ANNUAL REPORT 2004 - Skanska

Skanska is one of the largest residential
developers in the Nordic countries. These
operations take place in selected markets
where Skanska has a permanent presence
− Sweden, Norway and Finland, primarily
in the major metropolitan regions. Finnish
operations also include residential development
in Estonia. In addition, the Group has
project development in the Czech Republic
and St. Petersburg, Russia.
There are great similarities between the
Nordic housing markets. To take advantage
of the synergies that this provides, effective
from 2005 Skanska established a new unit
combining its residential development operations
in Sweden, Norway and Finland.
Specialized planning and sales units
Development and sales of residential projects
are carried out by separate units that are
responsible for the entire development chain
from concept and design to sales. Their
operations are independent of Skanska’s
construction businesses. These project development
units do not perform any construction
work of their own, but instead buy contracting
services from Skanska’s construction
units or from external suppliers in each
respective market. This increases the degree
of specialization in both construction and
project development operations, while benefiting
both parties and improving customer
satisfaction and profitability.
The value enhancement process
The development of residential projects is a
process − land acquisition, planning, product
definition, construction and sales − in
which the developer has full responsibility.
Newly developed housing is built for immediate
sale, followed by investments in new
projects and/or new project phases. From
land purchase to completion of the last unit,
a development project takes 3−5 years on
average. The period from the start of sales
to project completion may vary from eight
months up to three years, but is preceded by
land purchase and permit matters.
Project development operations require
capital in order to finance land as well as
development and construction costs. A supply
of land suitable for development is a precondition
for a continuous flow of projects.
Due to lengthy planning and permit processes,
ample lead time is required to ensure
building rights that will meet demand. To
optimize capital efficiency, all building rights
undergo regular market appraisal.
Value enhancement occurs during all
phases of the process. Market surveys and
analysis of population trends and macroeconomic
factors provide the basis for land
purchasing decisions. Overall factors such as
inflation, interest rate and economic trends,
as well as demand, are crucial to decisions
on new projects. As a rule, the construction
and sale of major projects occurs in phases,
in order to decrease risk.
Of fundamental importance in residential
development is the Company’s ability
to correctly assess demand and customer
preferences in such a way that its development
work results in attractive housing of
the expected quality in the right place, at the
right time and at the right price. Customer
surveys provide data on the preferences of
potential customers in terms of location,
design and price level.
Skanska plays a proactive role, working
closely with local government bodies in
planning processes for land use and neighborhood
development. A major step in value
enhancement occurs when undeveloped
land is transformed into a building right.
Return on invested capital increases further
in the next phase, when the building right is
turned into a well-designed residential unit
that can be sold at market price.
Ownership mechanisms vary in
different residential markets
Sales occur largely in the form of residential
units that are part of cooperative housing
associations (Sweden), or housing corporations
(Finland). When Skanska acquires
land, it is reported in the balance sheet. The
land is then sold to a customer, for example
a cooperative housing association that has
been formed by Skanska. Construction
does not begin until contracts have been
signed for about half the units in a project
phase. The cooperative housing association
buys the building right and construction
services from Skanska, which then invoices
the customer regularly as construction is
completed.
In Norway, the Czech Republic and St.
Petersburg, development occurs for Skanska’s
own account. The residential units are
sold individually as ownership units. Here,
too, Skanska aims at a certain percentage of
pre-booked sales before making a decision
to start construction. In St. Petersburg, most
sales occur only after completion. Unlike
other markets, residential units are sold
as completed frames, while the customers
themselves are responsible for exterior finish
and interior fixtures.
Minimizing risks
Residential development depends on the
supply of suitable land. In Sweden, Skanska
currently has more than 9,500 residential
building rights. In all, including other markets,
Skanska has 19,500 building rights. It
has additional options on about 9,050 building
rights.
During 2004, Skanska sold a total of
about 4,670 residential units. The capital
employed in Residential Project Development
was reduced to SEK 2.4 billion, a
decrease of 14 percent.
At the close of 2004, Skanska had a total
of some 6,800 residential units under construction,
of which 74 percent had been
pre-sold. On the same date, there were 299
completed, unsold units, of which 109 were
in Poland.
Number of unused building rights reported in the balance sheet
Market Master plan Local plan underway Local plan adopted Building permit stage Total
Sweden 3,400 2,200 3,500 400 9,500
Norway 400 1,700 300 2,400
Finland incl. Estonia 100 1,000 3,000 600 4,700
Poland 100 300 200 600
Czech Republic 200 1,500 100 1,800
St. Petersburg 500 500
Total 3,800 5,600 8,600 1,500 19,500
Residential Project Development, number of units
Under construction Of which sold, % Of which unsold Unused building rights Options
Sweden 1,880 84 51 9,500 1,870
Norway 678 89 23 2,400 820
Finland incl. Estonia 1,839 66 59 4,700 5,580
Poland 43 93 109 600 0
Czech Republic 808 63 54 1,800 780
St. Petersburg 1,550 73 3 500 0
Total 6,798 74 299 19,500 9,050
Skanska Annual Report 2004 – Residential Project Development business stream 15