Description
This is a PPT describing project appraisal principles.
PROJECT APPRAISAL – Principles
Introduction
? Food, Shelter and Cloth are the basic requirements of Human Development.
? Shelter plays an important role to harness human potential for overall development. ? Some basic requirements of financial institutions are to be understood properly for mobilisation of fund. ? Initially real estate business was predominantly promoter oriented and highly unorganized. ? Real estate sector is getting institutionalized to harness the benefit of professionalism, technology and economy of scale.
Objective of Project Appraisal
? Normally financial institutions evaluate the project from legal, technical, financial, marketing and institutional perspective ? to ensure that lending is
? ? ? ? ? for the right project and for right objectives money invested is adequately secured project is financially viable within repayment period sufficient demand is ensured for the project, and the promoter has adequate experience and capacity to implement the project.
Project Appraisal - Process
? Legal Eligibility ? Technical Feasibility ? Financial Viability ? Demand & Marketability ? Institutional Capability ? Risk Analysis
Law Related to Real Estate Projects
? ? ? ? ? ? ? ? Partnership Act Company Act – MoA, AoA Indian Registration Act Stamp Act Land Acquisition Act Regional Town Planning Act Development Control Rules ToP Act – Types of Mortgages
Legal Eligibility -Objectives
? Issues Related to
? Borrower ? Project ? Security
? The FIs would like to ensure that each rupee lent by them is adequately secured and utilized. Normally tangible security worth 150% of the loan outstanding is required to be maintained. The tangible securities are project land and properties, other unencumbered, marketable, immovable properties, pledge of shares/ debentures.
1.00 LEGAL ELIGIBITY
1.1 Establishment of Borrowing Eligibility and Power ? Corporate bodies and partnership firm are eligible to borrow money from Banks/FIs. The documents to be submitted to ensure eligibility to borrow are: ? In case of Partnership firm:Copy of the partnership deed. 1. Copy of form A and C issued by Registrar of Firms. 2. Certificate of Registration issued by Registrar of Firms.
? 1. 2. 3. 4.
In Case of Corporate Body:Memorandum & Articles of Association Copy of certificate of incorporation Copy of certificate of commencement of Business (in case of public limited companies only) Certified extract of form No.32 obtained from Registrar of Companies in original
? In Case of Public Company 1. Certified copy of Resolution passed by the Board of Directors to borrow under Sec.292 of the Companies Act,1956 2. Certified copy of resolution passed under Sec.293(1)d of Companies Act,1956
1.12 Details of Project Property ? The documents required to check the ownership, title, encumbrances and marketability of the property are: ? Sale Deed/Conveyance Deed/ Lease Deed in favor of the Firm/Company. ? 7/12 extracts / Property Rule card. ? Advocate’s title Certificate with Search Report indicating claim of ownership for last 30 years or more. ? Non-encumbrance Certificate ? Property Tax receipt ? Non Agriculture /Land use permission. ? Resolution/Consent to borrow as per the constitution of Borrower
? To ensure promoters commitment for the project sometimes personal guarantees of the promoters, corporate guarantee of the parent company are also sought for along with details such as personal movable and immovable properties, net worth of the parent company.
SECUIRITY -Mortgage
? Security: Normally the project property is to be mortgaged as Security for Loan. At any point of time, the coverage available shall be more than 150% of the Loan outstanding. ? There are 5 types of Mortgages – Simple, Usufractury, English Equitable, Analomous.
? ? ? In case of Simple Mortgage, the mortgage gets discharged, once agreed amount is paid. But in case of dispute one has to approach the court. English mortgage is basically a Sale, if agreed amount is not paid, the mortgagee can claim ownership and accordingly, dispose the property to realize his debt. Deposit of Title deed – as name itself indicates – is deposit of Original documents of the properties with the lender with an intention to create security for the repayment of the debt.
2.00 TECHNICAL FEASIBILITY:
? OBJECTIVE -to ensure that the project being funded is
? adopting latest technology available in the market; ? the construction is in line with the law of the land, ? the cost considered for various components is properly estimated, ? project implementation schedule is realistic and ? project is environmental friendly.
