Evaluating and mitigating execution risk in Indian real estate development

Abstract

Real estate development is a complex process in which developers and equity investors look to capitalize on favorable financial markets and economic forces to produce investment returns. Real estate development is a risky venture in even the most mature economies that possess transparent government regulations, reliable local and national legal systems, efficient capital markets, skilled labor markets and substantial market demand data. These issues are magnified in an emerging market where few of the above ingredients are readily available. However, the hypothesis of this thesis is that a developer can better assemble its development team, positively impact performance, and reduce execution risks by reorganizing project teams with the resources currently available in India. This thesis contemplates the evolution of real estate development design and delivery methods as developers compete to deliver real estate assets; equity investors seek greater insulation from execution risk; and a growing stable of qualified construction professionals compete for contracts. However, demand for real estate assets, equity investment hurdles and increased competition are pressuring developers to consider design and delivery methods that decrease the time to market and contemplate risk allocation. The analytic approach of this thesis is to: 1) document common delivery methods in India through a series of interview with developers, architects, project management consultants, quantity surveyors and contractors, 2) compare and contrast the delivery methods and allocation of execution risk in the United States and India and 3) propose a management plan to further mitigate execution risk through different risk allocation and delivery methods. The goal of this thesis is to provide developers and equity investors insight into the evolution of the Indian delivery process and identify emerging opportunities to mitigate execution risk.