The revised guidance note on accounting for real estate companies brought out by the Institute of Chartered Accountants in India (ICAI) would ensure consistency in revenue reporting, say developers. But experts say that this could make the already challenging real estate environment tougher for developers.
"The new guidelines are good for investors and customers, as they would ensure a fairdegree of clarity in reporting. There would be parity among all real estate developers now and a standardised reporting structure would make comparison easier now for both investors and customers," Mr Brotin Banerjee, Managing Director and CEO, Tata Housing Development Company, told Business Line.
By bringing down the minimum construction trigger at which developers start reporting revenues to 25 per cent, the new guidelines will speed up the revenue recognition process, said Mr Venkat K. Narayana, Chief Financial Officer, Prestige Group. According to the new guidelines, developers also cannot start reporting revenues from new projects if at least 10 per cent of the sales has not been realised. "Ultimately, developers can report only as they get from the customers, and this would require some timing adjustment if any," said Mr J.C. Sharma, Managing Director, Sobha Developers.
Where tighter government norms had already made developers "cash-starved and comparatively low sales crunched, the new guidance note has tightened the noose around them", pointed out Mr Sanjay Dutt, CEO - Business, Jones Lang LaSalle India. "However, the revised guidance note enables better risk assessment for investors, and also for banks who lend to understand the health of the developer. It also establishes accounting standards in an industry which is extremely fragmented," he added.
Going forward, there will be further reforms at the State Government levels to conform to these new guidelines, said Mr Dutt.