How to Evaluate a Real Estate Project (India): A Step-by-Step Checklist for Investors

In: Real Estate & Alternatives

Verify the project’s RERA registration and approvals, check clear land title, review the developer’s delivery record, assess micro-market demand, scrutinize construction quality, and run the numbers (all-in cost, rental yield, IRR, and EMI stress). Prefer disclosures based on RERA carpet area, confirm GST impact (esp. ready-to-move vs under-construction), and watch for red flags like “assured returns.” (ICSI, UP RERA, Goods and Services Tax Council)

Why this matters

Real estate is illiquid and opaque. A disciplined evaluation framework protects you from delayed possession, cost overruns, and legal disputes—and helps you compare projects objectively across cities and segments (residential, commercial, plotted, etc.).

The 10-Point Evaluation Framework

1) RERA & Regulatory Compliance (non-negotiable)

Project registration: Confirm on your State RERA portal. Registration is mandatory before marketing/sale. Review the sanctioned plans, approvals, timelines, and quarterly updates disclosed there. (ICSI)
70% separate bank account (escrow-like): RERA requires seventy percent of amounts collected from allottees to be kept in a separate bank account and withdrawn proportionate to construction progress—a critical safeguard against fund diversion. Ask for the bank details and CA/engineer/architect certifications supporting withdrawals. (Indian Kanoon, Haryana RERA)
Carpet area standard: Insist on pricing per RERA carpet area—“net usable floor area” excluding external walls, shafts, exclusive balconies/terraces, but including internal partition walls. (UP RERA)

Quick doc check: RERA certificate/number, sanctioned plans & commencement certificate, approval letters (fire/NOC/environment where applicable), draft Agreement for Sale (RERA format), and project’s quarterly progress disclosures. (ICSI)

2) Title, Land & Permissions

Obtain a Title Search Report and Encumbrance Certificate to ensure clean chain of title and absence of charges/litigation.
Verify land use per master plan, right of way, and that the development rights/joint-development agreements (if any) are registered.

3) Developer’s Track Record & Financial Strength

Past delivery (on-time vs delayed), cancellations, and handover quality across the last 5 years.
Litigation history and NCLT/IBC exposure.
Leverage and cash flow dependence (high gearing magnifies execution risk).

4) Location & Demand Drivers (micro-market)

Connectivity: commute to business hubs, metro access, airport/arterial roads.
Social infra: schools, hospitals, retail, and green spaces.
Supply–demand balance: inventory overhang, vacancy and absorption trends from reputable market reports (Knight Frank, JLL, ANAROCK). Note: residential yields vary by city; for instance, ANAROCK reported Bengaluru ~4.45% (Q1 2024)—among the highest. (Moneycontrol)

5) Construction Quality & Design

Structure & materials: RCC design loads, soil test report, shuttering system (MIVAN/Aluform), waterproofing plan.
Specifications: windows, sanitary fittings, wiring (gauge, ELCB/RCCB), elevators (brand, capacity), DG backup, water treatment.
Safety & sustainability: fire NOC, seismic zone provisions, STP, rainwater harvesting; optional IGBC/GRIHA rating.

6) Pricing: Get to the True “All-in” Cost

All-in Cost = Base Price + PLC + Car Park + Floor Rise + Club/Infra + Stamp Duty + Registration + GST (if applicable) + Misc.

GST basics: On under-construction residential, effective rates are 1% (affordable) or 5% (other), without ITC, for projects commencing on/after 1 April 2019. No GST on sale of completed/ready-to-move apartments where the completion/occupancy certificate (CC/OC) has been issued at the time of sale. (Goods and Services Tax Council, CBIC GST, The Financial Express)
Prefer price per carpet sq ft to compare apples-to-apples. (UP RERA)

7) Returns: Yield, IRR & Break-Even

Net Rental Yield (%) = (Annual Rent – Maintenance – Property Tax) ÷ All-in Cost × 100

EMI (monthly) = P×r×(1+r)nP \times r \times (1+r)^n / (1+r)n−1(1+r)^n – 1
where P = loan, r = monthly interest, n = months.

