Paper Presented for the seminar Dated 13th June,2009 in Rodas Hotel, Powai organized by
                          Institut...
Paper Presented for the seminar Dated 13th June,2009 in Rodas Hotel, Powai organized by
                            Instit...
Paper Presented for the seminar Dated 13th June,2009 in Rodas Hotel, Powai organized by
                          Institut...
Paper Presented for the seminar Dated 13th June,2009 in Rodas Hotel, Powai organized by
                          Institut...
Paper Presented for the seminar Dated 13th June,2009 in Rodas Hotel, Powai organized by
                              Inst...
Paper Presented for the seminar Dated 13th June,2009 in Rodas Hotel, Powai organized by
                              Inst...
Paper Presented for the seminar Dated 13th June,2009 in Rodas Hotel, Powai organized by
                              Inst...
Paper Presented for the seminar Dated 13th June,2009 in Rodas Hotel, Powai organized by
                              Inst...
Paper Presented for the seminar Dated 13th June,2009 in Rodas Hotel, Powai organized by
                           Institu...
Paper Presented for the seminar Dated 13th June,2009 in Rodas Hotel, Powai organized by
                           Institu...
Paper Presented for the seminar Dated 13th June,2009 in Rodas Hotel, Powai organized by Institution of Valuers, Mumbai Bra...
Paper Presented for the seminar Dated 13th June,2009 in Rodas Hotel, Powai organized by Institution of Valuers, Mumbai Bra...
Paper Presented for the seminar Dated 13th June,2009 in Rodas Hotel, Powai organized by Institution of Valuers, Mumbai Bra...
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Mohit Mehtas Paper Presented For Iov Seminar Ver 1

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Paper Presented by Mohit Mehta during valuation seminar organised by Institution of Valuer Mumbai in Rodas Powai,Mumbai

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Mohit Mehtas Paper Presented For Iov Seminar Ver 1

  1. 1. Paper Presented for the seminar Dated 13th June,2009 in Rodas Hotel, Powai organized by Institution of Valuers, Mumbai Branch Value Add Consultant Presents Special Township Feasibility Studies and Valuation For Private Equity Investment Purpose Presented By Er.Mohit R Mehta FIV,MRICS,MIE,MISSE Promoter Value Add Consultant Advisors & Valuers vac@consultant.com +91-98924 89265 Value Add Consultant 1/13
  2. 2. Paper Presented for the seminar Dated 13th June,2009 in Rodas Hotel, Powai organized by Institution of Valuers, Mumbai Branch Feasibility Study and Valuation of Special Townships Development Project Introduction Housing has been one of the major concerns of Government of India due to large demand and supply gap exits since independence. It has been realized that there is a need to incentivise investment by private sector in real estate development. Government of India announced its policy to permit 100% foreign direct investments for a development of integrated townships. Government of Maharashtra in collaboration with Maharashtra economic development council has organized an International infrastructure summit in 2002. Outcome of the summit was Government of Maharashtra approved the Special Township Scheme in the year 2004. Development Control Regulation for Respective Municipal Corporation like Greater Mumbai/ Thane Municipal Corporation/ MMR Region was amended to include provision for the Special Township by Urban Development Department of Government of Maharashtra by issuing a various Notifications i.e. No. TPS 1204 / Thane D.P. DCR / UD -12 dated 25th May,2006. This paper has been presented to indicate how an private equity investor will be advised for prospective acquisition of township land. The key Regulations for Thane Municipal Corporation: (Note: Most of the regulations are almost similar for each region except Few Regulations) Heading : Summary of regulation Area Requirement Land Area shall be more then 100 Acres ( 40 Ha) Access : Wide Access not less then 18 mt. width Land Parcel : Entire land parcel should be contiguous Exclusion : Area under forest, water bodies like river, creek canal, reservoir, land in 100 mt. Limit of the high flood level of major lakes, dams and surrounding restricted area, land in Value Add Consultant 2/13
