Real Estate Turning Green

 

In my 2017 blog, I had mentioned a memory of a conference in 2011 in which I stated from dais that “What is not Green is not affordable”. I realise, it was too early to state. 13 years down now, we are all becoming aware and I am sure in next 5 years this will become way to go for real estate industry as well. Reason being – 

• a.       Not green? Higher difficulties in securing funds.
• b.      Not green? No access to green funds that are growing exponentially, globally.
• c.       Not green? Difficult to market products globally.
• d.      Not Green? Loose on brand value.

As it was quality management systems (QMS like ISO etc.) in around 2000, ESG Complaint is latest buzz word and barometer of organization, product and culture. It is not only Green building Certification, it is ESG – Environment, Social, and Governance that is being looked for. Although Triple Bottom Line parameter is in the audits since long but, the importance has geared up in last few years. At least for global business, it is very much essential.

 

Impact of the change

Urban infrastructure is one of the top three polluting segment with Power and Automobile. However I believe it is MOST difficult segment to bring in change because of three major reasons –

1.        Number of people involved in creating urban infrastructure
2.       Direct impact on informal sector involved in the segment
3.       Processes are in situ and not in a manufacturing area

The government will, general awareness in the customer and cost management are all needed.

 

Balancing the Capex and Opex

Due to significant risk in the business, capital heavy character of a project and, proportionate large profit margins make the ESG drive sensitive to Capex – Opex analysis. Although Defect Liability Period is increasing cost to developer, ultimately opex will burden end user. Hence, though early, I believe Maintenance Cost will become a project advantage/ disadvantage for marketing people.

The governance plays an important role post acquisition for the end user. It is not one person but, the whole group of end users who are responsible for actions needed for positively using the systems installed. This makes it more complicated for the architects and EPC team to design systems that are not only easy to adept but also financially benefitting.

Consumption and Disposals are primary issues to control in post occupancy phase. Not to forget – it is only 25 -30 years cycle for construction and demolition in a growing city. At best 40 years. Hence, when we talk about Circularity, we should care for Circularity of economy in the life cycle of a project.

This presents three point focus to be taken care of –

1. Creation including embodied and Stored Carbon
2. Design to support governance for Carbon reduction during use and,
3. Saving from Carbon at the time of demolition OR, recycle

 

Areas of Impact during project acquisition, design, construction, use and demolition (for redevelopment) –

1. Processes to acquire the project

2  Demolition or, cleaning up site for construction

3. Architecture

4. Engineering

5. Landscape and horticulture design

6. Contract management

7.  Process of handing over possession

8. Governance implementation during possession period and defect liability period

9. Systems integration in governance 

10. Behavioural adaptation in end users

 

Future Readiness  

May be I am writing this little early but, having experience of ISO system writing, implementation and auditing I feel it’s too late for unorganized segment of Real Estate and, time for organized segment of Real Estate to get in the groove.

It all begins with defining standard procedures on which an organization works. I am not sure how many organizations have documented standard procedures. This is actually most important to create a sustainable change. Implementation is next.

360 degree implementation is next tricky action. Bringing your suppliers, contractors and Project Management team in the gambit of the system is surely tricky. One has to be Future Ready. One will not be able to carry out all of this once a financially crucial project is about to begin. We certainly are facing scarcity for team of architects, engineers, suppliers and contractors that are ready for all the processes, products and mind-set.

Let us not forget Project Management Systems that too needs a makeover for saving all the carbon generation during the processes. One of the major risk to ESG begins with Communication Processes that have  loads of data management. We need to seriously work on doing away with redundant data management. Contract Management and Design management are next challenges. In a nutshell, being ESG compliant requires adjustments in most of the functional areas. It can be done, it has to be done and with coming funding and business conditions, it will be done. The question is, how many are ready.

One statement is very true – What is not Green, is not Affordable.

