A better way of doing real estate development

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A better way of doing real estate development

The Ashiana Housing way

Venugopal Vabbilisetty

Please find below the investment thesis which analyses “Ashiana Housing” model of Real Estate Development.

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Ashiana is run on a business model similar to that used by Mohammed Yunus to build the Grameen Bank in Bangladesh: “First check what the industry peers do and then go and do the exact opposite.”

Key Take-aways:

"NO" to Land Banking Model. More Focussed on Execution i.e., Production / Manufacturing mindset.

Limiting the WIP which limits the DEBT overhang of the company which is locked in the land bank.

Focus on Consumers Vs Investors

Investors will follow the real-estate market which is cyclical where as end-user demand tends to be more consistent.

Inside Sales Vs Channel Partners

how accounting drives management behaviour

focus on cash flow rather than accounting profits as the focus will on project completion rather than percentage completion which might not realize the cash flows.

This method of accounting more accurately reflects the assets and liabilities of the company. This will make it easy to understand the operating cash flows of the company, which is one of the most important parameter to appreciate the financial health of the company. It also better reflects the margins of the company, as they are directly linked to the delivered homes and square footage and not subject to future estimations of project cost.

Tax payment is also deferred till the project completion.

Choice of Funding Partner in International Finance Corporation (an investment arm of World Bank)

Depending on the project nature i.e., if the land is purchased outright since it will be a long gestation period which has lot of volatility due to permissions and other stuff-> IFC will give equity capital else if the land is taken on JV -> IFC will fund debt capital.

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The Ashiana Housing Lecture⁠

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How to Value Ashiana Housing⁠

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After reading the above Blog Threads about Valuation, I tried to map Anuktha’s Ikigai City numbers, just to try and understand how the Gross Margins compare between JDA and Outright purchase scenario’s

Take away from valuation study of Ashiana Housing

Take away from valuation study of Ashiana Housing

Column 1

Column 2

Column 3

Column 4

Column 5

Description

JDA Scenario

Out right Purchase Scenario

Realization

4500

100%

4500

100%

Construction cost

2250

50%

2250

50%

Land Cost

400

Construction cost of landowner share

1321

29%

Gross Margin

929

21%

1900

41%

There are no rows in this table

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