presentation by mckinsey at credai natcon 2015

India's Urban Awakening and Imperatives for the Real Estate Industry

Speaker presentation August 13, 2015

CREDAI CONFERENCE, ISTANBUL

McKinsey & Company | 2

Summary

▪ Over the next 20-40 years, India will undergo a massive wave of urbanization

1

▪ However, India’s urbanization is of low quality and haphazard, with many critical elements missing

2

▪ Programs such as Smart Cities Mission, AMRUT and ‘Housing for All’ are a good beginning but early days. Basics still not getting fixed.

3

▪ Real Estate sector in India is at a cyclical low4

▪ This is a good time to “set the house in order”:5

– Get the future strategy and financial structure rightA

– Transform sales and marketingB

– Increase cost efficiency and delivery execution C

– Build a scalable organizationD

– Institutionalize key management processes (e.g., development management, purchase and sales)

E



– Get the future strategy and financial structure right

– Increase cost efficiency and delivery execution

Summary


2

3


A


C



E



1


Cities are likely to house 40% of India’s population by 2030

290220

377

+223

2030

600+

201120011991

SOURCE: India Urbanisation Econometric Model; McKinsey Global Institute analysis

1 Defined as the ratio of urban to total population based on the census definition of urban areas; population >5,000; density >400 persons per square kilometre; 75 percent of male workers in non-agricultural sectors; and statutory urban areas.

31 4126Urbanisation rate1

Percentage

1210 1,470856Total populationMillion 1,040

28

Urban populationMillion


10 states will be more than 50% urbanised by 2030

45

48

48

33

35

37

39

43

53

52

54

55

63

60

69

62

Andhra Pradesh

Haryana

Punjab

Karnataka

Gujarat

Maharashtra

Kerala

Tamil Nadu

Urbanisation rate Percent, total population

Urban populationMillion 2030

2011

34.952.7

15.925.3

50.879.9

25.745.423.639.210.419.0

8.816.528.451.2

Goa and Mizoram

are already 50%

urbanised

SOURCE: McKinsey Global Institute India Econometric Model; Census 2011


Opportunity in the top Indian cities of tomorrow will be much bigger than countries today (1/2)

Pune

66

74

83Ahmedabad

Chennai 83

134Bangalore

36 (GDP, Mumbai, 2010)

4x

662x

Surat

Hyderabad

Vadodara 42

36 (GDP, Mumbai, 2010)

Chandigarh 32

Vishakha-patnam 34

Kochi 35

Nagpur 36

1

2

3

4

5

6

7

8

11

12

13

14

Mumbai(MMR) 260

220(Malaysia GDP, 2010)

Kolkata 200

Delhi 250

9

10

SOURCE: McKinsey’s “Granularity of Growth” work

Top 3 cities will be the size of countries today ...

... next 6 cities will become 2-4X the size of Mumbai

... next 5 cities will be equal to Mumbai

GDP 2030, USD Billion, 2008 prices GDP 2030, USD Billion, 2008 prices GDP 2030, USD Billion, 2008 prices

McKinsey & Company | 7SOURCE: McKinsey Insights India

1 Cluster is defined as a cohort of 183 high potential districts, with metropolitan city acting as the nucleus. These districts are contiguous in nature, such that they represent a serviceable market Clusters are divided into quartiles based on their GDP rank in 2025

49 metropolitan clusters will provide access to 77% of India’s incremental GDP from 2012-25

Share of incremental GDP across clusters by quartiles1

Top quartile45%

Other quartile

32%


Based on infrastructure discontinuity, the GDP per capita of around 40-50 districts is projected to be 5-15% percent higher than baseline trend-based projections

District name

“Trend” GDP/ cap, 2020

Final GDP/ Cap, 2020 Project details

Rohtak 54,759 77,455 ▪ Panipat - Rohtak(Approved Length 73 Km),Delhi Border to Rohtak, 4-Laning of Rohtak-Jind stretch (Approved Length 45 Km)

Mumbai 254,000 280,000 ▪ Construction of new airport at Navi Mumbai

Villupuram 39,860 49,787 ▪ 2-Laning of Krishnagiri-Tindivanam (Approved Length 170 Km), Salem-Ulundrupet

kannur 125,072 151,869 ▪ Karnataka/Kerala Border to Kanuur Section (Approved Length 286.3), 4-lanning of Kannur Vengalem Kuttipuram

