6th term - real estate development

8/8/2019 6th Term - Real Estate Development

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S.R.P**- 6th Term Real Estate Development Page 1

The Possession Process & Alteration Policy

MCM616: Real Estate Development

Handing over of the built space is an important step towards Contract Closure

and forms part of the Project Close-out

operations. It should be viewed as a phased professional activity and not just one of

handing over the possession of the premises to the owner.

1. Contract closure is performed at the end of every contract.

a) Whether or not project objectives are met successfully, or

b) Contract is terminated for whatever reasons.

2) In Project Management the contract is deemed complete when all its items are met, even

if the buyer and seller are not completely satisfied with the work. However, this methodology

results in dissatisfied customers and thus this view has to be changed by adopting a

professional approach in the manner of close-out.

Design for Handing Over

1) Assign role, responsibility and authority for handing over.

2) Document all deliverables as per acceptance criteria of the customer.

3) Create process for creating satisfaction by clearing deficiencies observed by the

customer in a time-bound manner.

Handing Over of Documents

-\

1. Agreement for sale

2. Development agreement

3. Receipts of payments, including initial booking receipt and receipt for clubhousemembership etc.

4. Sale Deed

5. Development/ construction agreement.

- Handing over possession document.

Other documents handing over:-

1. All guarantees/warranty cards of OEMs.

2. Rules & regulations booklet or other handbooks for owners.3. Handbook about the integrated facilities management system available.

4. Documents pertaining to Utilities (electric etc. ) connection.


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5. Relevant drawings architectural, structural, services (both internal & external) in

respect of water supply,sewerage and drainage

Asset Class & Type

- The handing over process will differ in its details for different classes of assets i.e.

residential, commercial etc.

- The handing over process will also differ in details for the type of built space beinghanded over within a particular asset class for e.g. within residential asset class, it will

vary for apartments and villas.

Inspection

While handing over the physical possession of the premises a joint inspection

document should be created which should also have a check list of the essential

features of the property.

This is important to avoid later claims by the customer especially so when the

customer further allows his own workmen to carry out the interiors work subsequently.

This exercise is also to list out items not yet provided by the developer.

Check List of Essentials

1.

2. ional check of plinth/carpet area ( if requested by the buyer).

3.

4.any.

Inventory of all fittings & fixtures (numbers and condition)

1. Water supply and sanitary fittings

2. Electric fixtures & fittings including light fittings, fans, switches, MCB panel, geysers

etc.

3. Mirrors and glass4. Kitchen items

5. Sewerage manhole covers and inspection chamber covers etc.

6. Overhead Tanks

Utilities

Manufacturer make and serial number etc. condition of seals, meter reading at the

time of handing over in respect of:

Electric Meter Water Meter

Gas Meter


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Telephone (instrument and sockets)

Finishes

and polish stains, discolouration, damp patches, undulation and cracks -major and minor,

scratches, breaking, chipping or wear out of tiles, insufficient or no polish of marble or wood,

this is in respect of: -

Walls 1. 2.

QMS

Ordinarily the QMS audit prior to handing over should be able to capture information

about all the defects and deficiencies in finishes, condition and operability of the

different features of the building.

Some other problem areas worth taking care of are: working of toilets and kitchen

including blockage of drains with sand, debris and other construction waste. As a

practice plumbers seal the nahney traps with bags to prevent the drains from getting

blocked but do not remove all of them later on.

Placing of Locks

-in (mortice) locks are provided then all the keys (usually three) should be handedover and details of make, no. of keys and serial number should be recorded.

ALTERATION POLICY

Developers permit limited modifications to the built space as per customer

requirement in respect of the internal layout which does not require any structural

changes. They also permit change in sanitary fittings, wall and floor tiles and kitchen platforms

and furniture. All this is at a cost to the buyer.

However, no alteration is permitted in respect of the building elevation and faade,

including balconies as well as in the surrounding external environment.

Reasons for denial

1.

2.

3. osts.

4.


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5.

visible.

Current Practice

lders have

now started refusing permission for alteration to the customers at the time of booking itself.

internal construction and by quoting higher costs for alteration than actual.

Change in Company Stance

Policy and are clearly stating what can or cannot be permitted.

placement is permitted no

refunds ( or set-off) is given.