 

 

 

 

Emerging Scope Stretches

Real estate projects in metros are seeing some new scope elements than usual and, some emerging risks related to them. The emerging Risks to project management are due to objectives stretch to business objectives of client and, two important stakeholders – End User and Government. In fact, these new scope elements are more Product design, Engineering details and Construction processes related. I think both – Real estate product changes and Climate resilient policies are, impacted by non-uniform distribution of – Infrastructure, resources, wealth and people. Opportunities follow these factors in a proportionate manner.

Product Design: Product design is continuously evolving itself to align with emerging needs due to demand character and customer preference changes post Corona pandemic and, climate resilient policies being implemented. Urban migration playing a huge role in all above. Urban migration reversal requires efforts to capacity-build rural youth through education, skilling, local research, technology awareness and entrepreneurship by nurturing a right innovation ecosystem which we call ‘Cillage’. Such an initiative should enable average rural income to be on par or better than in cities and contribute to a significant growth of the economy with reduced disparity.

The real estate projects are in focus as, these directly impact people living, interacting, working and growing as community. Immobilization of communities is the ultimate goal of urban development and hence, the design of products must provide a situation that suits a better physical and social lifestyle through periods of time. However, the requirement may not be standardised across geographies. Due to the climate changes situation and the density, urban design has become more important than ever.

Engineering details: Engineering details are no more isolated from whole building design. Higher vertical structures present a situation where other subjects of Civil Engineering have become equally important to Structural engineering. Façade, curtain walls, windows, doors, piping, electro mechanical equipment etc. etc. all are equally important for a stable robust structure  to be sustainably functional. One should always take note of the Sustainability of the Whole Design to keep the habitat functional, comfortable and, attractive for the community to be immobile.

The Green building sensitivity in design calls for a careful construction technology selection, material selection, net zero discharge approach, lean design – construction – maintenance and, sustainable design elements. Such high rise construction always poses a doubt in my mind for – Life cycle resource utilization and life cycle carbon footprint which will include maintenance, repairs and Demolition for redevelopment. Hence, a challenge looms on the designers mind to balance robustness with ease in demolition and recycle of consumed resources.

Construction Processes: While designing buildings and infrastructure we usually neglect to apply same environmentally friendly criteria to construction processes. It all starts from selecting a construction technology which calls for design alignment to the technology. The technology itself generates carbon footprint different from one to another technology. We need to start saving on carbon footprint and resource consumption while deciding the structure construction technology itself. Next comes excavation and various other activities that will impact ESG – Environment, Social, Governance, outlook in decision making on employment, housing and safety of labour as well as their housing and other temporary structures. Consumption of resources like water, electricity, building materials and, discharge of waste actually starts from here that can be reduced by reducing consumption, recycling and re-using. Soil, demolition waste, transport and equipment deployed are next issues to address.

Normally we restrict ourselves to solid and liquid waste neglecting, noise pollution and air pollution. Last few weeks had these two pollutions in focus. These pollution control will not only impact the processes but also scope, time and cost of a project. The stake holders like neighbourhood and government has suddenly become more important while selecting and designing construction processes and hence, project planning.

Stakeholder Analysis: As discussed above, the location specific neighbourhood, population density, traffic conditions, local climate data are the factors which emerge as more important considerations while doing stakeholder analysis. People, to begin with, are more vigilant today and are sensitive about health matters. Policy makers are more sensitive to the eco system of environment and people hence, more attentive to the causes. Governance however, still not sensitive to the project feasibility and hence, is less careful while issuing construction permissions and more Reactive while handling uproar. This situation creates risk to time and cost both.

WBS and Work Packaging: One needs to understand that Construction technology and Construction Methodology need to be Designed and Decided prior to Start of Time Scheduling. Rather they need to be given importance in Design Inputs as Specialized function. They can no more be left to casual empirical ad hoc work. If due number of activities can address these concerns, they need to be included in appropriate stages and, resources including cost need to be assigned to these activities. I think soon ESG relevance be applied to construction processes and will cause difference in standard work packages. Also, the pre-qualification skill sets of executing agencies need be updated.

