Housing and real estate form the backbone of the country’s infrastructure and are critical drivers of economic development. With the Indian economy growing at over 7 per cent, the construction sector too has witnessed rapid growth. This has been primarily led by the housing sector, which has got an impetus from increasing urbanization and easy availability of housing finance. With government policies emphasizing faster economic growth, the real estate sector is projected to attract large investments in the coming decade.

Traditionally, investments in this sector have been constrained by the lack of information and agreed standards. The resulting uncertainty ensured that financial institutions were cautious in their exposure to residential and commercial real estate projects.

In light of this uncertainty and in order to provide third-party opinion to housing customers and financial institutions, CRISIL has developed two specialized products for the construction industry, namely, Developer Ratings.

» Need For Rating
» Affiliation with Naredco
» Benefits of real estate developer

These ratings are opinions based on a developer’s past track record in executing real estate projects and are indicative of his ability to do so in future. Factors such as construction as per the schedule and quality specifications, transfer of clean title and sales track record are assessed while assigning the rating. Developers with higher ratings will have properties that are legally sound and that are completed and delivered on schedule.

Need For Rating
The Indian real estate market is highly fragmented and unorganised. Transactions are based on market perceptions and are generally characterized by uncertainty. Given the industry’s dynamics, a rating is needed to highlight the developers’ customer focus, help them build their brand and improve market perceptions. In addition, a rating also helps a developer to benchmark his services with the industry. Finally, a rating not only provides comfort to customers but also to financial institutions besides enabling the developer to access funds.

Affiliation with Naredco
CRISIL has conceptualised the methodology for the real estate developer rating in consultation with and after incorporating the relevant suggestions and recommendations of the National Real Estate Development Council (NAREDCO). The rating process has been developed after taking into account the specialised needs of the sector. CRISIL’s association with NAREDCO enables it to leverage the latter’s expertise and experience.

The National Real Estate Development Council (NAREDCO) is the apex national body of real estate developers. It is a self-regulatory body that aims to inculcate ethics and a code of conduct into the profession. Its members include the minister of urban development and food and consumer affairs, public sector organizations and practitioners from the real estate sector. NAREDCO’s mission is to improve the confidence level of lenders, investors and consumers by bringing in professional practices through self-regulation and ultimately catalysing the growth of the sector.

Benefits of real estate developer
Real estate developer ratings will offer a useful comparative tool to the industry. The specific benefits to each of the constituents is outlined below:

»	Real Estate Developers A Developer Rating gives real estate developers a tool to highlight their strengths in legal procedures, project execution and marketing. It can thus be used to command a better price. Project and developer ratings increase visibility and substantiate the informal word-of-mouth mode of appraising developers. This formalized process of assessing capabilities provides comfort to investors, especially non-resident Indian (NRI). The rating also acts as a benchmark for developers and helps them to identify their shortfalls vis-à-vis the best practices in the industry. This will lead to continuous improvements in quality and services levels. Further, a good rating can also help developers to mobilize institutional funds and other financial services for their projects and enhance their ability to market the project.
»	Customers and Investors A good rating provides customers and investors the comfort that the rated developer has a good demonstrated track record and that the project will be completed on time with a clean marketable title transferred to him. The rating also provides a higher level of security for investments, especially those that have been made during the construction phase, thereby reducing post-investment dissonance.
»	Banking, Financial and Lending Institutions Historically, given the sector’s risk profile, institutions have been apprehensive about lending to the housing and construction industry. A good rating gives an independent third-party opinion on the developer’s performance and ability to mitigate the high construction and market risks inherent in the sector.
»	Government and Regulators The rating service gives an incentive to developers to maintain standards with respect to legal and construction practices. This is expected to facilitate the orderly growth of the sector, leading to a self-regulated industry framework.