Etawa 22,986 27,907 ▪ Etawah - Chakeri (Kanpur), Agra-Etawah Bypass

Agra41,097 49,382 ▪ Delhi - Agra(Approved Length 180.3 Km), Agra-Etawah Bypass, 2-

Laning with PS Agra - Aligarh,Agra-Shikohabad (GTRIP/I-A), New 4 laning Agra Bypass (NS-1/UP-1)

Jind 50,578 60,300 ▪ 4-Laning of Punjab/Haryana Border-Jind, 4-Laning of Rohtak-Jind (Approved Length 45 Km)

Krishna 78,652 93,731 ▪ Hyderabad-Vijayawada, Vijayawada-Gundugolanu Section, Vijayawada-Machhlipatnam

Theni 53,987 63,655 ▪ 2 Laning of Dindigul-Perigulam-Theni-Kumili

Aligarh 30,106 35,385 ▪ 2-Laning with PS Aligarh – Kanpur, Ghaziabad-Aligarh (Approved Length 106), 2-Laning with PS Agra - Aligarh

SOURCE: NHDP, NHAI, AAI, Lit search

NOT EXHAUSTIVE


Summary


1


2




3


A


C



E


McKinsey & Company | 10SOURCE: McKinsey Global Institute analysis

24% of urban population lives in slums

Affordable housing

Solid waste

Only 70% of solid waste is collected

Only 30% of sewage is treated

Sewage

Private transportation

Peak travel time of 1.5-2 hours in large cities

Public transport share has declined to ~30%

Public transportation

Open space

Just 2.7 m2 open space per capita (compared to 14 m2 in Beijing)

Only 105 LPCD supplied, need 140-150

Water supply

Storm water drains

Storm water drain coverage of only 20%

The situation on the ground in our cities is grim


Cities need to focus on 3 core areas for urban renewal

Elements of operating model

GovernanceWhat needs to change to empower our cities and make them accountable?

FundingWhere will resources come from?

PlanningHow do cities plan and incentivize/enforce their planning choices? 1 2

3

SOURCE: McKinsey Global Institute analysis


In every international city we studied, there were uniform “nuts and bolts” lessons

▪ All countries spent more than $300 in capita in capital expenditure on their large cities annually

▪ Cities in developing countries used land monetization to fund urban infrastructure

▪ All cities have systematic, formula based funding from central and state governments, and leverage debt well

Funding

Governance

▪ All cities have strong, empowered, elected political leaders▪ All large cities had metropolitan structures (and not just municipal)

for governance

▪ Most cities have moved towards agency structure for service delivery, with chief executives and MOUs with cities (e.g., Transport for London)

Planning ▪ All have evolved urban planning systems with systematic attention to job creation, affordable housing and public transportation

1


Key principles of planning

Economic master-planning before physical master-planning

Job creation engines with

anchor tenants

Infrastructure tailored towards the job creation

engines

Land monetisation and financing

strategies

1


A great city does work on 3 main areas





3



India is among a small group of countries that do not have elected executives for their cities

14

14

14

16

16

17

17

17

18

18

18

20

20

23

34

Shanghai

Los Angeles

Moscow

Cairo

Delhi

Manila

Osaka

Kolkata

Sao Paulo

Mexico City

Jakarta

Seoul

New York

Mumbai

Tokyo

Presidential

Presidential

Parliamentary

Presidential

Presidential

Communist

Parliamentary

Presidential

Semi-presidential

Presidential

Presidential

Presidential


Elected or empowered mayor

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

Parliamentary

Parliamentary

Parliamentary

REFORMS

Rank City2008 populationMillion

Metropolitan leaders

Nature of national political system

2


India

London

Johannes-burg

Examples of success, including in India

▪ BEST in Mumbai– Well-functioning– Fast decision making

▪ Transport for London– Increased share of public

transportation

▪ Johannesburg Water– Revenue collection has

increased from 56% to 105%

Create accountable corporatized agencies (similar to BEST) for delivery of transportation, economic development, and housing

