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A better way of doing real estate development

The Ashiana Housing way

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


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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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
0
Column 1
Column 2
Column 3
Column 4
Column 5
1
Description
JDA Scenario
JDA Scenario
Out right Purchase Scenario
Out right Purchase Scenario
2
Realization
4500
100%
4500
100%
3
Construction cost
2250
50%
2250
50%
4
Land Cost
0
0%
400
9%
5
Construction cost of landowner share
1321
29%
0
0%
6
Gross Margin
929
21%
1900
41%
There are no rows in this table

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