Real Estate Project Rating System

CRISIL, CARE, and ICRA provide developer grading and project star grading in the real estate sector. Many realty developers and builders have benefited from the ratings provided by these institutions. Consumers and investors also use these ratings as a criterion to invest or buy a property. These institutions use different rating criteria for a rating of a particular project or builder. This rating not only helps the consumers in choosing the right property to invest in but also helps the developers to know the factors in which they are lagging. The rating also provides an efficient barrier between inefficient developers and the consumer. The major criteria which they consider for rating are:

1. Developer performance and quality over the years

2. Construction quality

3. Financial quality

4. Legal quality

There are sub-criteria in each of the major criteria. These differ in each institution’s procedure of rating which in turn affects the whole rating of a particular project.

The criteria considered for the rating process for different rating agencies are given below:

CRISIL

CARE

ICRA

Project Sponsor Quality

· Construction and legal track record

· Organisation strength, systems & processes

· Financial strength of developers (s)

Project Developer Quality

· Track record of the developer

· Financial strength

· Organizational structure and systems

Development Quality & Track Record

· Market Position

· Management Quality

· Past project's track record

· dispute & litigation track record

· customer satisfaction and redressal mechanisms

Project Construction Quality

· Structural quality

· Infrastructure & Integrated Facilities

· Finishes

· After-Sales Services

· Likelihood of Time and Cost Overruns

Project Construction quality

· Construction technology and quality control processes

· Quality of architect, structural engineer, and contractors

· Time and Cost over-runs

Project Attractiveness and Market Risk

· Location

· Infrastructure

· Project specifications and facilities

· Price competitiveness

· sales strategy marketing channels

Project Financial Quality

· Accounting Quality

· Project Economics or Viability

Project Financial Quality

· Financial viability and break-even point

· Marketing & Pricing strategy Funding strategy

Project Financials

· Profitability

· Leverage

· Adequacy and ring-fencing of cash flows

· Overall discipline & financial flexibility of developer

Project Legal Quality

· Clarity of Title

· Restrictive Covenants

· Encumbrances

· Sale Agreement

· Development Agreement

Project Legal Quality

· Clarity of land title

Status of statutory approvals from authorities

Regulatory & Legal Exposure

· regulatory risk and permit status

· Land title and transfer of ownership

· Contractual arrangement

· Composition & transparency of buyer’s agreement

Project Innovation Quality

Innovation in the areas of Land acquisition/

Construction technology/ Building Design/ Project funding

Execution Risk

· Project management systems

· quality assurance systems

· credentials of executing agencies

· availability of raw materials

CRISIL:

The concept of rating a realty project is in an emerging phase in the country, Crisil being the first agency to launch it in the year 2010. The real estate rating is a comprehensive view of the quality of the real estate project based on multiple, diverse aspects compared to the more popular green building certification, where few specific aspects, such as construction material, environment, and recycling concepts are taken into consideration.

CRISIL, CARE, and ICRA provide developer ratings and project ratings in the real estate sector. These institutions use different rating criteria for a rating of a particular project or builder. This rating not only helps the consumers in choosing the right property to invest in but also helps the developers to know the factors in which they are lagging.