Further Reading

-out Maytas Hill County Deviation Policy as an example.

Security Issues

Security

-Off between threat perception and costs to mitigate the risks.

spaces.

Security Objectives

otects the lives and property of the:-

1. owners & users of the property

2. visitors

3. From all threats, manmade or natural.

Protection includes identification, thwarting, neutralising and mitigating of a threat.

Five Step Evaluation Process


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Step 1: What assets are you trying to protect?

Step 2: What are the risks to those assets?

Step 3: How well does the security solution mitigate those risks?

Step 4: What other risks does the security solution cause?

Step 5: What costs and trade-offs does the security solution impose? 4

Nature of People

People have a tendency to be fearful and uncertain

People fall in the trap of false perception of security

People do things counter to their own security

People say one thing and do another thing

Impact of security decisions

1.

2.

3.

Types of security

1. Active Security2. Passive Security

Active Security

Guards

Perimeter fencing

Gates

CCTV

Security lighting

Bio metric

Passive Security

Access Control

Fire hydrant/sprinkler

Perimeter alarm

Smoke/gas/heat/fire detector

Safety features in the electrical

circuit

Physical Security

esources include people, the facility in which they work, and the data, equipment,

support systems, media, and supplies they utilize.


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or what the customer wants, its design and configuration, and the methods for securing the

facility against unauthorized access, theft of equipment and information, and the

environmental and safety measures needed to protect people, the facility, and its resources.

Threats to physical security

Security Layers

Deterrence

Delaying

Detection

Assessment

Response

Category of Threats

e)

Physical Security Planning

A physical security program must address:

Crime and disruption protection through deterrence (fences, security guards, warning

signs, etc.).

Reduction of damage through the use of delaying mechanisms (e.g., locks, security

personnel, etc.).

Crime or disruption detection (e.g., smoke detectors, motion detectors, CCTV, etc.).

Incident assessment through response to incidents and determination of damage

levels.

Response procedures (fire suppression mechanisms, emergency responseprocesses, etc.).


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CPTED

- Crime Prevention

Through Environmental Design is a discipline that outlines how proper design of a physical

environment can reduce crime.

Control Measures for

liveries

-in and unlawful entry

Society Formation:

The Real Estate Business Process

1. Location short listing

2. Site / Land identification

3. Price negotiation with vendor

4. Legal due diligence

5. Execution of development agreement/POA/Sale Deed.

6. Selection of Architects

7. Approval of Drawings

8. Statutory clearances9. Selection and appointment of Sub-Contractors

10. Project planning & monitoring

11. Project marketing

12. Handing over and formation of housing society

13. After Sales Service

Formation of Cooperative Housing

Society

Earlier this trend was prevalent mainly in Mumbai.


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Nowadays many State Governments have made it mandatory for the developers to hand

over the residential built space constructed to the owners through the formation of a society.

The society is managed by elected representatives from amongst the owners.

In turn it is the society which manages the affairs of the buildings.

Activities of the Coop Hsg. Soc.

1) Dealing with various Governmental bodies.

2) Regulating the conduct of the members according to the bye laws of the society.

3) Maintenance and upkeep of the facility.

4) Conducting the affairs of the society as per the relevant Cooperative Societies Act of the

State.

Dealing with various Governmental bodies

For civic amenities like water, drainage and sanitation,electricity including street lighting,

garbage disposal, general upkeep of the surrounding area, unauthorised parking, police

patrolling and other law & order problems, postal department, fire department, telephone

department, levy and collection of property taxes etc.

Regulating the conduct of the members

This is done in accordance with the bye laws of the society and concerns:

1) Issue of NOC for permitting transfer of property.

2) Permission for letting out of property.

3) Curbing commercial activity in residences within the premises.

4) Managing the common facilities.

5) Conducting common religious and national day functions.

6) Providing solutions to typical common problems like car parking, children and teenager play

areas and activities, neighbor problems, pet management, clothes drying, domestic help etc.

Maintenance and upkeep of the facility


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Appointing third party service providers for management of all functions like housekeeping,

elevators, landscaping, DG set back up, plumbing and electric services for the residents,

security.