GOVERNANCE

Allows for fast decision making and

efficient service delivery

2


A great city does work on 3 main areas





3



India has massively underinvested in its cities in comparison with other urban centres around the world

391

127116

17

ChinaTotalUrban India

UnitedKingdom

SouthAfrica

SOURCE: Press search; McKinsey Global Institute analysis

1 Urban services include water, sewage, city roads, storm-water drains, mass transit (including rail-based mass-transit), solid waste, and low-income housing

11458

Tier-3/4Tier-2Tier-1

India’s current USD per capita urban spending1 across tiers

Comparison of India’s USD per capita urban spending with other countries

FUNDING3


Indian cities need capital funding of USD 1.2 trillion over 20 years

USD per capita per annum

Capital expenditure

17

Required

134

Current

231

392

395

96

Totalcapex

1,182

Afford-ablehousing1

Masstransit

City roads

Sewageandsanitation

68

Water

FUNDING

SOURCE: India urbanisation funding model; detailed project reports from the Jawaharlal Nehru National Urban Renewal Mission (JNNURM); McKinsey Global Institute analysis

1 Net of beneficiary contribution

Funding requirement for urban sectors, 2010-2030USD billion, 2008 prices

3


Cities across the world have used four key funding sources, Indian cities need to use all four

1 DRK – Directional Route Kilometres

SOURCE: India Urbanization Transportation Model; McKinsey Global Institute analysis

Land Monetization

350139

Hong KongShanghai

$ per capita per annum

Property tax and user charges

Debt and PPP

541811

ShanghaiLondon

120

659

ShanghaiLondon

New York Shanghai

30%32%

London

70%

$ per capitaper annum

$ per capitaper annum

Support from government

Per cent oflocal budget

FUNDING3


Successful examples of such funding already exist in India

11

5

22

7

TotalSpend2010-2015

TotalGovt.Support

DebtandPPP

LandMoneti-zation

SOURCE: MMRDA; Press search; McKinsey Global Institute analysis

MMRDA capital spend programUSD billion, 2010-2015

FUNDING3


Background and highlights

Municipal Corporation of Greater Mumbai (MCGM) has introduced policies to generate funds through land monetization

Generate US$ 300-400 million annually, leveraged

to create US$ 1billion of funds annually

▪ FAR of 1 is free of charge for every non-agricultural land parcel. Largely, additional FSI is allotted on a discretionary basis rather than on the carrying capacity of the region determined by city’s master plan

▪ As per fungible FSI policy introduced by MCGM, developers have to pay a premium for additional FAR in areas under the jurisdiction of the corporation

– Residential construction: for an additional 35% of FAR, developers need to pay a premium of 60% of the per square foot ready reckoner price

– Commercial and industrial development: for an additional 20% of FAR, developers need to pay a premium of 80% to 100% of the per square foot ready reckoner price

FUNDING

3


Summary


1


2




3


A


C



E



The recently launched flagship programs on urban renewal are a good start, but have a long way to go

Housing for all

▪ Nothing concrete ▪ GoI estimates the overall

cost to be Rs. 22 lakh crore (USD 400 billion)

▪ Rs. 48,000 crores from Centre between 2015-16 and 2019-20, with matching contribution from respective state/ULB

Smart Cities Mission

▪ Create 100 smart cities in the next 5 years to improve quality of life of citizens and

▪ City choice to be decided through competition

▪ Provide housing to all by 2022– Slums to be rehabilitated, redeveloped

depending on the condition– Increase supply of affordable housing

by unlocking land– Increase affordability through interest

subvention

Vision

▪ Rs. 50,000 crores between 2015-16 to 2019-20

500 biggest and most important cities1 to focus on▪ Universal coverage of tap and sewerage

(First priority)▪ Increase “Green Cover”▪ Reduce pollution

AMRUT (Atal Mission for Rejuvenation and Urban Transformation)