  3. 3. Paper Presented for the seminar Dated 13th June,2009 in Rodas Hotel, Powai organized by Institution of Valuers, Mumbai Branch command area of irrigation projects, land falling within the belt of 200mt. From the historical monuments and places of archeological monuments, heritage precincts and places, any restricted areas, notified national parks, existing and proposed industrial zones, gaothan areas or congested areas, truck terminus specially earmarked on development plan, wildlife corridors and biosphere reserves, eco-sensitive zone/area, quarry zone and recreational tourism development zone catchments areas of water bodies, defense areas, cantonment areas, notified area of SEZ, designated Port/ Harbor areas and recreational tourism zones. Manner of Declaration : Land owner or developer holding rights do not require procedure under section-37 for declaration it special township however in case UD department needs to process under section -37 for notifying land under this scheme. Infrastructure : Roads (Including Development Plan roads),approach road, street lights, water supply and drainage system shall be provided and maintained by developer till urban local body take charge of the township. Amenity Development : Developers needs to develop amenity as designated Water Supply : Developer should Identify the source of drinking water (excluding ground water source) and get firm commitment from any water supply authority for meeting daily 140 liters per capita per day exclusive of water for fire fighting and gardening. Water Storage Capacity : At least 1.5 times actual required capacity determined by expected residential and floating population. Drainage & Garbage : Developer should arrange in consultation with Disposal Maharashtra Pollution Control Board. Power : The developer shall ensure continuous and good quality power supply to township area. Developer may use captive power generation route with approvals form authorities. Environment : Environment clearance shall be obtained from the Ministry of Environment and forests,Government of India (MOEF’s) Parks /Garden & Playground : The township shall provide at least 20% of the total area as with proper landscaping and open uses designated in the township which shall be developed by developer. Special Concessions : N.A. Permission is automatic as soon as the scheme is notified. Stamp Duty : The stamp duty rates applicable is notified special township area shall be 50% of prevailing rates of the Stamp Act. Development Charges : A special township project shall be exempted upto 50% of the development charges. Grant of Government Land : Government land can be leased out at market rent Mumbai Tenancy & : The condition that only agriculturist will be eligible to buy Agriculture Land Act. the agriculture land shall not be applicable in special Value Add Consultant 3/13
  4. 4. Paper Presented for the seminar Dated 13th June,2009 in Rodas Hotel, Powai organized by Institution of Valuers, Mumbai Branch township area. Ceiling of agriculture land : There shall be no ceiling limit for holding agriculture land to be purchased by the owner/developer for such project ULC Act. : Projects shall be exempted under purview of ULC Act. Development Control : Prevailing DRC is applicable as well as CRZ notification is Regulation applicable Scrutiny Fees : A Special Township Project shall be partially exempted from payment of scrutiny fee Floating FSI : Township have Floating FSI concept, unused FSI of one of plot can be used anywhere in the whole township Special Benefits : Concessions in respect of Star Category Hotels, Hospitals, and Multiplexes in Property Tax shall be provided Planning Considerations : The township project has to be an integrated township project. It should have following land use plan Land Use Plan : Residential, Commercial, Educational, Amenity Spaces, Health Facilities, Parks, Gardens, & Play Grounds, Public Utilities Residential Zone : Out of the total built up area proposed to be utilized at least 60% of the area shall be used for purely residential development. Out of 60% proposed area for residential zone 10% shall be built for residential tenements having built up upto 40 sq.mts. Commercial : It should be properly distributed in hierarchical manner such as convenient shopping, community centre etc. Educational : Comprehensive educational system providing education from primary to secondary should be provided Amenity Space : Market, essential shopping area, recreation centers, town hall library etc should not be less that 5% of gross area of township should be distributed evenly in township Health Facilities : Area requirement as per prevailing planning standards Public Utilities : Appropriate area allocation for power receiving station sub station, water supply system, sewerage and garbage disposal system, police station, public parking, cemetery / cremation ground, bus station, fire