Creating homes in a
smart way

...directly tapping the market’s pulse

The Arco Vara group’s strategy for 2014 - 2016:

1) Focusing on three residential markets: Estonia, Latvia, Bulgaria.

2) Starting a stable production cycle: obtaining land or buildings to be renovated, obtaining construction rights, designing and construction activities, and sales. The group does not obtain land for the purpose of speculations or long-term investments.

3) Focusing only on cities with a stable or increasing population. Although the total population of Estonia, Latvia and Bulgaria is decreasing due to emigration and low birth rate, the population continues to move to Tallinn (approx. 400 thousand people), Riga (approx. 700 thousand people) and Sofia (approx. 1,300 thousand people) in upcoming years.

4) Focusing on year-round need for residential space of local working-age population. I.e. investments are mostly not made in tourism, residential permit tourism, seasonal visits or products for the high-end market, because those markets are highly volatile.

5) Using the transaction and client database of the entire service division over the years and extending its area of use to the whole development cycle.

6) The development activities and supply volume of the group are based on the total number of households (homeowners) on each target market and the number of new homeseekers added to the market annually, as well as on data regarding their income. We work with the assumption that the active and solvent group of homeseekers starts from the age of 22 and ends with the age of 45. In the case of other age groups, residential space has likely already been obtained or no longer being planned, or there is no solvency.

7) Achieving cooperation with a credit institution which is interested in increasing the loan portfolio of residential spaces. One euro loaned into development should in the case of sale of the development product turn into a loan of two euros granted to the buyer for obtaining and furnishing the home.

8) Primarily focusing on average or volume developments (starting from 50 units depending on the size of market) and investment of equity capital starting from 2 million euros. In the case of volume developments, competition is scarcer and supply more stable compared to small developments where depending on the current state of real estate market, the market may be overcrowded and it is impossible to match good production and final price which is reasonable for the consumer. Labour costs per square metre of small development are also relatively bigger compared to volume development and there are fewer chances of standardisation.

9) The expected annual productivity of equity capital for each new development project must be at least 20%. For this purpose, the following must be conservatively estimated and in every possible case, tied with previous factual experience in compiling the business plan: realisation time and costs:
a. obtaining costs of the immovable;
b. time and costs of obtaining construction right (detailed plan, etc.);
c. likely volume of construction rights and distribution of intended purpose;
d. expenses and time of preparing the immovable (joining with utility networks, costs of developing infrastructure and landscaping on the immovable;
e. time and costs of designing;
f. construction costs and timing the construction as well as the connection of construction costs to solutions of designing;
g. marketing period and costs;
h. duration of sales period;
i. ratio of the project’s equity capital and foreign capital;
j. price of foreign capital;
k. cash flow of the project.

10) Using the competitive edge as a publicly traded company and a brand. More trust by the consumers allows to start preliminary sales earlier and improve the cash flows of the development project compared to a situation where the buyer only trusts to buy a finished item.