Fund Allocation

SOURCE: Source

1 Cities with population of more than 1 lakh + state capitals + heritage and important cities


Local Area Development

Minimum Area Requirement Example

▪ Across the entire city

Pan-City

Exem

plar

y D

evel

opm

ent

▪ Greenfield ▪ GIFT City250+

▪ Retrofitting ▪ Barcelona, Bandra Kurla Complex

500+

▪ Redevelopment ▪ Bhendi Bazaar, Mumbai50+

Elements of the smart cities challenge

▪ Ease of doing business▪ E governance▪ Integrated Traffic

Management System


Globally benchmarked International Finance center

Strategically located

Central business hub 0.5 Mn direct & 0.5 mn indirect jobs

Targeting Financial services and IT/ITES sectors

First of its kind development in scale, scope and quality

State-of-the-art infrastructure

Smart city Greenfield example: GIFT City


Smart City Retrofitting example: Bandra-Kurla Complex

Project details

Total BKC area: 370 Hectares

Project structured in 3 phases

Phase 1: 195 Ha by May ’16

Phase 2 and 3: Remaining 185 Ha by 2019

Smart elements

Livability

1. Municipal Wi-Fi: 5 MBPS high-speed Wife across 175 Ha of land

2. Smart parking: 3000 smart parking slots

3. Smart street lighting and grid: 841 smart solar powered street lights with LED and smart features

4. Video analytics and surveillance: 90 cameras and integrated command center

5. Citizen apps: Enhanced communication and e-governance

3

4

5

1

2

Improve BKC connect and decongestion through new flyovers – Kalanagar flyover – G-block to Eastern expressway flyover

A

B

TransportC

Parks and green spaces Entertainment (Community centres,

tourist attractions, tech park etc.) Green technologies


Smart City Redevelopment example: Bhendi Bazaar, Mumbai

Existing Plan Future outcome

▪ Bhendi Bazaar context– 16.5 acres– 3200 families– 250 existing buildings– 1250 shops

▪ Plan– Rs. 4000 crores project– 4 years– Relocated over 1,600 families to

transit homes

▪ Residential– A minimum carpet area of 350 Sq.ft

for one BHK unit– Designated parking for residents– Energy efficient fittings, Solar panels

▪ Commercial– Modern commercial complexes– Easy access to shops through

elevators, escalators and stairways– Main road facing for all shops


Summary


1


2




3


A


C



E



Residential real estate market status, June 2015

10.2

13.2

6.4

7.4

Major cities have large unsold inventory, and witnessing slowing sales

SOURCE: Knight Frank; Expert interviews; McKinsey Analysis

64,800

101,500

191,000

194,500

Bangalore13,600

Pune10,100

NCR14,400

Mumbai19,000

Unsold Inventory1 Quarterly Absorption2 - Quarters to sell current unsold inventory

▪ 9% slower sales velocity in 2015 (vs 2014) ▪ 34% reduced launches in 2015 (vs 2014)

1 Number of primary residential units rounded to nearest 1002 Taken as average of last 12 quarters sales of primary residential units (#)

Quarters


Summary


1


2


3



– Increase cost efficiency and delivery executionC



E




Strategic choices

Optimal geographic footprint?i

Luxury versus Mass/Affordable projects? Large scale versus small projects?iii

Multi-asset strategy versus single asset class?ii

5A

Strategic choices

Financial structure?iv


Optimal geographic footprint

▪ Local play where government liaison is critical

▪ Multi-city play possible in rentals and specialized commercials, where skills are replicable

Key implications

One city Many cities

Few cities

▪ 3rd most valuable real estate company

▪ Entirely HK focused

▪ Multi-continent

i

SOURCE: McKinsey Team analysis

▪ Singapore/China focused

2009-2015▪ UAE + 3 market focus

▪ Multi-city China play

2005-2009▪ Pan ME + SE Asia

play


Multi-asset strategy versus single asset class strategyii

▪ Multiple asset classes in emerging markets, but single asset class in mature markets

Key implication

Single-asset class focus Multi-asset class play


▪ Retail only across continents

▪ Purely residential in US

▪ Retail, residential, and serviced apartment player

▪ Residential focused, but forced to enter mixed-use due to changing regulation


Luxury vs. affordable play; large v/s niche projects

High value

Low volume

High volume

Low value

iii

▪ Low volume high margin strategy (develops not more than 5 mn sq ft per year)

▪ Has focused on premium mixed-use properties

▪ Large and premium mixed-use developments focus

▪ Focuses on mass volume (in 2012, sold 140 mn. sq. ft of residential)