Land Suitability for the Project
? ? ? ? ? ? ? Land Use Location Accessibility Topography Infrastructure Facilities Available Extent of the Land Encumbrance Status
Cost of Land
? Value as per Regd Sale Deed –Purchase Price ? Land value- Circle /Collectors rate and present trend of land prices in the scheme area ? Valuation report of the properties from Government approved/HUDCO empanelled valuer for both Primary & Collateral security.
? TDR purchased/To be purchased, if any
Cost Estimates
? Cost estimates. ? Detailed estimates for development work.
? Detailed estimates for construction. ? Pre-operative expenditure ? Administrative/Supervision/Marketing expenses ? Interest on Debt during Construction period (IDCP) ? Details of cost saving techniques adopted. ? Specification of various components
Statutory Approvals
? ? Layout analysis (land use and area %). Approved / authenticated layout, building plan duly approved by local authority and location plan, IOD and commencement certificate for the project. Service plan (viz water supply, sewerage, electrical, fire) Certificate of Fire Officer along with note on fire safety equipments to be installed. NOC from Airport Authority of India Ltd. (If applicable) Environmental Impact Assessment Report (If applicable)
?
? ?
Fire force authority
? ? ? ? ? ? Access to project site Space around the building for movement Storage of Water both at GL & at OHT Building height more than --------mts Provision of Fire Escape & Refugee area Providing sprinklers and smoke detectors as per requirement
Airport Authority
? Requires if the project is with in the Air funnel Zone ? Height of the building
Availability of Services
? ? ? ? ? Water supply Electricity Waste Disposal Transportation Social Amenities viz., School, Hospital, Park, Market
Quality Aspects
? Soil testing report: Type of soil, bearing capacity of soil etc., ? Water Quality/Quantity Test Report – If using Ground Water ? Certificate for structural safety and confirmation that appropriate earthquake resistant design and construction as per ISI standard. ? Brief specification of Structure/Material/building ? Arrangement/Tie up for quality testing – Steel/Concrete Cubes, Other materials
Project Monitoring
? ? ? ? ? Quality Aspects Safety Issues Progress as per schedule Statutory Approvals Specification vis –vis proposed
PROMOTERS CAPABILITY –
Past Experience ? Proven record in successful completion of earlier projects ? Details of past performance i.e. Name of Project, Built up area constructed and sold, Project cost and time taken. Financial Track Record ? Copies of Income Tax and Wealth Tax returns for the immediate past 3 years ? Audited accounts for the past 3 years ? Net worth of the Company/Promoter
Promoter’s Asset base ? List of unencumbered immovable properties owned by them with their approximate market value ? List of guarantees furnished by them jointly and severally in the past, Details of the Guarantee invoked, if any ? Name and address of the Bankers, letter from the agency for seeking reference ? Details of collateral security offered and Valuation report. ? Details of repayment track record and litigations/default if any
Project Implementation
? ? ? ? ? ? Quarterly construction programme i.e., Bar/PERT chart for construction work. Quarterly Expenditure/Investment schedule. Project implementation procedure. Material availability, procurement, storage Details of efforts made for conservation of environment and tree plantation, Rainwater harvesting., etc System proposed for project management and maintenance
? ? ? During Construction After completion of the project. Safety Measures
FINANCIAL VIABILITY
? Objective
? Financial Concepts ? Borrower
? Promoter capability
? Project
? Assumptions for Source of Fund ? P
Certain Financial Concepts
? Capital Structure ? The concept Balance sheet and Profit and Loss Account ? Time Value of Money ? Break Even Analysis ? Ratio’s ? Escrow Account
Financial Indicators
? ? ? ? ? ? ? Debt Equity Ratio Fixed Asset Coverage Ratio -FACR Debt Service Coverage Ratio –DSCR Payback Period Internal Rate of Return-IRR Return on Equity Break Even Analysis
Capital Structure
? Capital Consists of Promoters Money ( Capital) and Borrowed Money (Debt) ? Capital
? Promoters Share capital/Contribution ? Preferential, Convertable, Redeemable -share ? Unsecured Loan from Relatives and Friends
? Debt – Loan , Debentures
Project Viability
? Details of assumption made for calculation of receipts and expenditure with Justification ? Profitability/cash flow statement, calculation of financial indicators ? Details of Sources of Fund with supporting documents ? Ratio analysis – DSCR, IRR, ROE, Break Even, Pay back period ? Sensitivity w.r.t various key assumptions made separate/cumulative ? Risk Factors, Allocation, Mitigate Mechanism
Note:
? Minimum DSCR shall be 1.2 and average shall be more than 1.5 ? Minimum IRR of the project should be at least 2% more than the proposed rate of interest ? Pay Back Period – shall be 1-3 years less than the proposed rep. period ? Debt Equity ratio shall be within 2:1
MARKETABILITY:
? Demand profile for similar properties/services in nearby areas ? Location advantage of the proposed project i.e. proximity to essential conveniences like schools, hospitals, commercial centers etc. ? Marketability of the proposal vis-à-vis demand ? Marketing arrangement ? Detailed Demand assessment and Market survey Report from reputed agency
RISK ANALYSIS and MITIGATION MEASURES:
? ? ? ? ? ?