Monitoring: The factors to monitor are no more time – cost – quality and risk. ESG and Stakeholder management become a prominent continuing activity and, performance guarantee issues. Successful completion of project demands all above to be taken up in monitoring plan and, risk register. While writing method statements, a special mention of these activities need to be included.

One important point – Theses ESG and Stakeholder management activities are Essential even if the project doesn’t need an environmental clearance.  

Defect Liability: The project cost includes a defect liability performance cost. This will also include the maintenance of ESG factors during the defect liability. More particularly Governance. Possession of a new project without well-defined and documented necessary governance imposed, will make all the good work wasted. Such systems need to be inserted in the scope of project management and such costs and work packages need to be included.

Understand the Goal: One needs to understand that development and distribution are two such factors that are not affordable without understanding environmental – social – governance inclusion in totality. Urban migration, employment, natural resources, carbon footprint, social uplift, Governance quality, urban infrastructure and real estate projects should not be dealt in isolation. What is not affordable in future, cannot be affordable now.

 

 

 

Losing Sky on streets

With SRA, MHADA and other redevelopment projects occupying real estate industry space today, we are poised to see lot more sky covered up and, lifestyle changes coming in recent future in metros like Mumbai.

FSI Game

The reason we need these rehabilitation or redevelopment schemes is two pronged – uncontrolled urban migration where no one cares for encroachment and illegal possession on government lands and, regular influx of rural to urban migration for primarily work/ job reasons wanting to find residence Legal way. Funny part is, people trying to find residence Legal way have to pay whereas people residing Illegal way, don’t have to. Slum (having unhygienic living conditions with low social habitats) creation I believe is bigger problem than Slum rehabilitation.

All these schemes generate an FSI in bargain for the developer in exchange. These FSIs go anywhere from 5 – 11. That means every square foot land will have up to 11 square feet construction causing Thousands of people staying in a small plot hence, in high rises like 35 to 50 story buildings. Typically, these buildings are so near to each other that you lose not only earth but also sky from ground or, streets.

Unlike a few countries, we don’t have any social housing and, migrant management with full systematic control. These are left on market forces with aid of cross subsidy or FSI grant that actually is inefficient because of huge taxation that takes away approximately 33% of the cost in terms of various taxes, duties and charges. In cities like Mumbai this gets enhanced because of FSI grant is being charged at enormous rate because of which the financial feasibility of a rehabilitation project demands these huge FSI available for sales. Economic feasibility is another big concern.

Urban issues in full blow

Water, Electricity, MTS, Lifestyle amenities sizes, maintenance, circular economy (re development of these buildings), disposals (sewage, organic/city), child growth (nature) etc. etc.

Question mark is not on the towering structures, it is the livability, serviceability and functionality that demands the kind of care and money which is prohibitive. The issues multiply because of poorly designed electro mechanical functionality, communication, community spaces etc.. Due to this the urban social issues remain unanswered or, has been enhancing such as – nature disconnect for child growth, difficult social exchange or communication, resolution of conflicts, formation of good neighborhood and senior citizen care.

The schemes of SRA and Redevelopment has been created with objective of Improving Physical (living – hygiene), social and economic condition of habitants. With all unresolved issues discussed herein, these objectives are far from being met with.

Is Green only way

Citi waste management, sewage as pollutant, potable water availability and distribution, surplus grey water disposal, heat island effect, Air quality due to dense traffic, increase in number of appliances increasing energy consumption, higher construction material wastage, higher construction material consumption etc etc. The list goes on.

I was wondering if environmental clearance should be made compulsory to all developments consuming 5 or more FSI irrespective of area of construction. We will have to accept there is a cost related to high rise construction, functionality and use. Also, whether the residents understand the governance and living cost limitations. One needs to be conscious about increase in resource utilization per capita for housing also.

We have to be serious about our commitment towards sustainability, environment and subsequent climate change. I strongly believe what is not Green is Not Affordable for any class of income group.

Riding on waves

 

First Wave…Second Wave…Third?

