Accounting policy followed by real estate developers

Financial statements of real estate developers in India require careful interpretation because reported revenue and profitability may not reflect the underlying business realities. Depending on the contractual structure and accounting approach under Ind AS 115, developers may recognize revenue either progressively during construction or only upon transfer of possession.

In many cases, accounting earnings may differ materially from actual project cash flows, collections and funding requirements. As the sector becomes more institutional and transparent, investors and lenders increasingly need to evaluate developers beyond reported financial metrics as accounting standards used are vastly different across real estate developers.

A comprehensive assessment should include project-level cash flows, sales velocity, collections, receivables, inventory, escrow discipline, construction progress and balance cost-to-complete to better understand project quality and risk, all carried out bottom up, project-wise.