Investment in housing and property is beset by many uncertainties in the prevailing real estate scenario. The investment and transaction decisions in this sector are characterized by uncertainties due to a low level of information.

NAREDCO’s mission is to improve the confidence level of both investors and consumers by bringing in fair practices through self-regulation. The rating of Real Estate developer and project would enhance the comfort levels of the consumers while making investment decisions, and also help developers to mobilize funds for their projects. A number of rating mechanisms are available in the market, but their acceptance and adherence by the consumers and developers are hindering the progress of the real estate industry. The rating parameters developed by NAREDCO on the basis of the Haryana Model need to be widely discussed and debated to bring quality products to the market, which can qualify for the topmost grades. A unique aspect of NAREDCO rating is the introduction of real estate industry experts in the process of rating prior to assigning the grades by the rating agencies.

NAREDCO rating is not restricted to only one rating agency (presently only with CRISIL). NAREDCO looks forward to the interaction with all such agencies in India & abroad. Shortly, NAREDCO would be signing a memorandum of Understanding with ICRA (another premier rating agency in India) for a rating real estate developer and projects.

CRISIL – NAREDCO Rating Rating of Real Estate Projects and Developers

National Real Estate Development Council (NAREDCO) is the apex national body for Real Estate Development, with Hon’ble Minister of Urban Development and Food & Consumer Affairs, Public Sector organizations and all practitioners of real estate sector, for self-regulation of industry and bringing ethics and code of conduct in this profession. NAREDCO’s mission is to improve the confidence level of lenders, investors, and consumers by bringing in professional practices. One of the highly professional methods is to develop a system of rating developers and real estate projects to enhance the confidence levels of lenders, investors, and consumers while making lending and/or investment decisions.

Credit Rating Information Services of India Ltd., established in 1987, has come a long way in pioneering the concept of credit rating in India. Today, it is the market leader with a dominant share in the rating business in India and is instrumental in developing the framework and methodology for rating rupee-denominated debt obligations of Indian corporates and financial institutions along with the debt issues of large infrastructure projects. Individuals, institutional investors, and lenders use CRISIL ratings as a benchmark for framing investment and lending policies.

CRISIL as part of their rating service has developed a rating methodology for the Real Estate Sector and has completed a large number of projects rating across the country. NAREDCO, being the apex body representing the real estate sector, concern has been invited by the government to be the agency for rating the developers/ real estate projects, Based on this, NAREDCO entered into a Memorandum of Association with CRISIL for carrying out the rating of Real Estate Projects and Developers. The methodology and symbols for

CRISIL – NAREDCO rating indicates current opinion on the relative safety of a real estate developer and/or project with regard to the risks involved regarding the builder’s ability to build to agreed specifications, transfer the title on time, and having several benefits at the industry level.

  • The rating provides incentives to developers to maintain standards with respect to legal and construction practices. This is expected to facilitate the orderly growth of this sector presently characterized by inconsistencies and irregularities.
  • Rating is also expected to help developers mobilize funds for their projects and market them effectively.
  • For issuers, ratings can lower the cost of borrowings by aiding the process of disintermediation and mobilization of funds directly from the capital markets.
  • Ratings can be used to present the company in a favorable light to foreign collaborators. They help individual and institutional investors to frame investment policies.
  • It helps in pricing debt since the rate of interest on debt instruments is related to ratings and issuers and intermediaries can determine the price of debt offerings with the help of ratings.
  • Some banks and term lending institutions in India use CRISIL – NAREDCO ratings as cut-off points for limiting exposures. They also use them as the threshold point for fixing margin requirements, collateral, interest rates, and other terms.

The ratings are assigned after assessing all factors that could affect the creditworthiness of the borrowing entity. They are based on current information provided to CRISIL by the borrowing company, or facts obtained by CRISIL from sources it considers reliable. The rating methodology involves an analysis of the past performance of the company and an assessment of its future prospects. In evaluating and monitoring ratings, CRISIL employs both qualitative and quantitative criteria in accordance with the industry practice.

CRISIL – NAREDCO rating for a real estate project pertains to a particular project and is not a rating for the company as a whole. Only projects with an approved plan and planning permission from the appropriate local authority are considered for a rating. The rating translated into a symbol indicates CRISIL – NAREDCOs’ current opinion of the project and developer-related risk factors which could affect the ability of the developer to develop and ultimately transfer the title of the property to the investor. However, the rating is not a recommendation to buy, sell, or invest in a particular project. Consequently, different projects of the same real estate developer might receive different ratings depending on the degree of risks associated with them. CRISIL disseminates ratings that are accepted by the companies to the public, ensuring transparency in the process.

CRISIL – NAREDCO rating for Real Estate Developers is a measure of their past track record in executing real estate projects and their organizational and financial risk profiles. It is not a rating of the developer’s credit quality. Developers’ track record is analyzed with reference to their track record of legal compliance, types of projects undertaken, adherence to construction schedules, and market perception about the developer. The key factors that would be considered for assessing organizational and financial risk include the extent of structured quality systems, organizational structure, existing financial position, financial flexibility, management evaluation, and strategies for taking up and executing real estate projects.

  • application to the local bodies for grant of a license
  • Obtaining permission and sanctions of authorities to undertake development. It may take from one to three years to complete the process
  • Timely payments by investors/purchasers of plots/dwelling units
  • Timely completion of the project
  • Making an offer to the public for investment in their project ( the minimum points a developer needs to publish in the form of a prospectus.)
  • Lack of availability of financing. Access to short term loans for acquisition and on development of on-site infrastructure is limited by the commercial banking institutions
  • Payments of external development charges for off-site infrastructure such as water, sewerage, surface drainage, roads, landscaping, and community facilities
  • Progress of external development at Licensees’ cost. Provision of ‘off-site’ infrastructure such as the development of roads, provision of power, water, sewerage, and stormwater drainage, garbage collection and disposal, street lighting, maintenance of parks and gardens, sewerage pump houses, maintenance of water supply system
  • Payment of servicing/administrative cost to the authorities
  • Construction of social infrastructure
  • Maintenance of a colony for a period of 5 years or more
  • Development of “off-site” infrastructure by the local bodies: a pre-requisite for the development of the colony
  • Provision of plots/dwelling units for LIG and EWS categories
  • The lack of available off-site trunk infrastructure. Development of transportation links.