Managing and maintaining the Club House and similar other services as a separate business

entity.

Contracting for various services and permitting vendors within the premises.

Periodic maintenance of the buildings and facilities created.

Conducting the affairs of the society

1) Conducting General Body and other meetings as per the societies act.

2) Conducting elections for the various posts of office bearers of the society.

3) Appointing employees for the smooth conduct of the affairs of the society.

4) Collecting fees from the members.

5) Appointing auditors.

6) Filing of statutory returns including income tax returns

Types of Co-operative Housing Societies

- operative Housing Societies connected with housing.

(a) Open Plot Societies (b) Flat Owners Societies (c) Tenant Societies

(d) Housing Board Societies.

Open Plot Societies: members purchase or take on lease a plot of land and themselves

construct the building.

Flat Owners Society : When a builder constructs flats and sells them to Flat Owners.

Tenants Society: When Landlord forms a Society of tenants.

Housing Board Society: When a Society is formed by allottees of flats and building is

constructed by the Housing Board Authorities, i.e. Mumbai

Housing and Development Board.

Initiating Society Formation


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The procedure for Registration of a society begins with electing a Chief Promoter in a

meeting of the Promoter.

The builder under the Flat Owners type of co-operative society has the first right to act as the

chief promoter.

The developer/flat purchasers should call for a meeting of the Promoters by issuing the

notice under Agenda of the meeting given at least 14 days notice to the Promoters.

In this meeting, a Chief Promoter is elected who can exercise such powers and carry out

such functions as are mentioned in the minutes of the Promoters of the proposed Co-

operative Society.

After electing the Chief Promoter, the proposed name of the society has to be decided by the

Promoters.

Credit Rating Agencies

CRISILCredit Rating Information Services Limited by Standard & Poors

CARE Credit Analysis and Research Limited, by IDBI Bank, Canara Bank & SBI

ICRA (formerly Investment Information and Credit Rating Agency of India Limited) by

Moodys investor service.

Fitch India 100% subsidiary of Fitch group

-

i) Developer Ratings ii) Project Rating

DEVELOPER RATINGS

FIs adopt a cautious approach in financing residential and commercial real estate projects.

Ratings provide a third party (independent) opinion to FIs as well as to housing customers.

Help developers mobilise funds and also aid in marketing of the project to prospective buyers.

Product developed by CRISIL in consultation with NAREDCO (National Real Estate

Development Council).

Developers Track Record:

i) Legal Track Record

ii) Construction Track Record

iii) Market Track Record

Organisation Risk:


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i) Systems

ii) Structure

iii) Strategy

Financial Risk:

i) Existing Financial Profile ii) Financial Flexibility

Extent of compliance with legal requirements is assessed by looking at

factors such as:

Number of non-compoundable violations

Completion/occupancy certificates

Compliance with FSI rules

Transfer of clean titles to investors ,Non-compliance leads to vulnerability to legal action, this

reflects unfavourably on the developer

Construction Track Record soundness of buildings already constructed becomes a primary factor

as this reflects his commitment to safety.

Quality of on-site and off-site infrastructure provided to customers.

Compliance to specifications as detailed in the Sale Agreement.

Level of after sales service provided

Also, scale and size of past projects, total area developed and time taken for formation of acooperative society in residential projects (indicates fully passing of title to investor)

Market Track Record - RE projects prone to very high market risks due to volatile conditions.

Hence,

- Market perception and reputation of the developer, and

- Brand value attached to the properties is considered.

Record of saleability, off-take of past projects and complaints outstanding in consumer courts and

other disputes serve as an indicator

looks at business management and control.

Standardisation of work flow processes

Level of computerisation

Modernisation of steps in project conceptualisation, design, planning and execution

Adherence to time schedules and cost estimates

Internal quality control systems esp. for material and labour specifications.

System for information flow to buyers(including prospective)


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Structure assessment is done regarding:-

Organisation structure

Role definition and communication

Staffing and management style

Availability of talent pool

Indicates developers progressive vision and long-term sustainability of business

Strategy

Land identification and acquisition strategies

Legal risk mitigation strategies

Marketing strategy

Brand building strategy

Construction strategy

Strategy to reduce dependence on a single market or on real estate business alone ( to overcome

adverse business cycles)

assessment of,financial soundness of developer by looking at:

developers cash flows

Funding pattern for executed and on-going projects

Because construction industry is capital intensive and large quantum of funds is needed up-front

and during various stages of development

Financial Flexibility viewed in relation to the number of projects under development and the

funding tie-ups for the same.