Statutory Approvals Construction Risk Commissioning/Marketing Risk Political Risk Repayment/Default Risk Loan Security Risk
PREPARATION OF PROJECT FEASIBILITY REPORT
Chapter/ Contents
1 2 3 4 5 6 7 8 9 Executive Summary of the project Introduction Details of the promoters Details of the project –Technical, Financial, Legal Demand and Marketability Financial viability Sensitivity / SWOT Analysis / Risk Analysis Statutory approvals Present Status
Data Sheets
? ? ? ? ? ? ? ? Land Area, FSI permissibility Block wise, Floor wise FSI/Non-FSI BUA Statement Project Cost & Means of Finance Investment Schedule Cash Flow, Profitability, Loan Drawl/Rept Financial viability, Fin. Indicators Group Fin. Infn. – 3yrs Promoter Financial infn.- 3 yrs
Enclosures
? ? ? ? ? ? ? ? Land Documents MoU, AoA, Bye Laws Layout Drawing Building Drawings with Cost Estimate Statutory Approvals Financial Details of Company Details of Promoter – IT/WT, Net worth Present Bankers and Status of Repayment
Thank You
doc_857268276.pptx
This is a PPT describing project appraisal principles.
PROJECT APPRAISAL – Principles
Introduction
? Food, Shelter and Cloth are the basic requirements of Human Development.
? Shelter plays an important role to harness human potential for overall development. ? Some basic requirements of financial institutions are to be understood properly for mobilisation of fund. ? Initially real estate business was predominantly promoter oriented and highly unorganized. ? Real estate sector is getting institutionalized to harness the benefit of professionalism, technology and economy of scale.
Objective of Project Appraisal
? Normally financial institutions evaluate the project from legal, technical, financial, marketing and institutional perspective ? to ensure that lending is
? ? ? ? ? for the right project and for right objectives money invested is adequately secured project is financially viable within repayment period sufficient demand is ensured for the project, and the promoter has adequate experience and capacity to implement the project.
Project Appraisal - Process
? Legal Eligibility ? Technical Feasibility ? Financial Viability ? Demand & Marketability ? Institutional Capability ? Risk Analysis
Law Related to Real Estate Projects
? ? ? ? ? ? ? ? Partnership Act Company Act – MoA, AoA Indian Registration Act Stamp Act Land Acquisition Act Regional Town Planning Act Development Control Rules ToP Act – Types of Mortgages
Legal Eligibility -Objectives
? Issues Related to
? Borrower ? Project ? Security
? The FIs would like to ensure that each rupee lent by them is adequately secured and utilized. Normally tangible security worth 150% of the loan outstanding is required to be maintained. The tangible securities are project land and properties, other unencumbered, marketable, immovable properties, pledge of shares/ debentures.
1.00 LEGAL ELIGIBITY
1.1 Establishment of Borrowing Eligibility and Power ? Corporate bodies and partnership firm are eligible to borrow money from Banks/FIs. The documents to be submitted to ensure eligibility to borrow are: ? In case of Partnership firm:Copy of the partnership deed. 1. Copy of form A and C issued by Registrar of Firms. 2. Certificate of Registration issued by Registrar of Firms.
? 1. 2. 3. 4.
