The real estate sector in India saw a dramatic shift from the year 2005 when the Reserve Bank of India allowed foreign direct investments. The investments generally consists of projects in residential, commercial, IT park, offices, retail, hospitality sector. After a decade and a half, it’s almost a trend to have investors in large projects due to multiple factors like the technology in government organization for approval processes, implementation of RERA (Real Estate Regulatory Act), uniform taxation (GST), slowdown in Indian economy, acceptance of real estate funds for growth of business, success stories of REIT (Real Estate Investment Trust) and requirements of processes and systems to monitor and control profitability,
Here we shall explore the Real Estate Project Life Cycle from Land acquisition till financial closure.
There are 31 major activities with details, highlighting the lead professional, other team members and what is the processes, decisions and/or outcome from each activity.
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Project Life Cycle
Before Investment (4 Activities)
1 Identification of land parcel/project
For business growth, the business development (BD) team takes the lead to cater to the strategy framed by the senior management. BD team will identify the land parcel or project based on various factors, such as,
- Type of proposed development (Green field / Brown field / partly constructed or Enhancement)
- Quantum of development
- Capital investment
- Tentative duration of project
Broad level discussion with senior management will define the next course of action, which is whether one should move ahead, or more research is required or not if the project is not lucrative. Signal to move ahead or research will be a guiding factor for BD team to go to the next step.
2. Market research for the product to be developed at particular location
The BD team interacts with the research team or any other relevant teams (Internal or external agencies) based on project requirements to find out,
- Market trend
- Analysis of research reports
- Demand Vs supply analysis for particular location
- Future development plans by Urban planning/state department
The BD team along with the research team/relevant agency analyses the data and shares probability of project success in detail to the senior management. If they receive a go ahead then they move to activity number 3, or else go back to finding other projects based on additional inputs from management.
3. Carrying out feasibility study of project for determining profitability matrix
For feasibility study the BD team takes help of various teams such as
- Design architects
- Cost management team
- Project coordinators
- Marketing and sales
Profitability matrix will be helpful in defining not only the net profit percentage but will also help in managing cash flow, which will be beneficial in streamlining the funding for the project. The number of assumptions made are based on certain data and documented in order to control the project parameters. Sometimes efforts have been taken at this stage to do value engineering in terms of design and costing for making the projects viable for investment. A proper presentation is prepared for aligning with competent Investors with reasonable profit sharing analysis.
4. Bringing investors on board
This is a crucial period for the senior management and BD team for bringing Investors on board. Sometimes the marketing/branding team contributes in modifying the data. These documents are then shared with various investor (High net worth Individual, local financier, banks, NBFC’s (Non Banking Financial Companies), financial institutes (National/International) ). The formulation of project strategies (Project development agreement) till financial closure will be signed by respective owners/stakeholders.
Design And Process & Systems (14 Activities)
1 Defining final product to be developed
This is the time when a single owner of the project gets appointed (Generally someone from senior management or project coordinator level). Single owner leads the team of business development, liaisoning, architects, engineers, marketing and sales, research for defining final product such as, residential, commercial, office, logistics, retail, hotel or combinations (2/3 or multiple).
The final product is based on key parameters such as plot layout, development potential, development norms, locality, Infrastructure, probable buyers/leases. Proper data are collected, analyzed and assumptions are finalized based on research & experience of team members. All respective stakeholders take the final decision on the product.
2 Framing initial schedule and budget
For creating a schedule and budget, the planning as well as the cost management team members coordinates with liaisoning, architects, marketing & sales, procurement, finance teams, etc.
Schedule and budget parameters are discussed and debated simultaneously so that it can be used by the marketing and sales team to frame their strategies, as timelines will be helpful for defining payment schedule and budget will be helpful to keep flexibility in pricing. These are important parameters to keep profitability of the projects under control as well as a helpful tool to monitor each department’s contribution and progress.
