Showing posts with label value chain. Show all posts
Showing posts with label value chain. Show all posts

Construction of a Real Estate Project

In this post, we will try to bring forth the details of next part of the Value ChainConstruction.

Once a person has cleared his ownership title & has arranged for his finance requirements, the next step is to actually start the construction of the anticipated property. Though it appears the most cliché and straightforward part of the value chain, but there are ‘n’ number of issues involved in this seemingly simple part too. Researches at many world-class respected Universities have revealed that this phase involves the maximum wastage – both in terms of time & money.

Figure 1: A breakup of the time involved in any real estate project over the construction period

Let’s start analyzing this phase with the help of a step-by-step flowchart of the activities involved in it: 

Figure 2: Construction flowchart

As is apparent from the above flowchart that construction phase is not that simple as it seems to be at the first sight. Due to multiple sub-phases, the amount of delays and wastes increases exponentially in this level.

The construction phase provides a lot of opportunity to improve the supply chain inefficiencies and reduce the project cost to a large extent. The multiple iterations incurred at the design phase can be reduced if there is a specialized agency to take care of it. Again, the raw-material supplies and labor requirements after the Design Phase, if handled appropriately can help the contractor finish off the work more efficiently at a lower cost and lower budget.


There are several real-estate moghuls in the market and they sure do implement several measures in order to keep a check on the issues that we discussed above. But there is definitely something missing in their efforts due to which this sector is still unable to be efficient. We suggest some of the following measures which may prove to be useful:
  • The design phase should be outsourced instead of being in-house. This is because the expertise of the building contractor is to construct, not to design. Having a specialized design agency will remove the redundant steps in this phase and come up with better and more efficient designs. Although many of the construction works being carried out these days uses this approach only, but still major chunk doesn't. 
  • Supply chain in the construction phase can be improved to a large extent if the procurement system can be tightened. The world is moving towards just-in-time (JIT) technique where only that much raw material is procured at a time as is required. But still this is absent in the real estate domain. Contractors still go for bulk purchases due to which a lot of wastage happens.

PS: There is lot to the above discussion which can be helpful for RealT apart from the above 2 points. In India, apart from the lack of ownership and proper financing, this phase requires maximum attention and through RealT Horizon, we will try to bring some of those aspects in the front.

---- Thanks for reading RealT Horizon :) ----

Understanding the reality in RealT – Generic Real Estate Value Chain

As soon as I sat down to pen the first post for RealT Horizon, I was bombarded with several areas of concern which need to be addressed here. To start with, I decided to go with the basics. So let’s look at the overview of the Value Chain of this sector.

Real Estate Value Chain typically comprises of 5 broad levels:

Figure 1: Broad levels of Real Estate Value Chain

These 5 steps more-or-less comprise all the possible activities that one can associate with the development and transaction of a property. Of course some of the blocks shown above do interchange their positions sometimes, depending on the usage category. I will try to touch on that aspect later, or in the following posts. But before that, the usage categories:

Whether the 5 levels shown in figure 1 will remain intact or some of them will get merged or eliminated depends totally on the 3 usage categories. If, for instance, the category is ‘Residential’ and that too for single housing, probably the ‘Transactions’ level can be skipped.

Let me dig a little deeper in the value chain. If expanded, the chain will take the following shape:

Figure 2: Detailed Generic Real Estate Value Chain

As can be seen in the above figure, each level can be further fragmented into several components. This is the multiplicity that results in all the complexities that this sector is facing currently in India and probably in various other developing nations.

This sector needs treatment, and it will be possible only if there is a subtle understanding of its basics ingrained in all the investors. I will cover all the components individually in my future posts. So stay tuned and pour in your comments & suggestions to help me analyze RealT Sector more effectively!

Forward detailed links to each level:

- - - - -  Thanks for reading J   - - - - -

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