and P&L

• Based in Bangalore

About me

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