Having a helicopter view of the entire project via a one-page business canvas is a deceptively simple yet effective strategy.
We are seeing more and more non-property business people jumping into the property development business. This could be due to the perception that real estate development (RED) is highly profitable. There is certainly some truth in this, since some of the world’s richest tycoons are real estate developers. Just Google “World richest real estate billionaires” and we get names such Lee Shau Kee, Wang Jianlin, Raymond Kwok and Donald Bren. Not to forget Donald Trump, the most famous real estate tycoon. Google “Malaysia richest tycoons who have made their fortunes in real estate” and we have personalities such as Tan Sri Robert Kuok, Tan Sri Lee Shin Cheng, Tan Sri Quek Leng Chan, Tan Sri Yeoh Tiong Lay and Tan Sri Vincent Tan.
How to become a real estate tycoon
Essentially it boils down to one key principle, which is turning land to gold. But the land to gold creation is not a simple process. It involves plenty of in-depth knowledge, experience and skill to first acquire “raw” land and then to eventually convert this asset into “developed” land, a process also known as “land banking”.
However, the term “land banking” has somewhat become tainted with scams due to dubious companies selling newly subdivided, undeveloped land (typically agricultural land) with the promise of the land being converted to residential or commercial use. The preferred term to land banking is real estate development or property development which involves the process of buying and converting raw or undeveloped land to developed land while adding value by constructing buildings on such land. The developer should cater to the requirements of purchasers by constructing strata units, which can take the form of houses, apartments, offices, retail centres, etc. In the process, the real estate or property developer can make a good profit from his endeavour and effort. Over time, by acquiring more and more land, creating, constructing and selling the buildings or strata units erected on such land, the developer amasses wealth and becomes rich.
The RED process basically involves 7 key stages:
- Stage 1: Land Acquisition
- Stage 2: Feasibility/Viability Study
- Stage 3: Designing the Product
- Stage 4: Getting the necessary legal/ statutory approval
- Stage 5: Selling the Product
- Stage 6: Constructing the building and facilities
- Stage 7: Handing over to purchasers
The developer or investor needs to have the knowledge, experience and expertise to plan, manage, execute and deliver the final product, which is the promised buildings or facilities to purchasers successfully within the legally contracted time frame and cost. In addition, the developer needs to have the ability to raise the initial capital and obtain financing to acquire the land, pay for the construction and assist the building purchasers to obtain the end-financing.
RED Business is Profitable yet Risky
While the RED business is certainly profitable and can make the developer rich, it can also be risky due to the following reasons:
- It takes a long time, say 10- 15 years, for a new developer to acquire the necessary knowledge and experience in order to have the in-depth “know-how” to carry out a RED business successfully.
- In the absence of the required “know-how” due to his lack of knowledge and experience, the new developer can employ a team of RED experts to manage and execute the RED business on his behalf. However, this would incur substantial initial cost at the point when the business has yet to receive revenue. In addition, there is the risk of his expert staff resigning from his organisation and the difficulty of getting replacement expert staff during a property boom period.
- The RED business involves many stakeholders such as consultants, local authorities, financial institutions, contractors and building material suppliers, which are all outsourced parties. It would require considerable knowledge and skills for the new developer to be able to manage these diverse parties and vendors well.
Thus without the necessary knowledge, experience and knowhow, the new developer is exposed to the risk of his project being delayed or worse, abandoned leading to financial loss.
Addressing the know how gap
Is there a way for the new developer to address the knowledge and “know-how” gap other than to spend years to obtain on-the-job experience? Is there a way for him to self-learn or accelerate his RED know-how?
The writer’s experience in developing a knowledge driven and process mapping methodology for the RED business shows that indeed it is possible to accelerate the learning curve for the new developer via a 4-step solution. The 4-step solution is outlined below:
- Step 1: Organise the RED knowledge contents within a RED Canvas
- Step 2: Execute the RED Project via a RED execution process map
- Step 3: Monitor the RED project online virtually
- Step 4: Compile the RED knowledge contents in RED Document Templates Folders
4 Steps RED methodology
The 4 Steps RED methodology enables the new developer to organise, compile and manage his RED knowledge on a Do-It-Yourself (DIY) accelerated learning platform and allows him to plan, manage and execute his development project successfully across the project lifecycle with an integrated, centralized project delivery view.
Step 1: Creating your RED Canvas
The RED Canvas is a one page business canvas for all RED key stakeholders from CEOs, investors, development/project managers to purchasers, etc. It gives a helicopter view of the planned RED activities captured in a single sheet. It is similar to the popular Business Model Canvas and Lean Canvas for Business Start-ups.
What is the purpose of the RED Canvas? In a nutshell, it is to enable the new developer to understand how RED knowledge contents such as feasibility reports, design drawings, authority approval flowcharts, sales launches, construction contracts, etc, are to be organised, usually in knowledge contents Folders or File Cabinets depository system. Knowledge contents that are relevant to RED activities can be created and deposited within the designated Folders or File Cabinets called K-Blocks (Knowledge Blocks).
The RED Canvas therefore allows the key stakeholders such as the CEO, project manager and contractor to better capture the core development activities that match the full development process so that all parties can pull up on demand an overall view of the entire RED process. An illustration of the RED Canvas is shown here:
To be continued in Part 2.