project evaluation for developers - india
TRANSCRIPT
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Project evaluation for Developers # RoI (Return
on Investment)
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Why to Evaluate?
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Why to Evaluate?
To minimize > RISKTo maximize > RETURNSHaving in-depth knowledge about the project. Having a different perspective would make you take bird‘s view & strategize differently.
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What to Evaluate?
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Project investment Investment
Type of Cost Cost
Constant / Variable
Land acquisition / Redevelopment structuring cost
Land Zoning Total FSI including TDR Fungible FSI Compensation / corpus Temporary rental, logistics &
others Others
Constant Constant Constant Variable Variable
J V / Development Agreement cost
Stamp duty & Registration
Constant
Legal Consultation
Titles Agreements Disputes Others
All Constant except disputes
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Project investment contd…Investment
Type of Cost Cost
Constant / Variable
Regulatory Cost(Approvals form Municipal / Development authority / Urban or Rural planning / others)
Approval IOD CC Partial OC & OC Others
All constant
Liaison / Administration costs
Title details Plans & Survey report Architectural NOC / Encumbrance clearance /
Others Documentation Others
All constant
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Project investment contd…Investment
Type of Cost Cost
Constant / Variable
Corporate Loan
Additional Equity Loan interest for construction
duration
Constant Constant
Architectural & engineering consultation
Soil feasibility Land / Plot survey Layout & Planning Structural & material engineer Others
All constant
Construction cost
Raw material cost Labour cost
Constant Constant
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Project investment contd…Investment
Type of Cost Cost
Constant / Variable
Project Maintenance cost
Site Security Electricity Water Other utility Others
All Variable
Human resource cost
Security Project team (Supervisor,
Accountant, admin and others) Others
All variable
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Project investment contd…Investment
Type of Cost Cost
Constant / Variable
Marketing & sales cost Marketing & sales team Ads in print, outdoors, social
media and others Launch Engaging channel partners Others
All variable
Channel Partners Brokers / Agents Portals Social Media Others
Variable Constant Constant
Buffer cost
Setback / unpredicted events
Variable(10 – 15% of total project)
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Project investment contd…Investment
Type of Cost Cost
Constant / Variable
Average Vacancy cost
Unsold / unleased inventory Variable (Approx. 5 – 10%)
Miscellaneous cost
Variable
Total
‘X’
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Feasibility tableThe total saleable area
Total cost / investment as per project feasibility
‘X’
Rate of estimated saleable area per sq. ft. /sq. mt.
The total revenue for total saleable area
3X / 4X …. 100X
The returns on project total cost
(*) %
Conclusion: Feasible or Not feasible
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Evaluation
Valuation: 3X, 4X….100X!&
Duration: 5 years > 4 years >3 years > so on….
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How to Evaluate?
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How do you do it?
Via Customer / Investor, who is going to pay / invest in you!
But who is your customer / investor?
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Two categories of Customers / investors
B2B B2CB2B-1 > PEs, VCs, Institutions /
Corporates / REITs, Bigger Developers, Individual
Investors & others
B2C-1 > Retail investors
B2B-2 > Brokers / Agents, portals and others
B2C-2 > End-users
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Why / how they will buy / invest in you?
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B2B 1: PEs, VCs, Institutions / Corporates / REITs, Bigger Developers, Individual Investors & others
The “returns” determines their investment
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B2B 1: PEs, VCs, Institutions / Corporates / REITs, Bigger Developers, Individual Investors & others
Some factors would be• Location, location & location: Physical & social infrastructure, connectivity,
ambience (gated community / complexes / others), amenities and others • Legalities & approvals (RERA compliant)• Interest rates on loan / financing • Configuration (residential, commercial or others)• Financial structuring: Equity / Debt • Duration • Others
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B2B 2: Channel Partners – Brokers / Agents, portals and others
How & why would they sell your project?