3 Streamlining marketing and sales strategies
Based on the final product, marketing strategies gets streamlined by deciding branding of the project with the help of advertising, media coverage and digital platforms. Sales strategies will be based on project phases, sale/lease pricing, sales promotion, launch of product phases/ year, channel partners. Marketing and sales team takes the lead in coordinating with architects, engineers and liaisoning teams to have proper data for publishing.
4 Finalizing project brief
This is one of the crucial documents of the project, which will be referred by all concerned till completion of the project. It is a summary of all decisions taken till date. The project owner decides who will coordinate and prepare the brief. Generally planning engineers compiles all the relevant information. The project brief consists of –
- company details of the project for statutory requirements
- product mix
- development potential, area statement
- key team members
- marketing & sales planning
5 Defining management information system (MIS)
The project owner creates this document which will be based on the organization structure, culture, capabilities and the project requirements. The purpose of this document is to create authority and responsibility matrix to ease out directions and decisions with the help of available technology/systems in the organization. Number of reports needs to be generated to appraise management about progress and hurdles, if any, so that necessary action can be taken to streamline the progress within defined time limits and estimated cost.
6 Arranging funds as per initial cash flow
Cost management team prepare cash flow statements by incorporating inputs from schedule and budget to cater to the financial need of the project. Funding can be self, partner’s, third party or from sales/lease and is defined in cash flow statements.
Generally it is good to have a plan B/plan C for funding a project, as it is one of the most important lifelines of the project. Finance, BD team and senior management discusses and arrange funds as and when required.
7 Framing multiple communication channels
Another important task for the project owners is to define the communication channels for easy flow of information within all parties to achieve targeted timelines and budget. It’s not only communication with internal team but also it is correlated with all external agencies involved in the project. Hierarchy of communications is clearly defined to facilitate the desired action.
8 Finalization of organization structure (both head office & project level)
The project parameters such as type, size, location, targeted quality, specifications, brand image are deciding factors for finalizing the organizational structure. Centralized head office with various departments are important in reducing help from third party consultants, however some specific requirements can be fulfilled by inducting specialized professionals at project level on contract basis. Senior management makes decisions of either recruitment of few personnel in organization (Head office or project level) or assigning specific work to third party limiting for project only.
9 Project management team on board (In house or third party)
A strong project management team implements proper systems & processes and formulates detailed documentation defining each step for execution which leads to successful outcome. Hence it is important to have a full fledged project management team which can be either in house or third party. The main functions of the project management team is of bringing various teams (Client, architects, consultants, contractors, suppliers) on the same page for execution of projects with the help of tools such as planning, coordination, correspondence, resource allocation, execution methodology, cash flow monitoring and control. Confident and capable senior management team from client’s side plays an important role in streamlining desired decisions.
10 Appointment of architects and consultants
Creativity (Architects) and Science (Engineering & Technology) goes hand in hand for any development of a project. So based on project requirements, numbers of specialists are on board. Brainstorming within various specialists leads to the birth of an iconic structure, hence project stakeholders decides on requirements of numbers of consultants based on project specifications, in house capabilities.
Simple building construction can be executed with the help of a couple of consultants however complex structures may need more than 20 consultants on board. Types of consultants on board can be design architects, liaisoning architects, structural, plumbing, electrical, mechanical, fire fighting, facade, environmental, landscape, land surveyors, geo-technical surveyor, traffic, vertical transport, lighting, graphics, signage, interior, certification consultants (Environmental rating, commissioning agent), quality, safety, monitoring, peer review consultants. In case of hospitals and hotels, specialist consultants will be on board. Consultant’s on board can be of local, national and International level or combinations which is based on project’s/client’s analysis/requirements. For accounts and finance, consultants are required for audit, taxations (GST, professional), insurances and statutory requirements. Whereas for marketing and sales the consultants on board could be marketing, branding, advertising (hoarding, digital), for sales/lease, it could be channel partners, property consultants (local & national level ), etc. Strong internal team and leaders are involved in coordinating, communicating and leading the project progress.
