Analysis and Solution - A Real Estate Investor's Perspective - Ashutosh Hegde
ANALYSIS AND SOLUTION- A RealEstate Investor’s perspectiveSenior VP and Head- Investments at LICHFL AssetManagement Company
Presentation FlowAn unusual solutionBenefits of the suggested solutionANALYSIS AND SOLUTION- A Real Estate Investor’s perspectiveExecutive SummaryPE perspective for township developmentNeed for alternate models04/25/13 3Challenges for Walkers and CyclistsTownship DevelopmentsSolutions for existing urban developmentsFundingCaveats
Executive Summary More efficient the transportation over long distances, more the choicespeople has to locate their home and businesses. Conversely, spread out land use patterns increase the demand fortransportation because of greater travel distances. This has become an eternal cycle that we now find ourselves in, one thatis unsustainable in the long-run. Township Development offers an opportunity to integrate transport andland use. Solutions are urgently needed for resolving transportation problems inthe existing urban development. Providing dedicated and secure cycle tracks and making the ridecomfortable and interesting could be a solution to the problem.04/25/13 4
Township DevelopmentsAdvantages:Township developments are being seen as a sustainable model for reducingmotorized travel, which offers an opportunity to integrate transport and landuse.Across the Country, Governments are introducing incentives so as to maketownships self-sustainable by granting higher FSI’s for mixed land uses tomake them independent micro centres of urban growth and incorporatinghousing for economically weaker sections.Townships provide an opportunity for balanced and planned development.Integrated Township will minimize travel distance.Provision of dedicated walking and cycling tracks along tree lined avenueswith refreshing green cover may overcome discomfort in our hot and sweatyenvirons.Challenges:Aggregation and acquisition of large contiguous land masses required fortownship is becoming increasingly difficult.Township eligibility criteria dictate a minimum cut off area of 100 acres ormore to be developed by one entity.Obtaining Statutory Approvals take a long time.04/25/13 5
PE perspective for township development04/25/13 6Challenges Solution1.PE funds have a shelf life, typicallyseeking exit between 3 to 6 yearswhile township developmentstake longer time periods rangingfrom 6 to 12 years to completeGovernment could permit consortiumdevelopment on the back of a master planwherein a large project can be divided acrossmultiple developers facilitating development ina parallel mode with multiple PE funds andmultiple developers as compared to the currentseries mode which entails one developer for alonger project life.2 Typical IRR expectation variesfrom 20 to 30%. The carrying costof initial investment over timeincreases resulting in costescalation of the housing unit,making it unaffordable for theeconomically disadvantaged.Government could offers tax incentives fortownship development considering their criticalrole in cutting down on fuel cost and savingvaluable foreign exchange. This in turn wouldenable lowering return expectations ofInvestors.3 Developers require funding at preapproval stage while funds arenot comfortable to exposethemselves to approval risk.Government could provide a dedicated singlewindow approval mechanism which would grantapprovals within maximum 3 months.
Need for alternate models Townships addresses transportation problems in new developments.Solutions are needed to address the mobility issues arising from thechaos in existing urban developments. Cycling and walking as a choice of travel is virtually non-existent inexisting urban developments. Choice of transportation modes provides more equitable access,empowering the end users and result in improving liveability at ourexisting urban areas.04/25/13 7 The existing infrastructure does not address safety issues for walkers andcyclists due to uncontrolled Interaction with other transport modes. The affluent sections taking up cycling or walking in a token manner maynot make a difference. The bulk of the population needs to be involved. Cycling and walking in the hot and often humid climate in the midst ofdust, noise and pollution is a daunting task. It will be challenging to replicate in our cities, success of cycling andwalking as a means of transportation in cleaner and cooler climatesabroad. How do we encourage and incentivise walkers and cyclists?Challenges for Walkers and Cyclists
Solutions for existing urban developments Rapid mass transport systems like elevated or underground trains. Bus Rapid Transit Skywalks to cross major arterial roads. Dedicated and cordoned paths for walkers and cyclists alongside roadtransport. Bicycles & even tricycles to be made available on hire which can bepicked up and parked at different locations, through a smart card,debiting users on number of hours used. Cycles fitted with Power generating mechanism integrated with mobilebatteries. Cycles to be parked at docking stations with a power downloading facilityconnected to a smart grid thus tapping the generated power andcrediting the rider for the power generated. Incorporate amenities like shower rooms, etc. to make bicycling userfriendly. For the model to be viable and self-sustaining, elements of real estatemay need to be incorporated.04/25/13 8
An unusual solution- Elevated Eco City The solutions is based on the assumption that subject to conduciveenvironment, the distance which an average walker or cyclistcomfortably negotiates at one stretch is 2-3 km. and 6-9 km respectively. An independent elevated route way for cyclists and walkers could beexplored where the system is designed in a modular grid pattern toenable easy installation and dismantling. To overcome climatic discomfort of cyclists and walkers, the environmentinside the elevated route could be controlled using air diffusers and otherartificial means powered by roof solar panels. To improve user experience, integrate transportation with social spaces,adding elements of entertainment, public spaces, retail outlets,restaurants,, parks, rest rooms, guest houses and even office space alongthe route to make travel not only interesting but the project self-funded. Elevated cycling and walking could also complement the rapid transportsystem serving as the last mile connectivity and as feeder routes. In short it could be an elevated eco city with zero access for motorizedtravel! Alternatively an option to provide dedicated bicycle tracks and walkwaysalongside elevated rapid transport system can also be explored.04/25/13 9
Benefits of the Elevated Eco City End user cost benefit will chiefly consist of savings from replacement ofmotorized transport. Considering average travel distance of an end user at 5 kms/one way/dayaggregating to 250 kms / month, for a travelling cost ranging from Rs.1/km (for public buses) to Rs. 15/km; users could save between Rs. 250 ($4.5) to Rs.3750 ($ 68) per month. Credit from power generation. Reduced health maintenance costs. Carbon Credits. The real benefit lies in reduced use of fuel and consequently a reducedcurrent account deficit! On an average assuming use of fuel @ 0.05 litres/km/person/day (fuelefficiency of 3 kms/ litre for a Bus carrying 60 passengers), a 10 kms dailycommute would result in replacing use of 150 litres of fuel/ person/year.Assuming that on a daily basis in Mumbai, 2 million citizen travel in theproposed network, consumption of 300 million litres of fuel could beavoided per year. Assuming basic fuel cost at say Rs. 25/litre, we avoidburning Rs. 750 Cr. (135 MN. $ ) of fuel per year just in one city!04/25/13 10
Funding the Eco City Assuming construction cost at Rs. 40,000/sqm., one kilometre of elevatedroute for 16 mtr. width would cost Rs. 64 Cr. Assuming space of 58,000 sft. rented @ Rs. 60/sft/month andadvertisement space of 22,000 sft rented@ Rs. 60/sft/month for a onekilometre stretch, annual revenue could amount to Rs. 5.76 Cr or 1.05 MN $. Income from renting cycles ignored. ROI works to 9%. At a preliminary level, the elevated eco city model makes economic sense.04/25/13 11Caveats Existing technology for converting pedal power into electricity is inefficient. How doe we handle aesthetics of an elevated carriageway which if doneinsensitively could be an eyesore? Whether cyclists would be comfortable riding at an elevation from ground? How many people would be ready to bicycle to work? Unlike in cooler countries where cycling is a leisure activity or for healthreasons, whether in India after putting in a days work, there be aninclination to cycle back home?
Thank Youhegde_ashutosh@yahoo.com;The views presented are personal in nature.04/25/13 12