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B2B 2: Channel Partners – Brokers / Agents, portals and others
How & why would they sell your project? Factors would be• Brokerage • Locality • Image / status • Emotional gratification (Interpersonal / Family)• Welfare • Others
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B2C 1: Retail investors
They think investment in terms of units (1 /2 /3 properties) & yield
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B2C 1: Retail investors
Factors would be• Returns after 3/5/7 years • Buying price • Configuration (residential, commercial or
others)• Appreciation factors like infrastructure,
major development, connectivity, demographics and others• Finance / Loan convenience• Others
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B2C 2: End-users
All above categories have to sell to this end-user eventually
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B2C 2: End-users
Any business, field or sector is driven by their end-users. Though she may be a small or tiny person but together they decide the drift of the market.
The multibillion dollar companies decide their strategies, marketing, financing, operations and other parameters of business on this single ‘almost non-existence’ entity who has lever of fate of these giants but sadly unaware of its ‘ephemeral power’.
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B2C 2: End-users
Factors would be• Location – Physical & social infrastructure, connectivity, ambience (gated community / complexes / others), amenities and others • Emotional gratification (peace of mind, security)• Purchase preference (performance / quality)• Pricing / Rate• Loan / Mortgage compliance • Social status & Demographics • Others
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Typical percentage distribution of each category in a project
Category Percentage
PEs, VCs, Institutions / Corporates / REITs, Bigger Developers, Individual Investors & others
0 – 100
Brokers / Agents, portals and others 20 – 50
Retail investors 10 – 40 End-users 30 – 60
* It may vary according to the project
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Influence on Returns with B2B 1Categories Investment Duration Returns Influencing factor
PEs, VCs, Institutions / Corporates / REITs, Bigger Developers, Individual Investors & others
‘X’ 0 – 2 YEARS
0 – 3 YEARS
5 X to 10 X
10 X to 20 X
Real estate financial advisor
Please note: this is only an example and assuming the project has taken 5 years to complete
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Influence on Returns with B2B 2Categories Investment Duration Returns Influencing factor
Channel Partners – Brokers / Agents, portals and others
‘X’ 0 – 5 YEARS 10 X to 40 X Marketing consultant / Networking
Please note: this is only an example and assuming the project has taken 5 years to complete
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Influence on Returns with B2C 1Categories Investment Duration Returns Influencing factor
Retail investors ‘X’ 0 – 3 YEARS 10 X to 40 X Marketing consultant / Channel partners /
Networking
Please note: this is only an example and assuming the project has taken 5 years to complete
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Influence on Returns with B2C 2Categories Investment Duration Returns Influencing factor
End-users ‘X’ 0 – 5 YEARS 30 X to 70 X Marketing consultant
Please note: this is only an example and assuming the project has taken 5 years to complete
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Influence on Returns in a nutshellCategories Investment Duration Returns Influencing factor
PEs, VCs, Institutions / Corporates / REITs, Bigger Developers, Individual Investors & others
‘X’ 0 – 2 YEARS
0 – 3 YEARS
5 X to 10 X
10 X to 20 X
Real estate financial advisor
Channel Partners – Brokers / Agents, portals and others
‘X’ 0 – 5 YEARS 10 X to 40 X Marketing consultant / Networking
Retail investors ‘X’ 0 – 3 YEARS 10 X to 40 X Marketing consultant / Channel partners /
Networking
End-users ‘X’ 0 – 5 YEARS 30 X to 70 X Marketing consultant
Please note: this is only an example and assuming the project has taken 5 years to complete
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Which is your target customers/category?
Categories
Duration Result Focus on
PEs, VCs, Institutions / Corporates / REITs, Bigger Developers, Individual Investors & others (B2B 1)
0 – 2 YEARS
0 – 3 YEARS
10 X
20 X
1) B2C 2
2) B2C 1
3) B2B 2
4) B2B 1
Channel Partners – Brokers / Agents, portals and others (B2B 2)
0 – 5 YEARS 40 X
Retail investors (B2C 1) 0 – 3 YEARS 40 X
End-users (B2C 2) 0 – 5 YEARS 70 X
Focus on B2C 2 & B2C 1 categories to enhance your returns.
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