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Presentation on

Affordable housing

August 2012

Presented by : DR. SAMANTAK DAS

Agenda
The Opportunity The Current State Requires Deeper understanding Who are the buyers ? What do they need ? How will we deliver it ? Key challenges Location and Land Operation costs Capacity Building Technology Consumer Perspective Case Study Knight Frank Solution

The opportunity

Cumulative housing shortfall pan India ~ 26 million units Existing Urban housing demand ~ 11.84 million units Of this 70% is from households with annual income less than 3 lakh 73% of the demand concentrated in tier-I and tier-II cities Overall size of affordable housing opportunity valued at ~ `8,300 billion 8,300

and it is growing

Urban population across 50 cities growing at 2.5% (annually) Demand over the next decade ~ 10.94 million over and above existing housing shortfall Increasing number of new jobs created in urban areas ~ 79% of new 79% jobs in the last decade Projected decrease in share of primary sector in employment from ~ 57% 57% (2001) to 37% (2030)

Altogether increasing pressure on housing in urban nodes in the country

The Current State supply beyond affordability


Supply vs Affordability Matrix Delhi NCR

Across major cities, price gap in supply currently no where near the actual demand Price gap narrows down at smaller cities

Strategic initiatives

Current Strategic Initiatives

Future Strategic Canvas

USP Selling to the poor Strategies Repackaging at different price points Low cost production Extended distribution Arms length relations

USP Creating Mutual Value Strategies Deep Dialog Putting end-user first Building capacities Embedded processes Direct Personal Relationships

Requires New approach

The aspiring poor present a phenomenal opportunity for the worlds wealthiest companies. But it requires a radical new approach to business strategy. strategy.
CK Prahlad and Stuart Hart The fortune at the bottom of the pyramid Business + Strategy, 2002

Requires deeper understanding

Plan

Strategic Business Plan Location Strategy Product Strategy Project Feasibility & Valuation Operations Design

Organize

Land Deals & Bid Support Technology Tie-ups Contracting Tie ups

Execute

Consumer Research Design Brief Project Management Project Marketing

Strategic Blueprint

Key Strategic Question?


Arena
Geography

Arena Market
Product

Q) Arena: Which Markets and Product explore? Q) Staging: What should be the Sequence of moves?

to

Customer

Financial Logic

Q) Vehicles: How will we get there? Vehicles Q) Operating Design: What will be the operating structure? Q) Financial Logic: What is the financial Logic?

Operation Design

Staging

Competition

Q) Strategy Formulation: Specific, Measurable, Attainable, Realistic and Time-bound ?

Deeper understanding of Who are the buyers?

Deeper understanding of What do they need?

Formation of an ecosystem

How will we deliver it ? -Operations Design


A well thought out operations design, ensuring complete control is critical. Some of the things to be thought through shall involve Development of an organizational structure Reporting structure Functions to be outsourced Monitoring and Control Systems Information flow and MIS Time, Cost, Safety and Quality policy Capital Investments Equipment- Buy, Lease, Maintenance Strategies Contract Administration plans Quality Monitoring control systems Project planning control systems Scaling Plans linked to trigger events, etc.

Challenges L.O.S.T.

Plan

Location and Land Costs

Operations costs

Organize Specific Capacities

Execute

Technology

Location & Land sourcing


Cheap land is not necessarily the land fit for affordable housing projects. Cheap land well serviced by transport infrastructure (to the places of work) is an ideal land. Evaluating various land sourcing options Such options exist even today. Alternate approaches being implemented to create such land parcels, largely through PPP initiatives Cross subsidy models Enhanced FSI clubbed with TDRs Centre city redevelopment with essential affordable housing obligations Re-Densification schemes
Joint Development / Joint Venture Public Private Partnership Buy

microIdentifying the micro-markets well services by transport infrastructure

Land Sourcing Options

Operations costs

Key Strategic Question how to deliver same quality at lower operation costs?
Product Value Engineering Marketing costs

Product

Q) Product value engineering : How do we separate need to haves from good to haves ? Q) What volumes give us economies of scale ?

Customer

Financing costs

Customer service costs

Q) How do we reduce marketing costs ? Q) How do we reduce customer servicing costs? Q) How do we ensure that efficiency of capital employed is the highest ? Q) How do we utilise optimum materials with minimum wastages ?

Material and wastages

Approval costs

Competition

Specific Capacity building


Designers Suppliers

Optimum design, with Highest constructability, using Right Materials

Right material, with Lowest wastage, and Least inventory (Just in Time ?)

