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RATING FOR REAL ESTATE DEVELOPERS AND PROJECTS 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 characterised by uncertainties due to 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 developer to mobilise funds for their projects. A number of rating mechanisms are available in the market, but their acceptance and adherence by the consumers and developers is hindering the progress of real estate industry. The rating parameters developed by NAREDCO on the basis of Haryana Model need to be widely discussed and debated to bring quality products in the market, which can qualify for the top most 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 interaction with all such agency in India & abroad. Shortly, NAREDCO would be signing a memorandum of Understanding with ICRA (another premier rating agency in India) for rating of real estate developer and projects. 1. 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 organisations 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 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 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 real estate sector, concern has been invited by government to be the agency for rating the developers/ real estate projects, Based on this, NAREDCO entered in a Memorandum of Association with CRISIL for carrying out rating of Real Estate Projects and Developers. The methodology and symbols for the same have been developed by CRISIL, in consultation with NAREDCO and National Housing Bank (NHB). 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 title on time and having several benefits at the industry level.
The ratings are assigned after assessing all factors that could affect the credit worthiness 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 permit 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 organisational and financial risk profiles. It is not a rating of developer's credit quality. Developers' track record is analyse 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 organisational and financial risk include: the extent of structured quality systems, organisational structure, existing financial position, financial flexibility, management evaluation and strategies about taking up and executing real estate projects.
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