presentation by mckinsey at credai natcon 2015
TRANSCRIPT
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
McKinsey & Company | 3
▪ Programs such as Smart Cities Mission, AMRUT and ‘Housing for All’ are a good beginning but early days. Basics still not getting fixed.
– Get the future strategy and financial structure right
– Increase cost efficiency and delivery execution
Summary
▪ However, India’s urbanization is of low quality and haphazard, with many critical elements missing
2
3
▪ This is a good time to “set the house in order”:5
A
– Transform sales and marketingB
C
– Build a scalable organizationD
– Institutionalize key management processes (e.g., development management, purchase and sales)
E
▪ Real Estate sector in India is at a cyclical low4
▪ Over the next 20-40 years, India will undergo a massive wave of urbanization
1
McKinsey & Company | 4
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
McKinsey & Company | 5
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
McKinsey & Company | 666
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%
McKinsey & Company | 8
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
McKinsey & Company | 9
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.
– Get the future strategy and financial structure right
– Increase cost efficiency and delivery execution
3
▪ This is a good time to “set the house in order”:5
A
– Transform sales and marketingB
C
– Build a scalable organizationD
– Institutionalize key management processes (e.g., development management, purchase and sales)
E
▪ Real Estate sector in India is at a cyclical low4
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
McKinsey & Company | 11
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
McKinsey & Company | 12
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
McKinsey & Company | 13
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
McKinsey & Company | 14
A great city does work on 3 main areas
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
McKinsey & Company | 15
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
SOURCE: McKinsey Global Institute analysis
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
McKinsey & Company | 16
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
McKinsey & Company | 17
A great city does work on 3 main areas
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
McKinsey & Company | 18
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
McKinsey & Company | 19
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
McKinsey & Company | 2020
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
McKinsey & Company | 21
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
McKinsey & Company | 22
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
McKinsey & Company | 23
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.
– Get the future strategy and financial structure right
– Increase cost efficiency and delivery execution
3
▪ This is a good time to “set the house in order”:5
A
– Transform sales and marketingB
C
– Build a scalable organizationD
– Institutionalize key management processes (e.g., development management, purchase and sales)
E
▪ Real Estate sector in India is at a cyclical low4
McKinsey & Company | 24
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
McKinsey & Company | 25
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
McKinsey & Company | 26
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
McKinsey & Company | 27
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
McKinsey & Company | 28
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
McKinsey & Company | 29
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.
– Get the future strategy and financial structure right
– Increase cost efficiency and delivery execution
3
▪ This is a good time to “set the house in order”:5
A
– Transform sales and marketingB
C
– Build a scalable organizationD
– Institutionalize key management processes (e.g., development management, purchase and sales)
E
▪ Real Estate sector in India is at a cyclical low4
McKinsey & Company | 30
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
McKinsey & Company | 31
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
– Transform sales and marketingB
– Increase cost efficiency and delivery executionC
– Build a scalable organizationD
– Institutionalize key management processes (e.g., development management, purchase and sales)
E
▪ This is a good time to “set the house in order”:5
– Get the future strategy and financial structure rightA
McKinsey & Company | 32
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
McKinsey & Company | 33
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
McKinsey & Company | 34
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
SOURCE: McKinsey Team analysis
▪ 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
McKinsey & Company | 35
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
SOURCE: McKinsey Team analysis
McKinsey & Company | 36
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)
SOURCE: McKinsey Team analysis
McKinsey & Company | 373737
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
McKinsey & Company | 38
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
– Get the future strategy and financial structure rightA
– Increase cost efficiency and delivery executionC
– Build a scalable organizationD
– Institutionalize key management processes (e.g., development management, purchase and sales)
E
▪ This is a good time to “set the house in order”:5
– Transform sales and marketingB
McKinsey & Company | 39
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
McKinsey & Company | 40
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
McKinsey & Company | 41
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
McKinsey & Company | 42
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
McKinsey & Company | 43
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
McKinsey & Company | 444444
‘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
McKinsey & Company | 45
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
McKinsey & Company | 46
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
– Get the future strategy and financial structure rightA
– Transform sales and marketingB
– Build a scalable organizationD
– Institutionalize key management processes (e.g., development management, purchase and sales)
E
▪ This is a good time to “set the house in order”:5
– Increase cost efficiency and delivery executionC
McKinsey & Company | 47
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
McKinsey & Company | 48
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
McKinsey & Company | 49
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
McKinsey & Company | 50
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
– Get the future strategy and financial structure rightA
– Transform sales and marketingB
– Increase cost efficiency and delivery executionC
– Institutionalize key management processes (e.g., development management, purchase and sales)
E
▪ This is a good time to “set the house in order”:5
– Build a scalable organizationD
McKinsey & Company | 51
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
McKinsey & Company | 52
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.)
McKinsey & Company | 53
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
– Get the future strategy and financial structure rightA
– Transform sales and marketingB
– Increase cost efficiency and delivery executionC
– Build a scalable organizationD
▪ This is a good time to “set the house in order”:5
– Institutionalize key management processes (e.g., development management, purchase and sales) and best practices
E
McKinsey & Company | 545454
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
McKinsey & Company | 55
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 executionC
– Build a scalable organizationD
– Institutionalize key management processes (e.g., development management, purchase and sales) and best practices
E
McKinsey & Company | 56
APPENDIX
McKinsey & Company | 57
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