Specific Capacity Building


Manpower and Contractors Project Management & Development of Control Systems Optimum project management and control systems capable of tracking variances to smallest level

Capability to deliver, using Right technology, with Well trained staff

Technology Perspective
Need to deliver faster with maximum reutilization. The technology needs to be analyzed on the following dimensions Availability of the technology Execution expertise linked with technology Consumer perception towards technology Scalability of the technology Material Suitability / Adaptability of the technology
Pre fabrication technology Aluminium Shuttering Technology Technology Options
Illustrative

Impact on construction timelines (Time and Cost perspective) Control issues associated with the technology Sensitivity of technology to external factors Technology linked future trends Cost-Benefit Analysis with the technology, and Acceptability
Other mass production techniques Using locally available materials

CASE STUDy

bidi gharkul tajmahal of bidi workers

Bottom of the pyramid Gharkul, Bidi Gharkul, Solapur


The Development: Project developed for fulfilling the housing needs of industrial, textile and Bidi workers of Solapur Built on a public private partnership model Hailed as one of its kind development in the whole of Asia Phase I of the project comprising of 10,000 houses

Unit Configuration at the development Plot area 555 sq ft Built up area 255 sq ft Bedroom, kitchen and loft

Gharkul, Bottom of the pyramid - Bidi Gharkul, Solapur


Pricing: Total Cost of Unit - `60,000 to `100,000 Contributions Central Govt. 1/3rd of the cost of unit State Govt. - 1/3rd of the cost of unit Beneficiary (Bidi Worker) - 1/3rd of the cost of unit

Current Status: 10,000 units handed over to Bidi workers by Dr. Manmohan Singh Further 12,000 units under construction

Value engineering at its best


Pioneering focus on creation of affordable mass housing

Location Selection: Strategic location well serviced by transport infrastructure Low land values Sound geotechnical strata ~ minimum foundation costs.

Operations design:: design On built to order philosophy no marketing costs Single society handling, collection of individual contributions and grant

The solution

The Greenfield model Significant housing shortfall in the country can not be bridged by a hand full of units being offered to thousands of buyers. The solution lies in supply enhancement. We need to target a situation, where in anybody who applies for an affordable house is assured an allotment.

Salient Features
Reversal from traditional approach of project formulation followed by offer for sale

Build to Order Philosophy

Model focuses on pre-committed and subsequent project formulation Completely eliminates market risk Balanced demand and supply to eliminate speculation

Reversal from traditional approach of approvals post project award

Project PrePreApproved

Model focuses on approvals before project award Limits regulatory risk being priced into the bid Results in more competitive bids

Project Escrow Account

Government grant on EWS channelized directly into A/c

Bidder Selection and Award


Pre-approved and pre-committed project offered for bid
City Level Assessment

Transparent bid award mechanism


Project Information Memorandum Preparation

Bidder quoting least amount of extra land parcel to be selected Land transferred to selected bidder at acquisition cost

Buyer Identification

RFQ Floatation

Total Development Potential (DP)

DP X - Y

Project Formulation Stage


Category of Units X

Y
Available for Commercial Exploitation
Variable quantum at Govt. rates

LIG/ MIG
EWS Pre-determined Quantum & price Pre-determined Quantum & Price

RFP Floatation & Bid Award

Quantity of Units

Risk Identification and Mitigation


SocioSocio-Political Risk Land acquisition facilitated by public sector to help alleviate this risk Development Risk Pre-qualification criteria to ensure capable bidders being shortlisted Pre approved project reducing delays Pre-commitment assures speculative extra construction no Market Risk Pre-commitment of EWS, LIG & MIG units Risk to developer limited to sale of commercial component

Merits of the Model

Simple and Transparent


Single Bidding Variable

No demand supply mismatch


Build to order approach ensuring product in need being constructed

Pre - approvals
Project approvals relating to pre-construction period in place before bid award

Holistic Development
Comprises of all social classes

Limits market risk


Pre-commitment of LIG & MIG units ensures limiting market risk to balance area available for sale to developer

Merits of the Model (Contd.)

Segregation of market risk from project objective


Build to order philosophy ensures this

Better utilization of funds


Govt. subsidies for EWS directly channelized into Escrow A/c

Community participation
Community views with respect to dwelling units, amenities, desired facilities incorporated

Focus on Quality
Fixes developer responsibility towards maintenance for a pre-specified period

Efficiency Improvement
Achieves synergies between public and private sector

Thank You