Fear comes true for some…Opportunity of lifetime for some. Was wondering ethics or money, what is more important? I think ethics…till question of big money arises. Saw lot of hate worthy acts, lot of lovable people. Ultimately people win because they become role model and are remembered. But for sure, an experience for generations to come. Two generations down, may be they will wonder why we behave and practice in a certain way. We also are not realizing how much has transformed – neighborhood behavior, social interaction, work culture, risk/ safe playing equations in business and life, education/ evaluation, minimum needs, use of home ….

Use of home has drastically changed. Minimum space need has changed definition. House Space and location need has become more crisp and divided in to age groups and profession. Profession and money making efforts have become focused on less and less risk taking. This will reduce disposable income and change savings pattern. Ultimately will directly impact house Buy / Rent and, size of the house.

Technology has superseded every other skill in Demand. Huge increase in online working, trading, education, business and social interaction. This phase of one and half years, so far, has made a sea change in requirement of “online” services. Practically made it very clear to everyone – either you are internet savvy or, you are outdated. May be scrapped/ erased very soon. It has not remained matter of keeping pace, it has become matter of survival.

Housing Industry and the players – developers, designers and suppliers of services/ goods must Upgrade themselves AT ONCE. This time not for Luxury or cheaper. It is for being relevant and meeting customer need. Architects need to pay attention to the changed perspective of using home. Furniture guys need to think of work station every time they design a house interior. Question of Buy/ Rent has become more like planning/ foreseeing your life, occupation and relevant risk. Requirement of Safe Money has become burning portion of disposable income. Similarly, as the debt investments/ costs have become very poor return providers, thinking real estate is more interesting. One last thing – There has emerged a big segment that need not stay near their work place. Work From Home. Many companies are planning to reduce cost of work place and continue practice of Work from Home for a segment of their work force. TCS is one of them. Such many are there. Hence, these guys may be willing to travel long distance (as it won’t be daily basis) and hence, little far off location may target this segment.

Let us look at a middle income group man’s old age life as, a huge population (largest portion) of India will be 60+ soon. One thing for sure – Retirement financial plan or, financial planning beyond good health life has become practically – NO WAY. Look at this – if you are in service, you will become out of market for sure by 65-70. If you are not in luck, may be 55. If you are in profession/ business, you will have to make sure you are not outdated and forgotten. Very difficult for a Person. The way forward for professionals/ business guys are – royalty, dividends and, long lasting clients’ i.e. corporate way. But again, the money sufficient to reach 80 – 85, considering inflation, is serious. Again, real estate may come to rescue. For all above, planning has to be done when you are in late thirties. At the most early forties. One more thing – no matter what, you have to remain in Good Health. So, efforts have to be made in precise division of time, money and other resources. Crazy. If you are 60 or around, you have no planning time and your savings are not going to last long enough if, your money is not working for you. So don’t rest on rocking chair thinking about retirement. This is the Golden Rule of life – You will live only till you are healthy and somehow make some money.

Start wishing in the morning that the day will be healthy and productive. I wish you all for days ahead.

Days After

This is tough time...tougher times ahead. Matter of survival confuses whether to be thinking for now OR, think for times beyond. I choose to act for now but, think for beyond. Of course there are big questions and dependencies on way to be able to peep in future and that does not stop me from thinking. We all have been planning for retirement without knowing whether there will be a time to retire. All planning are done Because there are uncertainties. There is no harm in doing a  Think - Exercise when we are locked from any field action. Obviously we are tense knowing numbers and, afraid of knowing names.