In Case of Corporate Body:Memorandum & Articles of Association Copy of certificate of incorporation Copy of certificate of commencement of Business (in case of public limited companies only) Certified extract of form No.32 obtained from Registrar of Companies in original
? In Case of Public Company 1. Certified copy of Resolution passed by the Board of Directors to borrow under Sec.292 of the Companies Act,1956 2. Certified copy of resolution passed under Sec.293(1)d of Companies Act,1956
1.12 Details of Project Property ? The documents required to check the ownership, title, encumbrances and marketability of the property are: ? Sale Deed/Conveyance Deed/ Lease Deed in favor of the Firm/Company. ? 7/12 extracts / Property Rule card. ? Advocate’s title Certificate with Search Report indicating claim of ownership for last 30 years or more. ? Non-encumbrance Certificate ? Property Tax receipt ? Non Agriculture /Land use permission. ? Resolution/Consent to borrow as per the constitution of Borrower
? To ensure promoters commitment for the project sometimes personal guarantees of the promoters, corporate guarantee of the parent company are also sought for along with details such as personal movable and immovable properties, net worth of the parent company.
SECUIRITY -Mortgage
? Security: Normally the project property is to be mortgaged as Security for Loan. At any point of time, the coverage available shall be more than 150% of the Loan outstanding. ? There are 5 types of Mortgages – Simple, Usufractury, English Equitable, Analomous.
? ? ? In case of Simple Mortgage, the mortgage gets discharged, once agreed amount is paid. But in case of dispute one has to approach the court. English mortgage is basically a Sale, if agreed amount is not paid, the mortgagee can claim ownership and accordingly, dispose the property to realize his debt. Deposit of Title deed – as name itself indicates – is deposit of Original documents of the properties with the lender with an intention to create security for the repayment of the debt.
2.00 TECHNICAL FEASIBILITY:
? OBJECTIVE -to ensure that the project being funded is
? adopting latest technology available in the market; ? the construction is in line with the law of the land, ? the cost considered for various components is properly estimated, ? project implementation schedule is realistic and ? project is environmental friendly.
Land Suitability for the Project
? ? ? ? ? ? ? Land Use Location Accessibility Topography Infrastructure Facilities Available Extent of the Land Encumbrance Status
Cost of Land
? Value as per Regd Sale Deed –Purchase Price ? Land value- Circle /Collectors rate and present trend of land prices in the scheme area ? Valuation report of the properties from Government approved/HUDCO empanelled valuer for both Primary & Collateral security.
? TDR purchased/To be purchased, if any
Cost Estimates
? Cost estimates. ? Detailed estimates for development work.
? Detailed estimates for construction. ? Pre-operative expenditure ? Administrative/Supervision/Marketing expenses ? Interest on Debt during Construction period (IDCP) ? Details of cost saving techniques adopted. ? Specification of various components
Statutory Approvals
? ? Layout analysis (land use and area %). Approved / authenticated layout, building plan duly approved by local authority and location plan, IOD and commencement certificate for the project. Service plan (viz water supply, sewerage, electrical, fire) Certificate of Fire Officer along with note on fire safety equipments to be installed. NOC from Airport Authority of India Ltd. (If applicable) Environmental Impact Assessment Report (If applicable)
?
? ?
