Risk Analysis and Financial Models for Residential Projects

Risk Analysis and Financial Models for Residential Real Estate Project in Ahmedabad
Shyam J. Tanna (MIED 301514)
Risk Analysis and Financial Models for Residential Real
Estate Project in Ahmedabad
Shyam Jitendrakumar Tanna
Code №: PT301514
2016
M.Tech. in Infrastructure Engineering Design
Faculty of Technology
CEPT University
Ahmedabad, India

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Undertaking
I, Shyam Jitendrakumar Tanna, the author of the thesis titled Risk Analysis and Financial
Models for Residential Real Estate Project in Ahmedabad, hereby declare that this is an
independent work of mine and does not constitute plagiarism carried out towards partial
fulfilment of the requirements for the award of the M.Tech. Degree in Infrastructure
Engineering Design at the Faculty of Technology, CEPT University, Ahmedabad, India. This
work has not been submitted to any other institution for the award of any Degree/Diploma.
Name of student : Shyam Jitendrakumar Tanna
Code No: : PT301514
Date : 16th
May 2016
Place : Ahmedabad

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Certificate
This is to certify that the thesis titled “Risk Analysis and Financial Models for Residential
Real Estate Project in Ahmedabad” has been submitted by Shyam Jitendrakumar Tanna
towards partial fulfilment of the requirements for the award of M.Tech. Degree in
Infrastructure Engineering Design and has been carried out under my/our supervision.
Guide : Prof. Charanjeet Singh
Date : 16th
May 2016

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Disclaimer
This document describes work undertaken as part of the MIED program at the Faculty of
Technology, CEPT University. All views and opinions expressed therein remain the sole
responsibility of the author, and do not necessarily represent those of the institute.

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Acknowledgement
I provide my heartfelt regards and sincere thanks to my thesis guide, Prof. Charanjeet Singh,
and supporting faculty, Prof. Tushar Bose who has been a constant source of inspiration and
provided all technical and moral support during the course of research. Working under his
guidance has been a great learning experience.
I am indebted to my thesis reviewer Jaysheel Patel, for his invaluable guidance and
encouragements towards the successful completion of the study. It was he who helped me
continuously in financial modelling and also I thank collectively to various managers of lending
institute and the managers of real estate firms for providing necessary data and invaluable help.
It was because of them that such sensitive data was made available to us. Thanks for placing
your trust in us.
I am highly obliged to my parents, my sister and my brother who inspired me to pursue my
Masters in Infrastructure Engineering Design.
I am also grateful to Mr. Hitesh Vyas, owner of real estate development firm Vishwanth
Builders in Ahmedabad who gave me a chance to learn development process and also pointing
out the pros and cons of my models.
I am also very grateful to Mr. A Khandual, Ex. General Manager IDBI bank for lending his
precious time in reviewing my financial models and providing valuable feedback on same.
On a personal note I would like to express thanks to all my batch mates who helped me during
the critical stage in my journey of two years.

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Table of Contents
Introduction ......................................................................................................................10
1.1 Highlights from 2016 Budget for Real Estate sector ................................................10
1.2 Need for Study ..........................................................................................................11
1.3 Aim............................................................................................................................12
1.4 The objectives of the study........................................................................................12
1.5 Methodology .............................................................................................................12
Literature Review .............................................................................................................13
2.1 What is risk?..............................................................................................................13
2.2 Fuzzy consensus Qualitative risk analysis as a framework for evaluation of risk
events in real estate developments (Aboushady & El-sawy, 2014).....................................14
2.3 Construction finance for builders and developers (Patel, 2015) ...............................15
2.3.1 Informal Investors..............................................................................................15
2.3.2 Simple Mortgage................................................................................................15
2.3.3 Debt Model ........................................................................................................16
2.3.4 Private Equity – Waterfall model ......................................................................16
2.4 Limited Liability Partnership (Ministry, corporate, & Affairs, 2012) ......................18
2.5 Joint venture (KPMG, 2015).....................................................................................20
2.6 Joint development (KPMG, 2015) ............................................................................20
2.7 Development Management (KPMG, 2015) ..............................................................21
Data Collection and Analysis ...........................................................................................22
3.1 Loss due to Inflation..................................................................................................22
3.2 Increase in price of raw materials .............................................................................22
3.3 Increase in cost of equipment....................................................................................23
3.4 Increase in Labour wages..........................................................................................23
3.5 Currency devaluation and variable rate of exchange ................................................24
3.6 Increase in borrowing rate of interest banks .............................................................24