▪ Most large developers focus on premium projects due to better returns

▪ Some setting up a separate affordable housing division (whether they can make money remains to be seen)

▪ Same effort to buy land, get approvals, manage legal issues, etc.. for both small and large projects, hence developers have set a minimum hurdle size for projects

Key implications



Several Indian players have launched affordable housing schemes, but are yet to taste success

iii

Historically, affordable housing has yielded low returns

▪ Significantly lower prices

▪ Higher development costs, driven by– Higher construction costs (50-60% of price for affordable housing vs. 30-40%

for premium/luxury projects)– Similar absolute costs for approvals / development charges etc..

▪ Usually larger scale of development takes much longer to monetize (minimum 7-8 years)

Flawless business model and execution required to achieve a 20% IRR

▪ Accelerated sales engine ▪ Execution excellence across design and construction

▪ Effective connectivity infrastructure by pushing government machinery▪ Distinctive marketing value proposition along with strong branding strategy

▪ Low risk financing strategy (right balance between debt and equity)



Critical to get financing strategy right: Developers should hold debt that is directly correlated to their annual rental income

48

3

70

4033

3832

Sun HungKai

VankeIndian Dev B

West-field Capita-land

Simon Indian Dev A

CheungKong

International players

100% rental income 100% development income

Interest to EBITDA ratio, FY11

iv

▪ Unlike international players, many Indian developers are highly leveraged▪ In cyclical low phases, this puts a significant pressure on their sustainability


Summary


1


2


3






E




A six pronged sales and marketing transformation approach can increase sales by 50-60%

SOURCE: Mail Network Optimisation Project

Levers for sales performance transformationContribution of lever to improvement potential

2 Re-energizing broker/channel network 15-20%

3 Targeted multi-channel approach for international sales using ‘exclusive’ products

10-15%

4 KAM approach to drive bulk/institutional sales 5-10%

5 ‘Go Digital’ for better customer engagement 5-10%

6 Upgrading CRM/data mining capabilities to boost cross-selling/upselling

10-15%

1 Fundamental transformation of in-house sales processes 40-50%

B


Fundamental sales processes transformation: Redesign in-house sales team incentives to drive “push system” of sales, instead of today’s “pull system”

Tactical delivery

Strategic objectives

Hygiene factors

▪ Drive periodical target achievement consistently (month/quarter/cycle)?

▪ Provide disproportionate pay out for over-achievers?

Does the current system-▪ Drive annual value target achievement?

▪ Address division/ brand priorities?

▪ Help retain and promote high performers

Does the current system ▪ Help build business for the future through

incentivising brands?

▪ Help other process parameters

Does the current system ▪ Help manage factors like call coverage

or frequency

▪ Help control attrition

MENA real estate player

Middle-East real estate player (very aggressive)

Up to 7%

0.75-1.25%

Indian real estate player

1%

Incentives used in real estate companies

Company

Sales com-mission to in-house staff (% of sales)

SOURCE: McKinsey

B1

Sample questions to assess “push sales” system efficacyCategory


Sample sales channel width analysis output - Comparison of Co A and B

Co A channel sales is highly skewed towards a few large channel agents

B has more sales than A through smaller agents

A has more sales than B through larger agents

Agent size

Sale

s pe

r cha

nnel

age

ntSales Channel width optimization

SOURCE: McKinsey

B2 Co B

Co A


Players Percent of total sales from outside-India markets, Percent

Multi-channel approach for increasing international sales

SOURCE: McKinsey

1 Across 50 countries

Key issues to be addressed

▪ Which countries to focus– ME– US (which

cities/clusters?)– UK?– Singapore

▪ Which target customers to target for different products?

▪ Whether to tap international brokers or have a local sales office?