brigade station, and other public utilities shall be provided Transport : The entire area of the township shall be well knitted with proper road pattern with effective linkages with inside and outside roads. All the roads shall be developed by developer as per standards and prescribed road width Service Industries : It can be provided in residential zones DP Reservations : Reservations can be shifted anywhere in the township area with Municipal commissioner approval DP reservations : It shall not be handed over to planning authority DP Roads : It shall be developed and maintained by developer and always open to access for general public without any restrictions Residential, Agricultural, : The total FSI for the declared township is One (1) Green & No Development excluding area under Agriculture/Green Zone/ No Zone Development Zone if any, For Agriculture/Green Zone/ No Development Zone Value Add Consultant 4/13
  5. 5. Paper Presented for the seminar Dated 13th June,2009 in Rodas Hotel, Powai organized by Institution of Valuers, Mumbai Branch applicable FSI will be 0.2. Global FSI : There will be no restriction of FSI for a particular Plot however FSI of entire township should not increase as mentioned above Height Restriction : It should be as per prevailing, DCR however it can be increased subject to provisions of fire fighting arrangements and prior approval of Chief Fire Officer Use of DRC : DRC originated from any other area outside township shall not be permissible in township FSI for Agricultural, Green & : 50% of the total area is developable with gross FSI of 0.20 No Development Zone of the entire gross area of the project TDR concept : Utilization of TDR generated form handing over build able reservation to authority is permissible over and above the permissible FSI Tree Plantation : 150 trees per ha. needs to be planted & maintained by the developer in residential zone townships and 400 trees per ha. shall be planted and maintained by developer in the agriculture, green zone and no development zone township Zone Changes : After submission of proposal no zone change proposal shall be considered by Government Sale Permission : Unless basic infrastructure to the satisfaction of commissioner has been provided by the developer sale permissions for plots or flats shall not be given to developer Phase wise Development : In case development carried out in phase wise manner Sale permission is granted if phase wise basic infrastructure is completed by the developer Amenities, facilities & utilities : Plots earmarked for amenities, facilities and utilities shall also be developed simultaneously developed phase wise along with residential /allied development Land Marks in Approval Process : 1 Locational Clearance : 1.1 A proposal should be submitted to Urban Development department and director of town planning and environment department along with ownership documents. 1.2 Within 90 days from the receipt of application a location clearance may be granted by Government under Section 45 of MRTP Act,1966. 1.3 Location clearance is valid for the period of one year from the date of issue. 1.4 If letter of intent and final approval is not obtained then such clearance stand lapsed unless renewed by the Government on application received before expiry of one year. 2 Letter of Intent : 2.1 Letter of Intent shall be obtained by the developer upon receipt of locational clearance from the Government, by submitting the proposal in respect of special township along with environmental clearance. 2.2 Letter of intent can be issued within period of 45 days from the date of receipt of the final proposal. It is valid for six months unless renewed Value Add Consultant 5/13
  6. 6. Paper Presented for the seminar Dated 13th June,2009 in Rodas Hotel, Powai organized by Institution of Valuers, Mumbai Branch 3 Final Approval : 3.1 On submission of plans, undertaking and agreement for development and maintenance of basic infrastructure amenities along with bank guarantee of 15% of its development costs. 4 Implementation & Completion: Stage : Time Line Basic Infrastructure & Amenity : As per the phases of the scheme Entire Township : Within 1 years from the date of final sanction Occupancy Certificate : Occupancy Certificate is must for building use 5 Hypothetical Township Scheme : 5.1 A hypothetical case of valuation of 500 Acres land to be acquired for developing a Special Township near upcoming international airport in Panvel has been discussed in this paper. Even though author has carried out similar assignments however to protect confidentiality of the client here presented live case by using hypothetical scheme. 