Project IRR: Build a cash-flow table (down-payments, milestone outflows, possession, rent/interest savings, final sale). Delay sensitivity: add 6–12 months of rent foregone/EMI without possession to see IRR erosion.

Rule of thumb: If Net Yield < home-loan cost (post-tax), your equity return relies on capital appreciation—stress-test scenarios.

8) Payment Plan & Cash-flow Risk

Prefer construction-linked schedules; avoid heavy front-loading.
Be cautious with “subvention/80:20”-type schemes; RBI has historically asked lenders to desist from upfront disbursals that transfer construction risk to banks/buyers. (Reserve Bank of India)
Maintain a contingency buffer (5–10% of base price) for overruns/interiors.

9) Exit & Liquidity

Who are the end-users/investors? What’s the resale depth at your ticket size?
For income-oriented exposure with transparency and liquidity, consider REITs (SEBI-regulated; must distribute ≥90% of net distributable cash and follow strict investment norms). (Securities and Exchange Board of India, Grant Thornton Bharat)
Commercial vs residential: lease covenants, lock-ins, fit-out responsibilities, and vacancy risk matter more than headline yields.

10) Red Flags

“Assured returns” or guaranteed buybacks from developers (often quasi-debt in disguise).
Deep discounts tied to early, non-refundable slabs.
Frequent plan changes, deviations from sanctioned drawings, or poor disclosure on RERA.
Unrealistic possession timelines vs construction pace and approvals.

Worked Micro-Example (Residential)

Carpet: 800 sq ft; Base: ₹1.00 cr; All-in: ₹1.18–1.20 cr (illustrative; state duties vary).
Market Rent: ₹35,000/month; Annual Net Rent (after ₹5k/m maintenance): ~₹3.6 lakh.
Net Yield: ~3.0% (= 3.6 ÷ 120). If your effective borrowing cost is ~8.5% p.a., yield won’t cover finance cost—your return depends on price growth.
Stress test: If possession slips by 9 months, add rent foregone to see IRR drag.

Essential Document Checklist (Buyer’s Pack)

RERA registration & quarterly disclosures; sanctioned plans; commencement certificate. (ICSI)
Title report & Encumbrance Certificate; land/khatian/RTC where applicable.
Draft Agreement for Sale (RERA format) with carpet area, specs, possession date, delay penalty, and defect liability.
Payment schedule, total all-in costs (stamp duty/registration/GST where applicable, PLC/parking/club). (Goods and Services Tax Council)
Letters/NOCs (fire, environment if applicable), and, at handover: OC/CC, building completion documents.

FAQs

1) How do I verify RERA details?
Search the project on your State RERA portal using its registration number. Review sanctioned plans, approvals, timelines, and quarterly updates disclosed there. (ICSI)

2) What exactly is RERA carpet area?
It’s the net usable floor area inside the apartment—excludes external walls, shafts, exclusive balcony/terrace; includes internal partition walls. Always benchmark price/sq ft on carpet. (UP RERA)

3) Is GST payable on ready-to-move flats?
No, when the sale occurs after CC/OC is issued; GST applies to under-construction sales (1% affordable, 5% other) without ITC. (Goods and Services Tax Council, The Financial Express)

4) How safe is my money during construction?
RERA requires 70% of collections to be kept in a separate account and withdrawn in line with construction progress, backed by professional certifications. Track this on RERA updates and ask for auditor confirmations. (Indian Kanoon, Haryana RERA)

5) Don’t want execution risk?
Consider listed REITs for fractional exposure to leased commercial assets with mandatory distributions under SEBI rules. (Securities and Exchange Board of India)

Final Takeaways

Start with RERA + title; if either is weak, walk away. (ICSI)
Normalize prices on carpet area and compute all-in cost before comparing. (UP RERA)
Model yield, IRR, and delay scenarios—your capital is illiquid for years.
Prefer construction-linked payments; be wary of subvention structures. (Reserve Bank of India)