It's not for the first time in last hundred years that world in majority at a time has not been exposed to change by epidemic, wars or other conflicts and, evolution of technology. Yet, as I experience it closely now, I think now. About various changes expected post Corona pandemic recovery and normalcy phase, although I have no clue how much time it will take. What I focus here is the business premise of Real Estate and infrastructure. As a positive exercise, I invite opinions of people connected to these industries on change expected in following think points:

1. Gap between Need and want for house/ commercial spaces purchase.

2. Expenditure pattern of Disposable income 

3. Buyer behaviour and its influence locus

4. Supply chain reliability

5. Import/ export of goods and services and changing sources and partners

Personally I am of the opinion is that the situation is worse for a few industries such as Travel, Hospitality, Real estate topping the list. For Real estate in India we already have been experiencing a few changes lately –

1. Buyers of millennial more interested in renting than buying

2. Low cost housing doing well but, micro sizes in metros, with ticket size of more than 40 Lakh, are not welcome.

3. Larger layouts with social amenities preferred over stand alone buildings.

4. Tier 3 cities showing gravity for development.

5. Technology diffusion is faster.

Hence, amidst the financial crisis with lower sales multiplying trouble for realtors, the Corona crisis comes as a big jolt. Particularly at a time when we were about to forget de-monetization and digest GST change. One thing is sure that issues mentioned above will be taking a giant shape for us to ignore them. Unrest in labour segment is also not new. We saw that at the time of de-monetization. However, this time the disbelief in them will be rooted deeper. This will surely increase the cost provided, god forbid, situations worsen at rural areas.

As more and more funds shall be utilized for essential item industries, fewer funds will be available for Real estate and particularly when market will be more vulnerable to shifting preferences in demand. Financing, as such not my strength hence would request relevant experts to express their views. However, one needs to be careful in analyzing the situation in longer future. This pain that Corona is giving us, is in magnanimous proportions and the dent in minds are going to be bigger than in physical life. I understand that it is important when and with how much damage to lives, economy and psych of people does this situation end. Time is rather one most important factor. India is experiencing just a comma in life compared to many other countries. Its not my insensitivity towards current tragedy to many thousand families in grief. It is just a reminder to expect next big hazard on way - economic sickness, if not collapse.

I once again invite opinions of industry people on above mentioned five issues and changes expected. Wishing all best for their health. Keep safe.

New challanges to real estate project management

Real Estate - Challenges of Project Management with

Maharera, DCR 2034 and, stakeholder dynamics

MAHARERA will be completing one year of confusion and, DCR 2034 four years. We need to exercise project management techniques by adapting deviations in standard practice. Business alignment to project management techniques is now well set approach. Stakeholders in real estate business premise, government, neighborhood, developers, customer and consultants have or are updating their approach very fast. This is posing difficult times for project management professionals to align standard practices as they need adjustments every now and then. Good management does not guarantee that there will be no problems but, it ensures that one is prepared to handle them better.

1.       Stakeholder analysis:

Talking about developers who are promoters of project and major risk takers, are now fast changing the ways they made money or, made the money work. Projects are either higher capitalized now or, are collaborative. Reducing the front loading of projects at the cost of sharing profits now work better in lower, middle and higher middle income group projects. Redevelopment projects have mass management skill, higher capital as well as collaboration requirements. You must have experienced Collaborating with landlords, marketing consultants and executing agencies at various levels.

·         Collaboration is desirable but one finds it difficult to achieve as, sharing liability of delivery comes with the package.

·         You will succeed in collaborative development if interests are resolved and, shareholder management is taken care of.

2.       Planning – Financial & marketing

Planning had never been so dynamic, desirous and serious before. Yet, one needs to understand difference between estimate and forecasts. You must have had time/ cost estimate and, sales forecast. Also one needs to understand different types of estimates, their limitations and use. One need to understand that estimate, does not guarantee anything but, better management decision making. It is heartening to see that planning has taken an approach for closure by completion. i.e. delivery and handover from the previous payment milestones or, cost approach. Your funds flow has become more stressed under the escrow and limitation/ certification regime. Certification and, release have become successor of payment from customer. This is giving importance to “delivery” approach. Time, cost and Project risks differentiation is thinning. Hence risk impact has become more sensitive and demands response to be specific.

·         Plan for release of funds rather than receipt. Estimate and calculation of working capital demand needs to be acceptable as well as sufficient.

·         Plan what you are confident. Not what can tweak numbers. Integrating sales forecast, funds flow and, construction management.

·         Plan risk management for completion with responsibility matrix focused.