11 Design process for approvals as well as Issue of construction drawings
This process consists of 4 stages, concept, schematic, design development (for tendering) and good for construction ( for execution). Concept stage designs are finalized by senior management, but for schematic design all relevant consultants have to be on board. Drawings are prepared considering all development norms and being submitted for approval purpose to concern government authorities. Design development stage helps in carrying out value engineering because the cost management team determines a tentative budget which will be compared with consideration in feasibility report. At this stage tendering process commences so that contractor’s are on board (in around two months) for execution. Project stakeholders take decisions on the final design after relevant inputs from all departments and then all consultants issues good for construction drawings which are required to commence execution.
12 Marketing and sales strategies implementations
Source of profit on investment is either sale or lease of the project, hence lots of effort are taken to achieve the sales/lease target. The process goes hand in hand with project progress as well as demand v/s supply in the market. Implementation of marketing and sales planning, promotion along with reviewing/modifying plan B and plan C are important. Head of marketing, sales and senior management are responsible for monitoring plans as well as controlling targets.
Cost management team takes responsibility for the tendering and contracting process as per defined timelines of the project. Based on final design documentation, specifications, tenders are floated and quotes are received from various contractors. After streamlining the terms & conditions and based on final negotiations, contractors are appointed.
Contracts can be on turnkey basis, with materials or with partial materials supplied by the Client, or only labour. Appointments of the contractors are as per the project progress for various activities, such as civil, finishing, services, lifts, external development.
14 Finalization of cash flow based on schedule and budget
Planning and cost management team works together with specific inputs from finance, procurement teams to prepare schedules and budget. Project owner/coordinator takes the lead role to finalize the cash flow statement by reviewing all strategies of various departments and then recommends it to senior management for approval. It is preferable to have multiple levels of cash flow, for example : First level normal cash flow, second level should be considering market credibility of 30, 60,90 days for various procurement’s, third level should be based on terms and conditions (milestones) of various contracts, fourth level should be based on flexibility in cash inflows (Better sale/lease price and variation in number of sale/lease). Cash flow statements are very important for the finance team to make multiple financial arrangements improving organizations profitability.
Execution (7 Activities)
1 Project team on board
The project owner finalizes the resource planning which is created by the planning department and takes decision along with the HR department for identifying right candidates (internally or new hire or on contract) as per schedule of work (RCC/structure, finishing, quality, EHS, store, planning, cost management, services). Cost management, planning and RCC/structure, quality, EHS, store team members will be first on board whereas services, finishing, maintenance and operation engineers will be deployed on project as per schedule.
2 On receipt of statutory approvals
Key activity, which determines the commencement of work at project level. Liaisoning departments are responsible for tracking the progress on the approval process with various departments. Upon receipt of approval, they share news to all relevant departments (BD, Design, planning, Project team, Finance, HR and Administration) for parallel actions at their end.
3 Project launch
The marketing and sales department lead this process. This is important from the branding point of view as well as expected cash inflow. Marketing and sales team shares necessary data after the project launch with finance, planning, cost management team and senior management to frame the next strategy.
4 Defining project development strategy (Processes & systems)
It’s a broad indication from all concerned departments, as to how the project will get developed from the point of view of respective department strategies. All relevant streams of organizations are involved in framing project development strategy, for example, Technical divisions are involved in defining execution management strategy.
Project Development Strategy contents are
- Project description
- Team on board
- Design considerations
- Planning and Scheduling
- Resource allocation
- Cash flow
- Environment, Health & Safety
- Marketing and Sales
- Statutory requirements
- Project’s SWOT (Strength, Weakness, Opportunity and Threat ) analysis
- Risk analysis and mitigation plan
- Monitoring and Controlling
This is created by planning department with all relevant inputs from various departments. This document is helpful for third parties such as investors, financial institutions, auditors, consultants, exhibiting transparency in project development and improves credibility.
5 Contractors on board
Project schedule determines timelines for tendering, negotiations and finalization of contracts including mobilization period. It’s the responsibility of the cost management team to appoint various contractors as per defined schedule and all relevant contractual documents to be shared with project owner and project team for execution as well as billing purpose.