5.2 A prospective acquirer /developer have approached for valuation of land parcel for the purpose of infusing private equity investments and debt form the international lender. 5.3 There are four possible scenarios in such instance. i.e. 1. Developer has already had final approval for the township intends to carry out valuation. 2. Developer has location clearance and letter of intent however did not applied for final approval 3.Developer has location clearance however yet to secure the letter of intent 4. Developer has just short listed site base on the assumption that location clearance and approval will be given on application for the same. Value Add Consultant 6/13
  7. 7. Paper Presented for the seminar Dated 13th June,2009 in Rodas Hotel, Powai organized by Institution of Valuers, Mumbai Branch 5.4 In first scenario there are more likely that township proposal will actually implemented and developed in phase wise manner. In this scenario factors affecting would be totally different then in case of scenario 4, where in there are no certainty and there are lots of variable which can affect township valuation to a greater extent. 5.5 In this paper we are discussing scenario no.- 4 where a 500 acre site with combination of Residential, Agricultural, Green & No Development Zones. 6 Valuation Methodology : 6.1 Since this is an income producing development project where in profits of investments will be realized in future, income approach is best suited to arrive a more accurate and reliable valuation. In income approach a discounted cash flow techniques will be the best method as revenue of development will be realized in future in phase wise. 6.2 A more reliable market approach for valuation of land acquired for may not be applicable due to non availability of exact comparable sale instances. However value arrived under DCF approach can be cross verified/ ascertained by using other approaches like cost approach and market approach. 6.3 In cost approach, where valuation of land is arrived by deducting total replacement cost of similar township minus sum of cost of building, infrastructure, approvals, marketing, amenities etc. will provided residual land value. However it is very difficult to find out cost of similar township as such township are not in existence as well as have different combination of development mix. 6.4 In this paper valuation using discounted cash flow will be discussed for simplicity. 7 Key Factors affect Valuation of Land: Total Development Costs Infrastructure cost Location Track record of developer Demand & Supply Access Management Team of Developer Approval timings Area of Land Developable Area ( Global FSI) Construction Cycle Topography Competitions from other projects Availability of Funding Sales Plan Developments in surrounding area Soil bearing Capacity Connectivity Amenities provided and availability of infrastructure Neighborhood Timing for completion for entire township & each phase Phase plan Launch cycles for various types of products of township Inflation Availability of Water, Power & Sewage disposal mechanism Attractions Discounting Rate used for NPV, Sale Rate, Payment Terms Maintenance Development Mix i.e. residential, retail, commercial and other Cost of Fund Distance form major landmarks airport, railway station, CBD Cost of capital Class of houses like basic, premium house or ultra luxury etc. Super Area Ratios Quality of development, amenities and infrastructure at large Branding of township Overall real estate market and particular market under focus Political Scenario Overall Team i.e. Architects, Structural designers, Planners etc. Tax Structuring Lease Rentals, Lease Terms, Property Tax & Capitalisation Rate Target Segments Profile Overall Country Risk, GDP Growth, Inflation and Currency Risks Availability of Loan to Buyers Interest Rate Cycle & Apatite towards investment in the Supply of similar land/project particular geographical where land is situated Value Add Consultant 7/13