Fire force authority
? ? ? ? ? ? Access to project site Space around the building for movement Storage of Water both at GL & at OHT Building height more than --------mts Provision of Fire Escape & Refugee area Providing sprinklers and smoke detectors as per requirement
Airport Authority
? Requires if the project is with in the Air funnel Zone ? Height of the building
Availability of Services
? ? ? ? ? Water supply Electricity Waste Disposal Transportation Social Amenities viz., School, Hospital, Park, Market
Quality Aspects
? Soil testing report: Type of soil, bearing capacity of soil etc., ? Water Quality/Quantity Test Report – If using Ground Water ? Certificate for structural safety and confirmation that appropriate earthquake resistant design and construction as per ISI standard. ? Brief specification of Structure/Material/building ? Arrangement/Tie up for quality testing – Steel/Concrete Cubes, Other materials
Project Monitoring
? ? ? ? ? Quality Aspects Safety Issues Progress as per schedule Statutory Approvals Specification vis –vis proposed
PROMOTERS CAPABILITY –
Past Experience ? Proven record in successful completion of earlier projects ? Details of past performance i.e. Name of Project, Built up area constructed and sold, Project cost and time taken. Financial Track Record ? Copies of Income Tax and Wealth Tax returns for the immediate past 3 years ? Audited accounts for the past 3 years ? Net worth of the Company/Promoter
Promoter’s Asset base ? List of unencumbered immovable properties owned by them with their approximate market value ? List of guarantees furnished by them jointly and severally in the past, Details of the Guarantee invoked, if any ? Name and address of the Bankers, letter from the agency for seeking reference ? Details of collateral security offered and Valuation report. ? Details of repayment track record and litigations/default if any
Project Implementation
? ? ? ? ? ? Quarterly construction programme i.e., Bar/PERT chart for construction work. Quarterly Expenditure/Investment schedule. Project implementation procedure. Material availability, procurement, storage Details of efforts made for conservation of environment and tree plantation, Rainwater harvesting., etc System proposed for project management and maintenance
? ? ? During Construction After completion of the project. Safety Measures
FINANCIAL VIABILITY
? Objective
? Financial Concepts ? Borrower
? Promoter capability
? Project
? Assumptions for Source of Fund ? P
Certain Financial Concepts
? Capital Structure ? The concept Balance sheet and Profit and Loss Account ? Time Value of Money ? Break Even Analysis ? Ratio’s ? Escrow Account
Financial Indicators
? ? ? ? ? ? ? Debt Equity Ratio Fixed Asset Coverage Ratio -FACR Debt Service Coverage Ratio –DSCR Payback Period Internal Rate of Return-IRR Return on Equity Break Even Analysis
Capital Structure
? Capital Consists of Promoters Money ( Capital) and Borrowed Money (Debt) ? Capital
? Promoters Share capital/Contribution ? Preferential, Convertable, Redeemable -share ? Unsecured Loan from Relatives and Friends
? Debt – Loan , Debentures
Project Viability
? Details of assumption made for calculation of receipts and expenditure with Justification ? Profitability/cash flow statement, calculation of financial indicators ? Details of Sources of Fund with supporting documents ? Ratio analysis – DSCR, IRR, ROE, Break Even, Pay back period ? Sensitivity w.r.t various key assumptions made separate/cumulative ? Risk Factors, Allocation, Mitigate Mechanism
Note:
? Minimum DSCR shall be 1.2 and average shall be more than 1.5 ? Minimum IRR of the project should be at least 2% more than the proposed rate of interest ? Pay Back Period – shall be 1-3 years less than the proposed rep. period ? Debt Equity ratio shall be within 2:1
MARKETABILITY:
? Demand profile for similar properties/services in nearby areas ? Location advantage of the proposed project i.e. proximity to essential conveniences like schools, hospitals, commercial centers etc. ? Marketability of the proposal vis-à-vis demand ? Marketing arrangement ? Detailed Demand assessment and Market survey Report from reputed agency
RISK ANALYSIS and MITIGATION MEASURES:
? ? ? ? ? ?
Statutory Approvals Construction Risk Commissioning/Marketing Risk Political Risk Repayment/Default Risk Loan Security Risk
PREPARATION OF PROJECT FEASIBILITY REPORT
Chapter/ Contents
1 2 3 4 5 6 7 8 9 Executive Summary of the project Introduction Details of the promoters Details of the project –Technical, Financial, Legal Demand and Marketability Financial viability Sensitivity / SWOT Analysis / Risk Analysis Statutory approvals Present Status
Data Sheets
? ? ? ? ? ? ? ? Land Area, FSI permissibility Block wise, Floor wise FSI/Non-FSI BUA Statement Project Cost & Means of Finance Investment Schedule Cash Flow, Profitability, Loan Drawl/Rept Financial viability, Fin. Indicators Group Fin. Infn. – 3yrs Promoter Financial infn.- 3 yrs
Enclosures
? ? ? ? ? ? ? ? Land Documents MoU, AoA, Bye Laws Layout Drawing Building Drawings with Cost Estimate Statutory Approvals Financial Details of Company Details of Promoter – IT/WT, Net worth Present Bankers and Status of Repayment
Thank You
doc_857268276.pptx