Detailed descriptions and specifications of items are helpful in reducing extra items as well as extra claims, restricting impact on budget. Project team is responsible for sharing project logistic plans (for ease of execution by multiple contractors) with the contractors, who then set up their offices and materials yards .
6 Execution – Coordination with multiple stakeholders
Unfortunately it looks like one single activity for the complete execution, but coordination plays very important for quality execution of work.
Project team (Project manager, project engineers (civil works, planning, cost management, services works), officers for quality and EHS, stores) coordinate with multiple agencies, such as Internal departments at head office (Design, liaisoning, cost management, planning, procurement, HR & administration, marketing and sales, finance) and external agencies (architects, consultants team, contractors, suppliers, local authorities).
Project team plans and carry out daily execution as per defined processes and systems as well as prepare documents, communicates, and carry out execution as per defined methodologies. Documentations are important for not only completion of project but also for operation and maintenance till project life.
7 Monitoring & controlling of project progress, sales/lease and funding
This step is the lifeline of any organization for achieving success in design, execution, sale/lease and profitability. Hence Senior management takes efforts in framing proper process and systems for monitoring and controlling of all activities from commencement till financial closure of the project. Project success are mainly depends on timely decisions and direction from senior management.
Based on the criticality of the project, Senior management reviews the progress weekly, fortnightly or monthly. For larger/listed organizations, it is mandatory to have board meetings every quarter, wherein senior management discusses action plans for corrective steps and for better growth trajectory of an organization.
Project Completion (6 Activities)
1 Practical completion of project
Important milestone for everyone but the definition of practical completion may vary from project to project as well as organization to organization. Generally, it’s completion of all activities wherein only last mile activities are pending like final testing of machinery / equipment, inspections from relevant authorities, certification process.
At this juncture project team starts preparing for handing over process to the property management team. Project team prepares a final check list and starts collaborating all documents. Final billing process also commences. Project owner/coordinator decides the next action plan from the point of aligning various teams for effective utilization of resources.
2 Property management team on board
Smooth transition of the project handing over is essential, hence it is framed that the property/facility team should be on board at the time of practical completion of the project. Overlapping period of minimum two to four months is recommended based on project magnitude, for effective handing over by project team and efficient take over by property/facility team. It is preferable to have a full team of property management on board because they are responsible for transferring/maintaining the property. At this juncture project team starts shifting to new projects.
3 Receipt of occupation certificate from relevant authorities
The liaisoning department brings this good news to everyone. It’s a final milestone with respect to project completion by authorities. It’s green signal for project completion formalities and handing over to Client. Property management team become active for smooth possession to clients and their professional approach enhances the brand image of the Company.
4 Project completion by project team
All project related activities are complete in all respect including certification of final bills for all project works. Project team hands over all relevant documents (Including guarantees, warranties, test certificates, contractual defect liability conditions) to property/facility management team or equivalent as per organization structure/strategy.
Property/facility management team is responsible for getting all work done with respect to all relevant checklists before accepting complete takeover from Project team.
5 Project handover to third party
Property/Facility management team takes responsibility for handing over to third parties as per organization’s processes and systems. They interact with mainly head office departments of sales, finance, accounts, customer relations before commencing handing over to a third party. Property/facility management teams carry out all required minor works, if any, requested by third parties before handing over.
6 Financial closure of project
The last activity of the project wherein finance and contracts team are actively involved is the financial closure of the project. It is required for deriving net profitability of project for sharing with stakeholders as per contractual documents during investment period.
All relevant documents such as, land, legal, contractual with multiple parties, execution related, financial, handing over, etc. are kept in proper custody for any reference in future. In case of a new buyer of property, this activity can commence earlier but it varies from deal to deal as well as organization strategy.
2.1 Flow chart for Project Life Cycle
31 Activities – From land till financial closure
2.3 Importance of Time, Cost, Quality and Processes & Systems
Introduction of fourth dimension to universally accepted triangle
2.4 Significance of written communications in Execution Management: Project Development Strategy
Understanding 16 parameters
2.5 Project Budget: PMC & Template
Preparation, Monitoring & Controlling the budget.
180+ items in 2 segments & 8 sections