Insights from Mr Dhamodharan, Director of Operations, FHDGroup
Written by Vignesh Srinivasan, FHDGroup
Wednesday, 06 February 2019
In the first part of the article ( Part 1), we outlined how we, as designers, were able to provide critical feedback on site selection to our clients during their land acquisition efforts for affordable housing projects. This is especially important given the pricing sensitivity to locational advantage.
In this second part of this article, we will discuss regarding the land cost in relations to FSI and city proximity. We want to offer a design thinking perspective in ensuring developer and end-user success through apt site-selection strategy.
For residential projects to be affordable for low-income as well as middle-class families, it is important that the land component of the sale price is kept to an optimal minimum. Typically, sale price includes land purchase cost, land acquisition costs, consultancy costs, construction costs (incl. contingencies and escalations), project administration costs, marketing costs, sales commissions, finance costs, and profit component.
While there is little flexibility in optimizing the smaller components of the sale price (like land acquisition costs, consultancy costs, project administration costs, marketing costs, sales commissions, finance costs), there is more flexibility to optimize costs in land purchase, construction, and profit.
However, to develop a real estate product that is highly saleable, the locational advantage is critical. Which is why any compromise on land purchase costs should be evaluated keeping in perspective the needs of long-term residents and their everyday necessities ( Part 1).
This doesn’t mean that the developer needs to pay extra for more suitable land. We would like to explain this perspective by describing two scenarios.
Scenario 1: Typical land strategy is to buy land of low cost in the suburbs of the metro. While the land cost may be low, so is the allowable FSI in those areas. This means the Land cost per Sq.ft FSI is still a significant component of the final sale price.
In addition, we’ve noticed many remotely located projects have low sales velocity and sales price premiums. This leads to a conservative return on investment for the developer and an affordable, but not ideally located, product for the end user.
Scenario 2: We are now working with developers, who are identifying land for acquisition that is closer to metro areas or city limits. Here, the land purchase price may be higher but so is the permissible FSI. What this means is that the Land cost per Sq.ft FSI on this larger project become a smaller component of the final sale price.
Keeping all else the same, this translates to developing a project where there is an increase in sales velocity, sales premium, and return on investment. All of which is due to the locational advantage, that is a high priority item for the end-user.
Scenario 2 demonstrates how this is a win-win situation for the developer and end-user. We, at FHD Group, strongly believe in finding the balance between a product that is selling well in terms of quality and a product that is selling fast in terms of quantity.
Catering towards a specific user group is crucial and understanding the target persona allows us to suggest which affordable housing solution is suitable. This gives us clarity to the question “Are we designing and delivering a product that the end-user needs and will benefit from?”
At FHD Group, we have worked closely with over ten affordable housing developers and we would like to share our knowledge in implementing design principles for Aspirational Affordable Housing.
“We want to become the Go-To designers for Affordable Housing in India. Over the last 5 years, FHD has designed 25 Million Sq.Ft of Affordable Housing projects across 4 cities i.e. Bhubaneshwar, Bangalore, Hyderabad, &Pune” said Mr. Dhamodharan S, Director of Operations, FHD Group.
We are glad to utilize the opportunity and work with multiple clients on similar developments using our principles on site selection and ground rules in design. As market leaders in designing for this sector, we believe Aspirational Affordable Housing (AAH) is the way forward for addressing the needs of the growing Indian middle-class families.
We are continuing to research in this segment and will be issuing periodic insights. Email us at firstname.lastname@example.org if you’d like to know how to lead this change and mainstream AAH across cities in India.