When housing projects are
rated for buyers
| A rating system for real-estate projects will go some way in helping
buyers make the right decisions. SHYAMA RAJAGOPAL examines the scene,
with particular focus on the initiative of National Real Estate
Development Council in this regard. |
— Photo: H. Vibhu
FACING UNCERTAINTY: The need for a rating system is being increasingly felt
as buyers are faced with a bewildering number of projects and choices, which is
revealed by the speedy change in Kochi's skyline.
With the phenomenal growth of the real-estate sector and a proliferation of
builders and their projects, a major concern of the buyer is whether the land
developer or builder who promises a villa or apartment can be relied upon to
deliver the goods.
The construction sector is plagued by such uncertainty,
mainly because of lack of transparency in the functioning of real-estate
developers and builders. A number of fly-by-night operators in the field have
contributed to the uncertainty. Builders across the country have made concerted
efforts to bring in self-regulation to overcome the situation.
The National Real Estate Development Council has also been
trying to make an effort in this regard. Set up under the Union Ministry of
Urban Development and Poverty Alleviation, activities of the council ranges from
legislative, legal and regulatory matters to dealing with commercial issues in
the sector.
Besides promoting housing and real-estate development, the
council aims to evolve criteria for developing land and property and bring in a
code of ethics for the players. Rating the developers and projects through
Credit Rating Information Services of India Ltd. (CRISIL) is one of the vital
functions taken up by the council.
Before a project is put under the rating scanner, the council
has introduced a self-regulatory system for builders and real-estate developers.
The mechanism is in the process of being implemented in the States through the
respective governments so that a healthy climate is developed for the real-
estate industry.
The concept of State-level councils, having State Government
as well as public and private sector representation, is expected to address any
problem faced by various groups in the housing sector. However, officials in the
Department of Housing in the State say that there has been no move to set up a
council. States such as Uttar Pradesh and Rajasthan have already formed the
councils, and Andhra Pradesh, Tamil Nadu and Haryana will follow suit soon.
Advantages
of grading
The Kerala Builders' Forum recognises the advantage of
grading by a rating agency, said its secretary, George E. George. The builders
here have been more conscious about the quality of construction than their
northern counterparts, he said. The builders under the forum also realise that
it is a good thing to happen to the industry, as it will bring in quality checks
at various levels.
Quality should not be just related to the manner in which
materials are used and the construction process is undertaken, but it should be
in the totality of bookkeeping and other transparency factors in managing a
project, Mr. George said.
The Council of Real Estate Developers' Association in India
has also been holding talks with CRISIL to bring about a rating system that can
be applied to builders, said Mathew Chakola, president of the forum.
He said that while CRISIL rated a company only on the basis
of financial parameters, the builders had asked for a package which would give
the reputation of the builders in the field a weightage too. A grading system
would do well for the sector and give a qualitative impetus to growth, he said.
However, Mr, Chakola said he was unaware of the national council and its
activities. The council aims to boost the confidence of buyers and the builders
by bringing in a semblance of fair practice in the business, which will help the
sector in the long run.
A credit rating agency's grades will enhance a project's
market-worthiness.
It will help the builder mobilise funds from consumers as
well as help him get the backing of banks for the project.
The council has been given the authority to represent all
matters relating to development of land by the private and public sectors. This
will include planning of housing colonies, townships and commercial and
institutional buildings. It will also oversee provision of physical and social
infrastructure at the planning stage itself and act as an advisor to the
Government on the growth of the real-estate sector.
The council and ICRA, an investment information and credit
rating agency, have also come up with a mechanism for rating real estate
developers and projects.
The rating agency has evolved a methodology for grading all
the entities involved in constructionThe rating agency's aim is give the
investors and the financial institutions an idea about the risks involved. The
rating mechanism does not make recommendations as such but provides all the
facts to help one evolve one's own opinion about the project.
Different entities are graded under two broad risk categories
called business risk and financial risk.
The agencies have identified a number of parameters to judge
the risk in each category for a consultant or a contractor or a builder. It
assesses the project's marketability as well as the project's finances. This
will aid better credit flow to the sector from financial institutions.
Buyers'
concerns
The location of the property is, perhaps, one of the most
crucial aspects in the business. How well connected is the piece of land with
available infrastructure and what are the development prospects, a buyer would
like to know.If the land has been developed, then, the buyer will certainly like
to know the track record of the developer. Documents concerning ownership of
land, purchase agreements and so on are what the investor looks at initially.
The buyer will also like to know if the builder has got the requisite sanctions
from the local authorities. The buyer's doubts about the timely completion of
the projects are valid too. There have been many occasions when projects have
lagged because of financial or technical reasons. A rating of the project will
help the investor get an understanding of the background of the builder.
Some of the worries of the builders are the payment for land
purchases, application to the local bodies for requisite sanctions, marketing of
their product, timely payments by investors, timely completion of the project,
lack of finances for the project and other miscellaneous charges to be met on
the construction site.
Courtesy: Property Plus, The Hindu
http://www.hindu.com/pp/2007/04/28/stories/2007042800350100.htm
