REAL ESTATE CONSTRUCTION PROFITABILITY

ANALYSIS

SIMS IREF EDP PROGRAM

Sept 14, 2014

BASIC TERMS & CONCEPTS

• FLOOR AREA – FLOOR AREA SHALL MEAN COVERED AREA

OF A BUILDING AT ANY FLOOR LEVEL.

• FLOOR AREA RATIO (F.A.R.) / FLOOR SPACE INDEX (FSI) –

MEANS THE QUOTIENT OF THE RATIO OF THE COMBINED

GROSS FLOOR AREA OF ALL FLOORS TO THE TOTAL AREA

OF THE PLOT.

BASIC TERMS & CONCEPTS

• TRANSFERABLE DEVELOPMENT RIGHTS (TDR)- A CERTIFICATE

FOR DEVELOPMENT RIGHTS OFFERED BY MUNICIPAL

CORPORATION TO THE LAND OWNER WHOSE LAND IS

RESERVED FOR PUBLIC UTILITIES LIKE GARDEN, PARKING,

SCHOOL ETC.

• SALEABLE AREA

• READY RECKONER (RR) RATES-

BASIS FOR COLLECTION OF STAMP DUTY ON PROPERTY

PURCHASE (LAND/DEVELOPED PROPERTY; BOTH COMMERCIAL

AND RESIDENTIAL)

RATES DETERMINED ON AN ANNUAL BASIS BY THE STATE

GOVERNMENT

DIFFER FROM LOCALITY TO LOCALITY IN A PARTICULAR CITY.

• SD/REGISTRATION

BASIC TERMS & CONCEPTS

• START-UP CAPITAL

• COST OF CAPITAL

• RETURN ON INVESTMENT

• CASH FLOW STATEMENT

• INCOME STATEMENT

• OUT RIGHT (OR) & JOINT VENTURE (JV)

TYPES OF REAL ESTATE DEVELOPMENT DEALS

• JOINT VENTURE (DEVELOPER & LAND OWNER) DEAL

• OUT RIGHT PURCHASE & DEVELOPMENT DEAL

• JOINT DEVELOPMENT DEAL

• REDEVELOPMENT DEAL

• ANGEL INVESTMENT/PRIVATE PLACEMENT

DEAL PARAMETERS

• JOINT VENTURE

RATIO: 50:50 TO 65:35 (ON DEVELOPERS FAVOR)

DEPOSIT : 10 TO 15% OF LAND VALUE (REFUNDABLE & NON-

REFUNDABLE)

TDR PURCHASE

TDR CONSTRUCTION COST

• OUT RIGHT PURCHASE & DEVELOPMENT

LAND RATE

PAYMENT TERMS

REAL ESTATE CONSTRUCTION PROFITABILITY VARIABLES

• DEAL CONDITIONS: RATIO, DEPOSIT, TDR (JV); LAND RATE & PAYMENT TERMS (OR)

• OTHER START UP INVESTMENTS: MARKETING LAUNCH, SAMPLE FLAT & SITE OFFICE

• LAND SIZE

• SALEABLE AREA

• FSI,

• LAND SIZE & SHAPE,

• ACCESS ROAD,

• MUNICIPAL CORPORATION/TOWN PLANNING (TDR/PAID PREMIUM/PAID FSI ETC),

• ROAD WIDENING/ACQUISITION

REAL ESTATE CONSTRUCTION PROFITABILITY VARIABLES

• LAND MARKET & RR RATE

• AVERAGE CONSTRUCTION COST

• AVERAGE SELLING RATE

• INFRASTRUCTURE & MSEB CHARGES FOR APARTMENT

• APARTMENT SIZE

• PLAN SANCTIONING COST AND SANCTIONING PHASES

• SD/REGISTRATION CHARGES

• TDR RATE

• UNIT SALE/MONTH & MARKETING STRATEGY

SALEABLE AREA QUICK FORMULAS

PUNE MUNICIPAL CORPORATION (PMC)

WITH TDR- 1:2 (TDR-0.55 @ RS 3500/SQFT)

WITHOUT TDR- 1:1.3

TOWN PLANNING (TP)

DEPENDING ON ACCESS ROAD- 1:1.5 TO 1:1.7

PIMPARI CHINCHWAD MUNICIPAL CORPORATION (PCMC)

WITH TDR- 1:1.9 (TDR- 0.4 @ RS 900/SQ.FT)

WITHOUT TDR- 1:1.35

PROFITABILITY ON CASH FLOW & ROI

• PROJECT CASH FLOW

o EXAMPLE- REFER SPREADSHEET

• CASH FLOW VS INCOME STATEMENT METHOD

o EXAMPLE – REFER SPREADSHEET

THANK YOU

Q & A