UNDERSTANDING REALTY ratings

Rating agencies like CRISIL and ICRA have launched systems for grading real estate projects and developers. Akhil Agarwal tells you how you can benefit from them

HAVE you been worried whether the house you are planning to buy is located on a legally-approved plot of land or if the developer is going to deliver the infrastructure specifications that he has promised you at the time of making the down payment? If the answer to the above is a `Yes', then domestic rating agencies such as CRISIL (Credit Rating Information Services of India Limited) and ICRA (Indian Credit Rating Agency) come to your rescue. The two agencies have launched schemes for grading real estate projects and developers in India.

NEED FOR RATING

Till now, the individual home buyer didn't have any ways or tools to assess the legal and asset quality of the home or property that he wishes to buy or to validate the creditworthiness of the developer. Further, buying a home or a property still remains risky as the property market in the country is unorganised.

RATINGS ARE VOLUNTARY

The ratings introduced by CRISIL and ICRA are voluntary; though there is a strong case for making them compulsory. Going forward, lenders and project financiers are likely to insist on projects and developers to be rated before granting credit to large projects. Eventually, the market would strive to make the ratings mandatory.

BENEFITS

All the ratings will obviously benefit buyers, as the developer's track record and project feasibility has already been whetted by the experts (i.e., the finance companies that would be extending credit to them). The ratings will strengthen the domestic realty industry,which is expected to witness exponential growth.

REMEMBER…

Getting to know what the two rating agencies are going to examine before assigning ratings to housing projects and developers will help you.

Below mentioned is a brief summary of the various aspects that the rating agencies will examine:

Title of the property:

The rating agencies will closely examine if the developer has obtained all the legal approvals needed for the project's smooth execution.

Clarity of title:

An independent evaluation of the title report prepared by the developer is done to ensure that the title is transferable. The origins of all such title documents are also examined.

Restrictive permissions:

To ensure both safety and marketability of the title, an examination is carried out to determine whether all the necessary permissions from competent authorities (for instance, municipal and fire authorities) have been obtained.

Tax clearances:

Tax documents are inspected to ensure that there are no liabilities on the property.

Sale agreement:

The sale agreements between the developers and the buyers are evaluated.This substantiates the commitments relating to delivery and ensures that buyers are not forced to agree to any over-the-top demands of the developer.

Development agreement:

The agreement between the land owner and the developer is also studied closely.

Structural quality:

The ability of the developer to translate the plan into a sound civil structure is examined. This depends on the quality of labour and material, the cost and project control mechanisms in place. The track record of the architects, structural engineers and contractors is also evaluated.

Civil infrastructure:

Rating agencies thoroughly check if the approach roads, sewerage, water and electricity systems, parking facilities and security systems are designed to meet the planned standards. The developer's willingness and ability to deliver better finishing is also assessed.

Integrated facilities:

A key factor is the extent to which the developer has integrated facilities. Developers, who are personally responsible for carpeting, fabrication and transport are much more accountable than those who use 'third parties'.

Time and cost overruns:

Using experts, agencies evaluate the developer's ability to complete and deliver the project on time within the specified budget.

(Source: TimesProperties.com)