3.       Contract Document

Today becoming more responsible and for a long period for defect liability, it is obvious to transfer responsibilities proportionately to all the people who are making business in the process. Right from developer company, to vendors and executing agencies to consultants. All need to share the responsibility of Promised delivery. It’s no more one year defect liability, its five years and, Good Delivery. It’s not far off when consumers shall be approaching different regulatory or judiciary for Quality deficiency also. Hence, contract document has to specify “Quality acceptance criteria” for customer contract as well as material supplier and execution agency contract.

·         Sharing responsibility makes you better link to get collaborated with. Accept it.

·         Quality is unwritten condition of timely and as promised Delivery. Write it.

4.       Delivery – Product, governance

Someone asked me when to book profit in a real estate project. Apart from an accountant or tax consultants view point; I feel when the delivery is accepted in completion and closure of sale agreement. Till then, receipts should be treated as advance, i.e. liability. More or less, one need to understand this in its essence and spirit that, business is complete when delivery of promised and, compensation of the same has taken place. Phased projects have a new focus emerging – governance and maintenance. Governance is the activity for which a promoter has to carefully draft and observe policies suitable for the customer segment, product and life style that is promoted by the project amenities. The subject requires in-depth study of the customer segment culture, post purchase behavior and, life style change related issues.

·         Long term maintenance – Select material, executing agency/partner carefully.

·         Governance – Develop social entrepreneurship if in redevelopment or phased project.

Project management of Phased projects is exposed to such new challenges that are yet to be streamlined for standardized practices.

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Is being green unaffordable?

I remember being on the dais of a conference. Real estate – affordable housing. The topic of group discussion was – whether affordable housing should be Green. Sharing dais were one of the eminent architect, director of a research company and couple of reputed developers.

I was mooting that what is not Green, is not Affordable. Everyone was disagreeing with me to different degrees. May be I was not able to put my argument convincingly or, clearly. Now, five years since then, one of the developer approached me and asked, can we make a project water, energy and waste disposal self-sufficient through design for one of his large affordable housing project as, the project location did not have public services in vicinity.

When one thinks about product design in real estate, he seldom thinks about target customer. The sluggish market has shown them what is missing in product mix and design. Using the buzz word “affordable housing” rampant but, idea of sustainable development was hard to sell as developers were successful in selling by adding up free bees or, amenities. Now, it really becomes a point of discussion – what are amenities that are valued for customer segment that are not able to afford a house and hence, want affordable housing. Developers must see that the project should be affordable to the extent that for customers/ users the cost of acquisition becomes more or less cost of ownership. At least for the period during which the customer repaying loans. There is no point in making homes that can be bought but in the process, buyer loses all his future income and hence, can’t spend to maintain it. That is also more reason to make homes that not only requires less maintenance but also demands less travel time and common maintenance expense. One should ideally target no or low living & maintenance expenditure for 15-20 years. This is possible only and only if the development is Green.

However, for LIG & EWS the case may be not same and require acquisition cost to be lowest may be at the cost of no - maintenance life as low as 5 years.

People were hovering around with numbers in millions as demand, but not much effort has been taken to serve this segment. Issues that demoralize such efforts are - Low mark ups, CRM is different than usually practiced in tier I/ tier II that caters to MIG & HIG, Tier III have small volumes demand per project, Lacking focused designs, construction technology and sourcing of material.

Procurement has to be part of planning activity so as to minimize waste and optimize construction cost. It is necessary that things are well planned in advance as such project’s costs are very time and quality sensitive. This segment will always have demand and attractive for revenue flows. The question is – proportionately largest habitat has to be sustainable and Green or, can we make only 25% development environmental friendly and hope to achieve environmental sustainability. I think answer is very simple – can not leave that 80% behind.

Urban infrastructure, of which housing is an important part of, must consider factors like  – living expenditure & quality, connectivity time & cost, loading to public services & neighborhood and, discharge to environment. These needs to be planned & designed not only for acquisition but for long term use being high capex activities. Hence it compulsorily has to be Green.