  8. 8. Paper Presented for the seminar Dated 13th June,2009 in Rodas Hotel, Powai organized by Institution of Valuers, Mumbai Branch 8 Financial Model 8.1 We have prepared a discounted cash flow model as presented below in Table No.- 2 for illustration purposed incorporating most of the assumptions as listed in Table No.-1 to arrive at net cash flow form the project. We have assumed that Net Present Value ( NPV) arrived from this cash flow statement will be, a some what nearest, monetary number of land value, a prospective acquirer willing to pay for investing in such large project. 8.2 Due to the fact that all other costs has been incorporated to arrive NPV and taxes applicable on the project also incorporated in the model by incorporating Debt @ designed debt equity ratio and allowing interest deduction from the profit of the project to calculate corporate tax and other taxes payable from the project. However for the simplicity we have illustrated an example where in overall effect of interest paid out will result in the marginal tax rate @ 30% of the profits from the project. We prepare a projected profit and loss accounts and balance sheet exactly arrive at applicable taxes. However for the simplicity here, provisional tax figures are illustrated. 8.2 In this financial model we have plugged in all possible options with flexibility to change all the input to arrive at NPV and Land Value figures quickly. We have also run sensitivities on various key factors, which were observed most sensitive to arrive at proper and reliable values which a perspective acquirer willing to pay after carefully scrutinizing from the range of values. 8.3 I would like to mention here that land value for the townships projects depends on combination of many factors as you can visualized in the financial model. It is very difficult to source as accurate data at acquisition stage for each variable. Hence running sensitivities is must for arriving more reliable results. 9 Scenario and Sensitivity Analysis 9.1 Valuation is a result of through analysis to be performed. We use sophisticated software’s like Argus or Forecast Plus and Estate Master to arrive at land value, however in absence of any such software’s best way is to develop a valuation model in spreadsheet like excel and carry out scenario analysis as well as sensitivities to arrive at more accurate result. I have developed valuation model for three scenarios. 1 Base Case Scenario 2 Worst Case Scenario 3 Best Case Scenario 9.2 In each scenario, by changing various factors as above, tabulated various key performance matrix i.e. Return of Investment ( ROI), Internal Rate of Return ( IRR), Net Present Value ( NPV), Profit of Cost, Break Even Time etc. Sample Sensitivity Matrix Arrived Land Value Per Sft Discounted Rate 20% 25% 30% Residential 60% 689 459 321 Development 70% 597 413 275 Component 75% 591 402 269 9.3 Based on the matrix identified three most sensitive factors to focus on and created a value matrix for each case by changing these three most sensitive factors, which affect land value to greater extent. Value Add Consultant 8/13
  9. 9. Paper Presented for the seminar Dated 13th June,2009 in Rodas Hotel, Powai organized by Institution of Valuers, Mumbai Branch 9.4 After preparing NPV and IRR matrix for various combinations as stated above, short listed most likely scenarios and band of value by picking up a range from entire matrix looking at IRR as well as NPV. 9.5 This band of the value is most nearest market value of land, however for the purpose of certification of a single value I have correlated values using other methods and picked up a more reliable and appropriate figure form the valuation bend. 8.4 This might be interest to all the stake holders that during implementation of project we transfer all the assumptions used in the financial model during valuation and feasibility study to software like “Argus”. We keep track of each and every factor by running models and produce reports on monthly basis to know the changes in the Key Performance Indicators. This help in devising strategies for the mitigation mechanism in the township management should adopt for the keeping their objectives and goals in line with the original thoughts. 10 Projected Revenue 10.1 Revenue from various sources generated after the development has been projected and phase wise distributed depending on the overall master plan & sales strategy. 10.2 Total Projected Revenue form the subject township project is projected at INR 12,200 Corers. 11 Projected Cost 11.1 Total project cost / investments have been incorporated in the financial model as stated in Table -2. This includes soft costs like approvals, consultants, branding & marketing as well as hard costs like cost of infrastructure, buildings and other amenities. 11.2 Overall Projected cost excluding land and interest cost is INR 5291 Crores. 12 Net Cash Flow 12.1 A net cash flow statement before tax has been arrived by deducting Revenue and Costs. We did not described here effect of debt & equity for simplicity however overall effects has been considered and net cash flow after tax has been prepared to assess overall profitability and Internal Rate of Return a project generates. 