▪ How to keep selling costs low while maximizing productivity (exclusive products, digital)

1

2

3

4

18

26Bangalore based real estate player

>701ME real estate company

Mumbai based real estate player

B3


Systematic Key Account Management (KAM) approach for corporate/institutional sales

Analysis 3: KAM finger-printing Analysis 4: KAM manager trainingFor each strategic account, develop a detailed understanding of needs and current behavior▪ Needs▪ Key staff▪ Competitor activities▪ Main issues

For each key account manager

▪ Create a compelling pitch

▪ Train KAM managers (as skills required are different from other sales staff)

Profitability Percent

Cash flow impactAccount

5

2

3

1

20

30

xx

yy

zz

Strategic Account

1

2

3

Account potential in Rs crore

Actual till dateTarget

200

500

100

20%

10%

30%

Nil

Nil

Nil

SOURCE: McKinsey

Analysis 1: KAM scoping & target setting Analysis 2: KAM commercial analysis

B4


‘Go Digital’ for better customer engagement

SOURCE: Literature research; Team analysis

Digital Action

▪ Planned a series of videos and events to replicate an auto show experience with deeper insights

▪ Followed by in-depth detailed tours during the day with photo galleries, live Q&A on the Facebook wall and Facebook live chats

▪ Made a number of strategic digital ad buys to drive people to the Facebook page on hundreds of websites including Facebook and Yahoo

Impact

▪ 75,000 fans logged on the day of the virtual auto show

▪ The #1 Twitter trend on the day

▪ The #2 Google trend

▪ Over 1 million views on YouTube

▪ The Ford.com website had its second busiest traffic day

Objective▪ Create synergy between paid and earned digital media through exclusive social media

launch of the 2010 Explorer without showing the vehicle at an international auto show▪ Goal to reach 50 million people using digital marketing

FORD EXAMPLEB5


CRM and data mining: Sales funnel analysis

SOURCE: Team analysis

▪ Do we have enough leads?▪ What percentage of lead potential is getting converted into

active leads ?▪ What percentage of leads generated are converted into final

orders?

Key questions

Sample end product of sales funnel analysis

Current state

Best practice state

Site visit to sample flat

35 25 10

Win

10

Loss

10

Loss

65

Loss

100 155

Commercialnegotiations

Stages1/2

Stages2/3 Stage 3/4 Stage 4/5

Central cold calling Call backs

Orderbooked

40 35 25

Win

5

Loss

5

Loss

60

Loss

100 305

Stages1/2

Stages2/3 Stage 3/4 Stage 4/5

Site visit to sample flat

Commercialnegotiations

Central cold calling Call backs

Orderbooked

B6


Summary


1


2


3






E




Estimated savings1

Percent

Low cost country sourcing

B

StandardizationC

ContractingD

Design optimization

E

Total savings

Negotiation strategy

A

Ideas▪ Consolidate volumes across steel and

concrete requirement▪ Use Clean sheet costing ▪ Increase vendor base to enhance

competition

▪ Procure rebar from Eastern Europe▪ Mirror & electrical fixtures from China▪ Reduce the no of types of doors▪ Standardize steel and cement grade for non-

critical areas▪ Free issue of steel, cement, and glass▪ Split CP2 package into 5-6 sub-packages,

e.g., roads, electrical▪ Introduce incentive for value engineering in

design contract▪ Clearly identify the linkages between design

parameters (e.g., KG of steel/Sqm) and Project IRR

10-14% cost optimization possible through design, procurement and contracting excellence

1 On total project budget

2-3

1-2

10-14

2-3

1

3-4

SOURCE: McKinsey

C


Some Indian companies are setting new benchmarks in construction by developing a “standardized way”

5

4Bestperformancepost intervention

14Initialperformance

Averageperformance post intervention

Floor cycle time# of days

SOURCE: McKinsey

Standardized micro-plans and cascaded reviews

Strengthen site organization

Large subcontractors

Productivity enhancing construction techniques

Standardized formwork with better monitoring

Incentives and tower competition

Structural interventions

1

3

4

2

5

6

C3


Globally, the Broad group has set a benchmark in revisiting conventional approaches to construction

SOURCE: Broad Group; team analysis

15 days to develop 30 storey hotelBroad Group China

▪ 93% of the work done in factory and 7% at site▪ Only 1% construction waste▪ The above ground structure is a steel structure

(little bit of concrete lining to meet the building code)– A 3.9X15.6 m main board is at the heart of this

methodology - contains all flooring, ceiling and embedded shafts for ventilation, water supply and drainage, electricity and lighting, pillars, walls, windows, doors, sanitary ware, kitchenware, etc..