-up end-to-end funding for projects is essential for timely and cost efficient

execution.

Highest ability of the developer to specify and build to agreed quality levels andtransfer clear title within stipulated time schedules.

Inability of the developer to comlete projects or transfer title.

PROJECT RATINGS


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se pertain to a particular real estate project and not to the developer as a whole.

factors are assessed.

1) Legal Risks related to the land being developed

2) Construction Risks related to the proposed project.

is rated based on:

1) Clarity of Title

2) Restrictive Covenants

3) Encumbrances

4) Sale Agreement

5) Development Agreement

or incomplete, the developer is asked to get a second legal opinion.

applicability of various restrictive covenants is

studied.

property is free of encumbrances such as mortgages, rates and taxes, by

examining:

-Search report issued by the lawyer or nil encumbrance certificate issued by the local authority.

-Land records in the sub-registrar office/corporation/revenue department. These help establish

current ownership of the property.

-Rates and Taxes paid as per local development control rules. Receipts and non-lien

developer and buyer, since this substantiates the

commitments relating to:

land cost

Land area

Construction cost

Schedule of payment


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List of features

Time of delivery

Post delivery warranty

And conformity to Apartment Owners

FlatsAct etc. ( if applicable)

land vendor and developer is also studied as well as

the irrevocable POA granted by the former to the latter.

Soundness of structure

Infrastructure

Finish

Integration

After sales service

Adherence to stipulated timeline and cost

Ability of the developer to transfer the plan into a sound structure. A function of:

Organisational learning

Organisation structure

Extent of labour and material speficiations and cost

Project control mechanisms

ed to certify the soundness of construction

examined.

-site and off-site infrastructure are assessed to see if the standards planned

for the project are met

-site: roads, sewerage, water and electric systems

-site: parking facilities and security services

developer to specify in advance ( to the investors) the

quality levels agreed with regard to materials for both internal and external finish. External finish

includes electrical and sanitary fittings.

consideration in evaluating construction risks.


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A developer with facilities for block manufacturing, carpentry and fabrication in addition to

transport and construction equipment is in a better position to build to consistent quality than

developers who procure these facilities / equipment from vendors

Evaluates the extent and type of after sales service being planned by the developer for the project

as stipulated in the post delivery warranty.

on time.

appropriate

authorities.

per the comprehensive development plan of the region.

ensure adherence to the timeline.

institutions/investors

by the developer in which part of the customer

advances are put, withdrawals are linked to stages of project completion.

Existence of punitive clauses in favour of buyer to compensate buyer for delayed deliveries

Based on degree of completion of project, likelihood of cost overruns are evaluted and the

manner in which these are passed on to the customers

PA1 indicates highest ability of the developer (for a particular project) to specify and build

to agreed quality levels and transfer clear title within stipulated time schedules

PA5 indicates inability of the developer to complete a particular project of transfer clear

title.

DR1 Very strong project execution capacity

DR2 Strong project execution capacity

DR3 Moderate project execution capacity

DR4 Inadequate project execution capacity

DR5 Weak project execution capacity

Note: The suffix of + or - may be used with the grading

symbol (from DR2 to DR4) to indicate the comparative position within the group covered by the

symbol.


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S R P** 6th Term Real Estate Development Page 16

RT1 Very strong project

RT2 Strong project

RT3 Moderate project

RT4 Inadequate project

RT5 Weak project

Note: The suffix of + or - may be used with the grading

symbol (from RT2 to RT4) to indicate the comparativeposition within the group covered by the symbol.

CT1 Very strong project engineering/project management services capacity

CT2 Strong project engineering/project management services capacity

CT3 Moderate project engineering/project management services capacity

CT4 Inadequate project engineering/project management services capacity

CT5 Weak project engineering/project management services capacity

Note: The suffix of + or - may be used with the grading symbols (from CT2 to CT4) to indicate the

comparative position within the Grading category concerned.