13 Discounting Factor & Capitalisation Rate 13.1 Selection of discounting factor is the key in the entire exercise. We have demonstrated in Table-1 above how a change in discounting factor has significant influence on valuation. There are several methods for calculating appropriate discounting rate. However for simplicity and limited scope we have not discussed how discounting rate has been arrived. 13.2 Capitalisation Rate/ Yields are assumed from the market analysis of similar types of properties as well as using fisher’s equation and CAPM model.Even though it has significant influence on the exit valuation foe the simplicity we did discussed in detail how capitalization rate has been arrived. 14 Key Performance Indicators NPV,IRR,ROI 14.1 A perspective acquirer / developer will acquire land parcel with specific financial goals. His/her expectation in terms of returns from the project can be measured from Profitability of Project i.e. Return on Investment ( ROI), Internal Rate of Return (IRR), Net Present Value ( NPV) as well as pay back time and profit on costs. Value Add Consultant 9/13
  10. 10. Paper Presented for the seminar Dated 13th June,2009 in Rodas Hotel, Powai organized by Institution of Valuers, Mumbai Branch 14.2 We have changed project variable to arrive at appropriate IRR & ROI targets and based on that arrived land value. Even though it will not be 100% accurate result i.e. if developer purchase land at this price then he will generate a guaranteed profit of this much rupees. However this is most scientific and internationally accepted way of arriving land value for such ambitious project. 15 Few Recommendations: 15.1 Please ask for the latest actual measurement and boundary plans while visiting site. 15.2 Ask for designated Development Plan remarks to know about reservations and all the information necessary to carry out valuation. 15.3 Please verify as much as possible source of water & power and access as well as connectivity to main highways & rail networks, these are the main challenges a township developer generally faces. 15.4 The topography of the site plays a big role in overall valuation process. Hence please ask for land topographical survey plans. 15.5 Overall mission statement, concept plan and objectives of the development are key information a valuer should find out from the developer. 15.6 A land value depends on developable area potential as well as overall demand in that particular area. Hence market research should not be ignored while valuing land. 15.7 Master Planning and Architectural design as well as market positioning has important role in overall township development. Valuer should know all this information by discussing with developer as much in detail as possible. 15.8 Availability of debt and cost of capital significantly affect profitability as well as overall returns to the investors. Valuer should ask for the source of funding i.e. debt equity mix. ( Financial Closure ) and use of fund statements from the developer. 15.9 Tax structuring to avoid tax leakages is most important element for the entire viability of the project. Valuer should understand prevailing structures for FDI investments as well as ongoing changes in these structures. 16 Outcome and Conclusion 16.1 Based on the analysis we are of the opinion that value band for the proposed township project is in the range of Rs.350 per sq.ft. to Rs.600 per sq.ft. 16.2 We have compared above value band with prevailing rates obtained from the proposal received from investors of the similar township projects to sell the projects as well as overall market expectation. 16.3 We are of the opinion that the proposed land value is Rs.400 per sq.ft. i.e.1.74 Cr.per acre. As on date of valuation i.e. 13th June,2009. 16.4 This result in total land value of Rs.871 Crores. 16.5 We did not mentioned the detail lists of assumptions made, disclaimers, as well as documents verified or information to be received from the clients here due to shortage of space. Value Add Consultant 10/13