▪ Cost approximately in the 1000-1200 usd per sq m range

▪ Built for 9 magnitude earthquake resistance; the building is 5X more energy efficient

▪ 15 days does not include Basement work, where there is no innovation - conventional construction method was used

Key takeaways

C3


Summary


1


2


3






E




Organization: Building a scalable organisation in real estate is challenging, especially in the Indian context

▪ Building a strong real estate organisation difficult because of 4 reasons– Most developers are family-managed businesses with limited talent pool– Lack of integrity/values– Largely functional talent pool (dearth of multi-skilled managers) constrains

growth– Non-real estate professionals not yet successful, since they lack core real

estate ingredients including entrepreneurship, drive and risk-taking

▪ Cyclicality of the industry makes building a good organisation tough, e.g., most companies quadrupled their staff between 2006-08 but let go of 40-50% of their staff between 2008-10

▪ Lack of a well-developed service ecosystem unlike western markets, where developers keep a small and senior in-house team and outsource all functions –makes it easy to keep fixed costs under control when markets are bad

SOURCE: McKinsey

D


Organization: 6 functions are core; rest can be outsourced

SOURCE: McKinsey

NON-EXHAUSTIVED1

Approvals

Legal

Finance

Design Engg; Procurement & Contracting

Sales and marketing

Land acquisition

Core functionsKey implications

▪ Keep a thin, senior team in-house for these 6 functions, and outsource the junior team

▪ Outsource all other functions (e.g., construc-tion, facility management, recruiting, IT architecture etc.)


Summary


1


2


3







– Institutionalize key management processes (e.g., development management, purchase and sales) and best practices

E


Best-in-class processes and practices need to be adopted across all functions

E

Process focus Our observations on best practices

Development Management

1▪ Hold off product launches until all approvals and designs are complete▪ Build strong in-house ~10 member project management team vs doing

construction on own; Outsource low value PMC (billing, QS)

Design management3

▪ Design optimization can create the biggest value, i.e., 4-5 % increase in EBITDA, through– Using peer reviews to optimize design– Strong in-house team that uses sophisticated tools to optimize design

(TCO analysis; system flow balance)

Purchase & Contracting2

▪ High-quality ERP systems implemented to improve purchase performance, and limit leakages

▪ Pre determines escalation clauses for 7-8 biggest materials (by value) through linking them to well defined market indices

▪ Choose LSTK contracts over item rate/ others

NON-EXHAUSTIVE

Project management4

▪ Build strong in-house ~10 member project management team vs doing construction on own; Outsource low value PMC (billing, QS)

▪ MIS driven project planning and control


Summary


1


2


3







– Institutionalize key management processes (e.g., development management, purchase and sales) and best practices

E


APPENDIX


Opportunity in the top Indian cities of tomorrow will be much bigger than countries today (2/2)

City

1. Mumbai

2. Delhi

3. Kolkata

4. Chennai

5. Bangalore

6. Hyderabad

7. Ahmedabad

8. Pune

9. Surat

10.Jaipur

11. Lucknow

12.Kanpur

13.Nagpur

14.Ghaziabad

Population (Million)

2012 2030

15.Coimbatore

Population (Million)

2012 2030City

16. Indore

17.Cochin

18.Patna

19.Kozhikode

20.Bhopal

21.Vadodara

22. Vizag

23.Agra

24.Thrissur

25.Trivandrum

26.Ludhiana

27.Nashik

28.Malappuram

29.Vijayawada

30.Kannur

SOURCE: 2011 census, MGI estimates

18.7

16.7

14.5

8.9

8.6

7.9

6.5

5.1

4.8

3.1

3.0

3.0

2.5

2.4

2.2

24.0

24.2

19.5

13.4

12.7

12.3

10.0

8.8

8.8

4.2

4.7

3.9

3.5

4.9

3.8

2.2

2.2

2.1

2.0

1.9

1.9

1.8

1.8

1.8

1.7

1.7

1.6

1.6

1.6

1.6

3.6

3.0

2.8

2.8

2.8

2.9

2.9

2.8

2.3

2.2

2.6

3.0

2.5

2.9

2.2

presentation by mckinsey at credai natcon 2015

Presentations & Public Speaking