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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 8,300 billion
… 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% 79% of new 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”
USP – “Creating Mutual Value”
Strategies –
Strategies –
•
Repackaging at different price points
•
Deep Dialog
•
Low cost production
•
Putting end-user first
•
Extended distribution
•
Building capacities
•
Arm’s length relations
•
Embedded processes
•
Direct Personal Relationships
Requires New approach
“The aspiring poor present a phenomenal opportunity for the world’s 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
Organize
Execute
• • • • •
Strategic Business Plan Location Strategy Product Strategy Project Feasibility & Valuation Operations Design
• • •
Land Deals & Bid Support Technology Tie-ups Contracting Tie ups
• • • •
Consumer Research Design Brief Project Management Project Marketing
Strategic Blueprint
Key Strategic Question? Arena
Arena
Geography
Product
Market
Q) Arena: Which Markets and Product explore?
to
Q) Staging: What should be the Sequence of moves?
Customer
Q) Vehicles: How will we get there?
Financial Logic
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.
•
Location and Land Costs
Plan •
Operations costs
•
Specific Capacities
•
Technology
Organize
Execute
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
Identifying the micromicro-markets well services by transport infrastructure
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
Land Sourcing Options
through PPP initiatives •
Cross subsidy models
•
Enhanced FSI clubbed with TDRs
•
Centre city redevelopment with essential affordable housing obligations
•
Buy
Public Private Partnership
Re-Densification schemes Joint Development / Joint Venture
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?
Material and wastages
Approval costs
Competition
Q) How do we ensure that efficiency of capital employed is the highest ? Q) How do we utilise optimum materials with minimum wastages ?
Specific Capacity building Designers
Suppliers
Optimum design, with
Right material, with Lowest wastage, and
Highest constructability, using
Least inventory (Just in Time ?) Right Materials
Specific Capacity Building Manpower and Contractors
Project Management & Development of Control Systems
Capability to deliver, using
Optimum project management and control
Right technology, with
systems capable of tracking variances to
Well trained staff
smallest level
Technology Perspective Illustrative
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
Technology Options
Aluminium Shuttering Technology
Pre fabrication technology
•
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
Using locally available materials
Other mass production techniques
CASE STUDy
bidi gharkul “ tajmahal of bidi workers”
Bottom of the pyramid – Bidi Gharkul, 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
Bottom of the pyramid - Bidi Gharkul, 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
Buyer Identification
Bidder quoting least amount of extra land parcel to be selected Land transferred to selected bidder at acquisition cost
RFQ Floatation
Total Development Potential (DP)
DP – X - Y
Project Formulation Stage Category of Units
RFP Floatation & Bid Award
Y X LIG/ MIG EWS Pre-determined Quantum & price
Pre-determined Quantum & Price
Quantity of Units
Available for Commercial Exploitation Variable quantum at Govt. rates
Risk Identification and Mitigation SocioSocio-Political Risk
Development Risk
Market Risk
Land acquisition facilitated by public
Pre-qualification criteria to ensure
Pre-commitment of EWS, LIG & MIG
sector to help alleviate this risk
capable bidders being shortlisted
units
Pre – approved project reducing
delays Pre-commitment
assures speculative extra construction
Risk to developer limited to sale of
commercial component no
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
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 8,300 billion
… 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% 79% of new 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”
USP – “Creating Mutual Value”
Strategies –
Strategies –
•
Repackaging at different price points
•
Deep Dialog
•
Low cost production
•
Putting end-user first
•
Extended distribution
•
Building capacities
•
Arm’s length relations
•
Embedded processes
•
Direct Personal Relationships
Requires New approach
“The aspiring poor present a phenomenal opportunity for the world’s 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
Organize
Execute
• • • • •
Strategic Business Plan Location Strategy Product Strategy Project Feasibility & Valuation Operations Design
• • •
Land Deals & Bid Support Technology Tie-ups Contracting Tie ups
• • • •
Consumer Research Design Brief Project Management Project Marketing
Strategic Blueprint
Key Strategic Question? Arena
Arena
Geography
Product
Market
Q) Arena: Which Markets and Product explore?
to
Q) Staging: What should be the Sequence of moves?
Customer
Q) Vehicles: How will we get there?
Financial Logic
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.
•
Location and Land Costs
Plan •
Operations costs
•
Specific Capacities
•
Technology
Organize
Execute
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
Identifying the micromicro-markets well services by transport infrastructure
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
Land Sourcing Options
through PPP initiatives •
Cross subsidy models
•
Enhanced FSI clubbed with TDRs
•
Centre city redevelopment with essential affordable housing obligations
•
Buy
Public Private Partnership
Re-Densification schemes Joint Development / Joint Venture
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?
Material and wastages
Approval costs
Competition
Q) How do we ensure that efficiency of capital employed is the highest ? Q) How do we utilise optimum materials with minimum wastages ?
Specific Capacity building Designers
Suppliers
Optimum design, with
Right material, with Lowest wastage, and
Highest constructability, using
Least inventory (Just in Time ?) Right Materials
Specific Capacity Building Manpower and Contractors
Project Management & Development of Control Systems
Capability to deliver, using
Optimum project management and control
Right technology, with
systems capable of tracking variances to
Well trained staff
smallest level
Technology Perspective Illustrative
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
Technology Options
Aluminium Shuttering Technology
Pre fabrication technology
•
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
Using locally available materials
Other mass production techniques
CASE STUDy
bidi gharkul “ tajmahal of bidi workers”
Bottom of the pyramid – Bidi Gharkul, 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
Bottom of the pyramid - Bidi Gharkul, 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
Buyer Identification
Bidder quoting least amount of extra land parcel to be selected Land transferred to selected bidder at acquisition cost
RFQ Floatation
Total Development Potential (DP)
DP – X - Y
Project Formulation Stage Category of Units
RFP Floatation & Bid Award
Y X LIG/ MIG EWS Pre-determined Quantum & price
Pre-determined Quantum & Price
Quantity of Units
Available for Commercial Exploitation Variable quantum at Govt. rates
Risk Identification and Mitigation SocioSocio-Political Risk
Development Risk
Market Risk
Land acquisition facilitated by public
Pre-qualification criteria to ensure
Pre-commitment of EWS, LIG & MIG
sector to help alleviate this risk
capable bidders being shortlisted
units
Pre – approved project reducing
delays Pre-commitment
assures speculative extra construction
Risk to developer limited to sale of
commercial component no
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
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