Value Chain; A Definition: One brief way to describe a value chain is as a string of collaborating players, who work together to satisfy market demands for specific products or services. Another, more descriptive definition alludes to it as the full range of activities that a firm or other player will perform in order to create and deliver/bring a valuable product, good or service to the market – the customer.
This value chain includes activities employed to the life cycle of said product or service as opposed to just the supply chain. It includes acquisition, production, marketing and provision of after-sales service. Real Estate does not exist in isolation, rather is an economic sector born out of a string of players coming together to satisfy market demands, be it through goods (tangible Real Estate), or services (Property Management, Investment Advisory, Consultancy, Appraisals) and so on.
Housing Value Chains
This said, a housing value chain is therefore what it takes [be it in service provision, maintenance, or unification of professional expertise] to offer value addition over the life cycle of a building. That is, all the way from project inception, planning, approval, construction, pre and post-construction marketing, sales and marketing to end-of-life disposal or rehabilitation.
One of the most significant contributors to the value chain concept is one Michael Eugene Porter (an American academic known for his theories on economics, business strategy, and social causes). In his book ‘Competitive Advantage: Creating and Sustaining Superior Performance’ (1985) he more or less provides a theorized template companies can use as part of a business strategy. This focused on systems, and how inputs are changed to outputs.
Purely as a business model, a customization of his [Porter’s] value chain template could be implemented for purposes of brand differentiation or; to boost chances of success for a company looking to leverage some form of competitive advantage over its market peers.
Who it includes.
There are several players involved in each stage of a housing value chain ranging from professional consultants, raw material manufacturers to final users of the complete building. These can be summarized as: The Client/Principal, Real Estate Developers, Construction Companies, Real Estate Finance Institutions, Real Estate Brokers, Real Estate Service Providers, Real Estate Users, Legal Firms, Government-mandated Institutions, Graphic and Product Designers, and The Country’s economy at large
All of these players have specific and integral roles contributing towards the product through diverse value chain activities. These stages can also be divided into: Conception, Compliance, Sales, Asset Development, Asset Management, Asset Disposal
Conception: This includes project conception, design, appraisal and structuring. The main activities are Business Appraisal, Capital Structuring, Design & its Appraisal, Negotiations
Compliance: Ensures that the project meets set guidelines and falls within the spectrum set out in the preceding conception stage. The main activities are: Investments, Funding, Shareholding
Sales: May come before, after, or in the period leading up to asset development. However, the world over is gradually shifting towards an integrated marketing model to mitigate risk and reduce the gap between project completion and occupancy. This is where off-plan sales processes may be initiated. The main activities are: Marketing, Contracting for the project, Reception of Expressions of Interest, Formulation and signing of Agency and Tenancy Agreements
Delivery (Asset Development): Upon streamlining the project with various legal and necessary statutory framework, approvals on construction are awarded. This is important as it ensures legality and compliance of the project with the various provisions. What follows is actual physical commencement of the construction project. The two stages (compliance, and commencement) are therefore linked as they coincide closely. The main activities are: Approval, Contracting, Construction
Reliability (Asset Management): This marks utilization of a complete, commissioned building or housing project. The main activities are: Utilization, Maintenance & Repair, Administration
Asset Disposal: In a fully deprecated project, a building at the end of its life-cycle is either removed to allow for redevelopment of the land it sits upon, or rehabilitated. Most Real Estate projects may fail to provide for this either due to their business model, or failure to provide incentives to keep to this stage.
Written by
KARAMA OGOVA | Regional Sales Manager | GNA Real Estate