High Demand For Professional Rating in Indian Real Estate Market

Sales Go Up in Residential Real Estate Market

What do Prestige Constructions, Salarpuria Properties, ETA (Bangalore), Godrej Properties, Dosti (Mumbai), Rohan Builders, Kumar Properties (Pune), Akshaya, Lancor, Marg, (Chennai) and about 60 others developers across the country have in common? All of them have opted for CRISIL property ratings (CREST) since August 2010, when CRISIL entered the field of star ratings for real estate. Add to this the several other real estate projects who have secured the ICRA and CARE ratings and you come up with an increasingly growing number of developers who are seeking professional ratings at the project and group levels on an ongoing basis.
So what does a rated project mean to a consumer? Says Akash Deep Jyoti, Director CRISIL Ratings, “The rating benefits the home buyers as well as the developers, though the home buyer is benefitted more due to the information transparency, analytical insights and benchmarking provided by the rating.” This is especially important for increasingly aware buyers who are entering the property markets early in their careers for investments that will contribute to their investment portfolios. Such ratings help them assess the bankability and future potential of the units that they have purchased and therefore make sound investment decisions.
Vivek Mathur, Senior Group Vice President, ICRA Limited corroborates this view. “For end-users/buyers, Grading provides an independent and objective opinion on the risks associated with the developer’s ability to deliver in accordance with the terms, quality parameters, and time stipulated.”
So should you be looking at these ratings only if you are a property market investor? Not at all. Take the case of an end-user who is trying to decide between three different projects or developers within the same locality. All other specifications remaining the same, the choice is between reliability, timeliness of delivery and quality of construction. That’s where the rating kicks in.
The main parameters that are analysed includes location and price competitiveness of the project, demand-supply situation prevailing in that particular market, execution track record and market position of the developer, its project management capability, appropriateness/ quality of execution agencies, regulatory and approval risk and sfunding risk for the project Further the developer’s financial profile including his commitments in other projects are also assessed.
Further, once the rating is done, the surveillance is conducted every year till the project receives the occupancy certificate (project is completed). The surveillance could be an annual exercise or a more frequent exercise, which varies on case to case basis. This gives the user the comfort that there is someone checking on the project status continually. A large number of users have faced problems over the last few years that projects have not met timelines and the user normally gets to know about delays much later. Since ratings are posted online on the rating agency’s websites, the user needs only to be vigilant enough to check and then raise the flag the minute problems start.
The rating is not simply a tool for users to monitor how developers are progressing with the project. It is a powerful tool for developers to assess their credit-worthiness as well. Explains Anil Varghese Asst. Vice President-Real Estate Grading and Edu Grade, CARE, “The Real Estate Project Star rating is an opinion on the ability of the developer to complete the project in timely manner with agreed specifications. Besides, it is an opinion on the level of transparency followed by the developer. The developer is benefited from the fact that the third party assessment helps developer in increasing its visibility to complete the project in time (a critical point from the leverage perspective) amongst the lending community. Besides, this rating would enable the developer to get the project pre-approved by the Housing Finance Companies for retail lending. Moreover, banks and dedicated real estate fund houses can use these ratings as a prescreening tool and thus channel their quality resources for core activities.”
So if it is a win-win for developers, financial institutions and consumers, why doesn’t every developer go for such a rating? The problem is one of inertia primarily. In the West and the South where consumers have started demanding ratings, the agencies find more and more developers coming forward to be rated. Also with financial institutions having been periodically warned by the Reserve Bank of India to check the bankability of projects that they lend to, ratings make their risk assessment easier. Developers who have good ratings get enhanced access to loans and lower rates of interest.
In some cases, rating agencies have found that a weak rating has propelled developers to take up the lacking areas, address problems and come back for better ratings. This has actually helped raise the bar for developers.
Will this become mandatory at some point of time? Currently it is not a mandatory requirement. However, with a real estate regulator knocking at the doors of the industry, there are the early adopters who are readying for the change and consumers can heave a sigh of relief when investing in rated properties.

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