  11. 11. Paper Presented for the seminar Dated 13th June,2009 in Rodas Hotel, Powai organized by Institution of Valuers, Mumbai Branch Table -1 Detail List of Assumptions Used for One of the Scenario to Arrive Valuation of Land Using DCF Techniques Sr.No. Assumption Unit Value Sr.No. Assumption Unit Value Remark 1 Land Area Acre 500 2 Land Area Sft 21,780,500 3 Time For Development Years 10 4 Letter of Intent Year 1 5 Total No of Phases Nos 5 6 Each Phase Years 2 Revenue Assumptions It is assumed that Loss of Built Up area due to compulsory open space, garden, play ground, roads etc will be compensated by super areas. Hence effect is nullified. 7 Types of Development Area Sale Rate Unit Escalation Unit 8 Basic Residential % 40 3,500 Rs.Per Sft 5% Per Annum 9 Premium Residential % 15 4,200 Rs.Per Sft 5% Per Annum 10 Luxurious Residential % 5 5,880 Rs.Per Sft 5% Per Annum 11 Commercial Space for Sale % 20 5,000 Rs.Per Sft 7% Per Annum Phase II 12 Retail Space for Sale % 10 7,000 Rs.Per Sft 7% Per Annum Phase II 13 Commercial Space for Lease % 5 25.00 Rs.Per Sft Per Month 7% Per Annum Phase II 14 Retail Space for Lease % 5 50 Rs.Per Sft Per Month 7% Per Annum Phase II 15 Amenity/Other Area Lease Rate % 10 22.5 Rs.Per Sft Per Month 7% Per Annum Phase II Revenue Receipt Plan INR Phase I II III IV V 16 Basic Residential 10% 45% 45% - - 17 Premium Residential 50% 50% - - 18 Luxurious Residential 5% 25% 45% 25% - 19 Commercial Space for Sale 10% 25% 40% 25% - 20 Retail Space for Sale 20% 35% 20% 15% 10% 21 Commercial Space for Lease - 40% 30% 20% 10% 22 Retail Space for Lease - 10% 25% 40% 25% 23 Amenity/Other Area Lease Rate - 25% 40% 35% 0% Costs ( Avearage for Entier Duration inclusive of Escalation by Max Price Contracts) INR Phase I II III IV V 24 Approval Costs Sft 150 91% 2% 2% 2% 3% 25 Consultant Fees Sft 150 30% 20% 20% 20% 10% 26 Marketing Costs on 80% of total revenue % 2% 9% 15% 50% 20% 6% 27 Cost of Infrastructure Development Sft 300 60% 10% 10% 10% 10% 28 Cost of Amenity( other area) Development Sft 1,200 2.50% 32.50% 40% 25% 29 Cost of Branding on 80% of total revenue % 3% 9% 15% 50% 20% 6% 30 Cost of Construction for Basic Residential Flats Sft 1,500 25.00% 52.50% 22.50% - - 31 Cost of Construction for Premium Residential Flats Sft 1,700 10% 60% 30% - - 32 Cost of Construction for Luxurious Residential Flats Sft 2,000 - 5% 35% 45% 15% 33 Cost of Construction for Commercial Space for Lease Sft 2,000 10% 30% 25% 20% 5% Value Add Consultant 11/13
  12. 12. Paper Presented for the seminar Dated 13th June,2009 in Rodas Hotel, Powai organized by Institution of Valuers, Mumbai Branch 34 Cost of Construction for Commercial Space for Sale Sft 1,800 2.50% 12.50% 30% 37.50% 17.50% 35 Cost of Construction for Retail Space for Lease Sft 1,700 5% 37.50% 27.50% 22.50% 7.50% 36 Cost of Construction for Retail Space for Sale Sft 1,500 30% 30.00% 15.00% 20% 5% Lease Capitalisation Rate 37 Capitalisation Rate for Sale of Commercial Portfolio in Phase – IV 10% 38 Capitalization Rate for Sale of Commercial Portfolio in Phase – V 8% 39 Capitalisation Rate for Sale of Retail Portfolio in Phase - IV Sale 8% 40 Capitalisation Rate for Sale of Retail Portfolio in Phase - V 8% 41 Capitalisation Rate for Sale of Amenity Portfolio in Phase IV 12.50% 42 Capitalisation Rate for Sale of Amenity Portfolio in Phase V 10% Table – 2 Projected Cash Flow Statement For One of the Scenario Considered for the Township in Phase wise manner 21,780,500 Sft Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10 500 Acres % Phase – I Phase – II Phase – III Phase – IV Phase - V Revenue from Sale of Basic Residential 40 % - - 3,049,270,000 6,403,467,000 8,404,550,438 12,354,689,143 3,706,406,743 - - - - Revenue from Sale of Premium Residential 15 % - - - 2,881,560,150 4,538,457,236 6,353,840,131 1,667,883,034 - - - - Flats Revenue from Sale of Luxurious Flats 5% - - - - 294,159,265 617,734,457 972,931,770 1,362,104,478 1,787,762,127 1,501,720,187 394,201,549 Net Revenue from Lease of Commercial 5% - - 65,341,500 135,256,905 210,066,388 255,805,438 304,746,222 52,366,638 111,173,988 - Revenue from Sale of Commercial 20 % - - - 816,768,750 873,942,563 1,870,237,084 3,001,730,519 4,282,468,874 7,629,703,914 3,677,248,961 3,957,192,119 Net Revenue from Lease of Retail Space 5% - - - 65,341,500 275,087,715 312,492,457 495,448,657 97,881,567 254,981,482 313,788,832 376,712,697 Revenue from Sale of Retail Space 10 % - - 1,524,635,000 1,631,359,450 1,309,165,959 933,871,717 999,242,737 5,945,383,880 1,716,049,515 1,224,115,321 4,520,552,358 Net Revenue from Lease of Amenity 10 % - - - 58,807,350 310,502,808 579,816,948 909,138,108 352,373,641 635,153,488 - - Revenue from Sale of Amenity Areas 10 % - - - - - - - 7,273,104,864 - 6,351,534,883 - Total Revenue from township 100 0 0 4,573,912,000 11,922,658,216 16,141,136,280 23,232,762,655 12,008,602,344 19,618,079,937 12,076,034,724 13,179,600,961 9,248,678,827 Approval Costs 150 (1,470,183,750) (1,470,183,750) (32,670,750) (32,670,750) (32,670,750) (32,670,750) (32,670,750) (32,670,750) (32,670,750) (32,670,750) (65,341,500) Consultant Fees 150 (326,707,500) (326,707,500) (326,707,500) (326,707,500) (326,707,500) (326,707,500) (326,707,500) (326,707,500) (326,707,500) (326,707,500) 0 Marketing Costs 2% (39,040,431) (58,560,646) (78,080,862) (97,601,077) (195,202,154) (390,404,309) (585,606,463) (195,202,154) (195,202,154) (117,121,293) 0 Cost of Infrastructure Development 300 (326,707,500) (1,306,830,000) (2,286,952,500) (326,707,500) (326,707,500) (326,707,500) (326,707,500) (326,707,500) (326,707,500) (326,707,500) (326,707,500) Cost of Amenity( other Development 1,200 0 0 (65,341,500) (326,707,500) (522,732,000) (522,732,000) (522,732,000) (457,390,500) (196,024,500) 0 0 Cost of Branding 3% (58,560,646) (87,840,970) (117,121,293) (146,401,616) (292,803,232) (585,606,463) (878,409,695) (292,803,232) (292,803,232) (175,681,939) 0 Cost of Construction for Basic Residential Flats 0 (653,415,000) (1,960,245,000) (2,940,367,500) (3,920,490,000) (2,940,367,500) (653,415,000) 0 0 0 0 1,500 Cost of Construction for Premium Residential 0 0 (555,402,750) (1,388,506,875) (1,943,909,625) (1,388,506,875) (277,701,375) 0 0 0 0 Flats 1,700 Cost of Construction for Luxurious Residential 0 0 0 (54,451,250) (163,353,750) (272,256,250) (381,158,750) (490,061,250) (490,061,250) (272,256,250) (54,451,250) Flats 2,000 Value Add Consultant 12/13
  13. 13. Paper Presented for the seminar Dated 13th June,2009 in Rodas Hotel, Powai organized by Institution of Valuers, Mumbai Branch Cost of Construction for Commercial Space for 2,000 0 0 (217,805,000) (435,610,000) (435,610,000) (326,707,500) (217,805,000) (217,805,000) (217,805,000) (108,902,500) 0 Lease Cost of Construction for Commercial Space for 1,800 0 0 (147,018,375) (294,036,750) (441,055,125) (735,091,875) (1,029,128,625) (1,176,147,000) (1,029,128,625) (735,091,875) (294,036,750) Sale Cost of Construction for Retail Space for Lease 1,700 0 0 (92,567,125) (370,268,500) (323,984,938) (231,417,813) (277,701,375) (231,417,813) (185,134,250) (92,567,125) (46,283,563) Cost of Construction for Retail Space 1,500 0 (163,353,750) (326,707,500) (285,869,063) (204,192,188) (163,353,750) (81,676,875) (122,515,313) (204,192,188) (81,676,875) 0 Total Cost of development & other costs (2,221,199,827) (4,066,891,616) (6,206,620,154) (7,025,905,881) (9,129,418,761) (8,242,530,085) (5,591,420,908) (3,869,428,011) (3,496,436,949) (2,269,383,607) (786,820,563) Net Cash Flow (2,221,199,827) (4,066,891,616) (1,632,708,154) 4,896,752,335 7,011,717,519 14,990,232,570 6,417,181,436 15,748,651,926 8,579,597,775 10,910,217,354 8,461,858,265 Provisional Tax @ Marginal Rate @30% (1,196,301,077) (4,497,069,771) (1,925,154,431) (4,724,595,578) (2,573,879,333) (3,273,065,206) (2,538,557,479) Net Cash Flow After Provisional Tax (2,221,199,827) (4,066,891,616) (1,632,708,154) 4,896,752,335 5,815,416,442 10,493,162,799 4,492,027,005 11,024,056,348 6,005,718,443 7,637,152,148 5,923,300,785 NPV Before Tax @ 25% 10,055,035,527 6,372,798,617 NPV Considering Provision Tax Figures Unlevered IRR Before Tax 58% 49% Land Value 10,000,000,000 10,000,000,000 Land Value Per Acre 20,000,000 20,000,000 Land Value Per Sq.ft. INR 459 INR 459 ROI 13.06% 9.14% ROI Assuming Tax Introduction of Author Mohit Mehta is founder promoter and Director of a boutique Valuation & Advisory firm, M/s. Value Add Consultant (“VAC”), India. He is member of Royal Institute of Chartered Surveyor, U.K.(MRICS). He has started his career as an engineer and then moved to valuation by joining International Property Consultant. Since then engaged in local and international real estate markets on Multi Million Dollars real estate townships or mega projects. He is registered with Income Tax Department in Immovable Property Valuer panel and Member of Institution of Valuer, India. VAC believes in sharing and spreading of knowledge as well as energy efficient sustainable practices. Apart from Bachelors Degree in Civil Engineering he holds Masters in Valuation Degree, which is accredited by Royal Institute of Chartered Surveyor, London, U.K. He has recently delivered training program, in the special certificate course in valuation, organized by Institute of Chartered Accountant (ICAI). Value Add Consultant’s recent one day seminar organized in Mumbai with Institute of Engineers was warmly appreciated by participants and guests. VAC is specialized in income producing real estate portfolio valuation as well as development project valuation and ongoing monitoring and project management. Please contact author for any queries either on GSM +91-98924 89265 or Email : vac@consultant.com Value Add Consultant 13/13

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