Tuesday, November 29, 2016

The 8990 Story: Building A Nation, One House At A Time

The story of JJ Atencio and 8990 is a very compelling one. Founded by three friends in 2005, 8990 holdings is a low cost housing company that started out with Php 189M in earnings. With reported earnings of Php 9.7B in 2015, it has since then grown in business by forty two times in the last ten years and a reported 253% in the last four. The question then is how were they able to do this? An Underserved Market in the Philippines’ Affordable Housing Sector As of today, there is a backlog of 5.8M units in the Philippine affordable housing sector and only 250,000 units are made available annually. From here, we can see that the demand highly exceeds the supply.

The challenge to the company then is how to increase the supply of affordable housing units while convincing their target customer base that they should invest in 8990 homes. Knowing Your Customer To be able to address the needs of your customer, you need to know and understand them first. This is precisely what 8990 did. As per their data, the current local population is at 104 million of which 12 million are currently residing in Manila. Most of these people are in their mid-20s with estimated monthly incomes of roughly Php 14,500. Eighty two percent of these are first time buyers of which more than 50 percent are millennials with estimated gross monthly family incomes of Php 35,000 per month. 8990 knew that their customers were young.

They had no experience with home ownership but they were willing to be educated. The company had to show their target customer base that owning a house was not only a form of shelter but also a form of protection and investment for the future. They launched marketing campaigns that showed their target customer base that it was actually feasible for them to own their own homes if they would cut back on other unnecessary expenses. The Business Model: Fast, Cheap and Good The next issue was how to provide low cost, quality housing fast in order to serve the massive backlog in supply. To answer this need, 8990 turned to innovation and technology. They implemented the use of high impact, pre-cast panel walls in the construction of their homes. Think of high impact, pre-cast walls like you would think of really strong but standard puzzle pieces. 8990 made it so that building a house for them was like assembling the same puzzle over and over again. It made for less mistakes, lower material as well as operational costs and faster production time. Currently, the company has the capacity to build 25,000 houses in only 8 days. Building A Profitable Business That Lasts One of the major concerns in affordable housing is the capacity and willingness of the customer to pay. While demand may be high, the risk of payment default is equally as high because of the lower purchasing power of the intended target market. In order to answer this concern, 8990 launched their own financial literacy program where they taught their buyers what, why and how to pay. In conjunction with this, they have their own in house financing that offers buyers longer and sustainable payment terms thereby decreasing chances of payment default. They didn’t stop there. 8990 also implemented behavioural economic tactics where customers who are up to date with their monthly amortizations are rewarded with added benefits such as the use of more amenities. All these efforts combined led to a 96% collection efficiency rating. Looking To The Future, Guided By Vision Today, 8990 is expanding it’s reach by going into projects beyond the traditional, affordable housing business model. They’re building high rise buildings near urban business hubs that serve as “weekday homes” to their clients. They’re also in the process of bundling their clients’ amortizations into bonds and offering it to the public. All these actions are guided by the company’s vision – To make mass housing not about the houses but about the people. 8990 Holdings’ dream is to add value to society by providing low cost, high quality homes as a means to add value to society and, as a result, transform people’s lives for the better. This is definitely a company that proves that as long as you serve your customers well, you will be rewarded.