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3.7 Decrease in the financial credibility of the contractors.............................................25
3.8 Increase in the Govt. restriction to finance construction companies.........................25
3.9 Increase in Design fees..............................................................................................26
3.10 Shortage of skilled contractors and sub-contractors .................................................26
3.11 Poor labour productivity............................................................................................27
3.12 Lack of project management.....................................................................................27
3.13 Increase in the cost of land disputes..........................................................................27
3.14 Incomplete design information..................................................................................28
3.15 Increase in the regulation costs .................................................................................28
3.16 Delay of work drawings ............................................................................................29
3.17 Ambiguities, fault and inconsistent specification .....................................................29
3.18 Design difficulty impacting construction work.........................................................30
3.19 Delay of the owner progress payment.......................................................................30
3.20 Increase in the cost of purchasing land .....................................................................30
3.21 Incorrect data and information such as surveying mistakes......................................31
3.22 Increase in registration costs .....................................................................................31
3.23 Increase in income taxation.......................................................................................32
3.24 Summary Analysis at Glance ....................................................................................32
Application of Existing Models in the case of Ahmedabad .............................................34
4.1 Case Study – Residential Project in Bopal, Ahmedabad ..........................................34
4.1.1 Land acquisition activity....................................................................................34
4.1.2 Applications of Models in above stated case study. ..........................................42
Conclusion / Recommendation.........................................................................................43
5.1 Crowd Funding for Real Estate (Moll & Benjamin, 2014).......................................43
5.2 Regulatory framework for Crowdfunding in various Jurisdictions (SEBI, 2014) ....45
5.2.1 United States of America...................................................................................45
5.2.2 New Zealand ......................................................................................................46

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5.2.3 Australia.............................................................................................................46
5.2.4 Canada................................................................................................................46
5.2.5 United Kingdom.................................................................................................46
5.2.6 France.................................................................................................................47
5.2.7 Indian Scenario ..................................................................................................48
5.3 Crowd Funding for Indian Real Estate......................................................................52
5.3.1 Loan-Based Crowdfunding Platforms ...............................................................52
5.3.2 Investment-Based Crowdfunding Platforms......................................................55
5.4 Swap Interest (Sivakumar & Sarkar) ........................................................................59
5.4.1 Benefits of Interest Swaps (Krishnan & Ajgaonkar, 2014)...............................59
5.4.2 Regulations and Impacts (Krishnan & Ajgaonkar, 2014)..................................60
5.5 Swap Interest – Plain Vanilla (Fixed to Floating Interest rates in same currency)...60
Bibliography.....................................................................................................................62

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List of Figures
Table 1 List of Land Acquisition Activity associated with their time and duration................35
Table 2 List of AUDA/AMC cost............................................................................................36
Table 3 List of Design activity associated with their cost and duration ..................................36
Table 4 List of Marketing activity associated with their cost and duration.............................37
Table 5 List of Construction activity associated with their cost and duration.........................38
Table 6 Number of Units sold at each month ..........................................................................39
Table 7 Selling Price of Units respectively to month of sales .................................................39
Table 8 Loan Disbursement Schedule in Simple Mortgage ....................................................39
Table 9 Payment Schedule for the customers respect to month of their purchase ..................40
Table 10 Revenue Generation of each month in Simple Mortgage.........................................41
Table 11 Results of Traditional Models in the case study.......................................................42
Table 12 Sales Activity Assumed according to RERA ...........................................................53
Table 13 Revenue Generation according to RERA .................................................................53
Table 14 Loan Disbursement Schedule in Crowd Funded Simple Mortgage .........................54
Table 15 Cash Flow after PAT in Crowdfunded Simple Mortgage ........................................54
Table 16 Cash Flow of the Company ......................................................................................56
Table 17 Cash Flow returns of Developer and Crowdfunding Platform.................................57
Table 18 Cash flow after tax for developer and Crowdfunding Platform ...............................58
Table 19 Results of Study........................................................................................................61

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Introduction
Real Estate sector plays an important role in driving national economy. It is the second biggest
sector constituting more than 6% of the national GDP. In 2015-16 Indian economy grew by
7.6% annually. The estimated size or of Real estate market in 2013 was about $121 billion. As
per CCI estimates, it is expected to grow up to $180 billion.
The real estate sector has been witnessing a slowdown mainly on account of global economic
conditions over the past few years, while on one hand we saw a uptake in Private Equity
funding due to attractive valuation, it has also been observed that “Developers in the region
(western region) are also in struggling as their balance sheets are over extended and debt is
piling up with significant interest pay-outs every year without any significant cash
inflows.”(Propequity)
Indian government in order to stimulate activity in Real estate sector and to help economy has
proposed various scheme such as Sardar Patel Urban Housing Scheme which proposes to build
30 million houses by 2022 under PPP model. In spite of all this developers are exposed to a
high level of risks in fields of Finance, Construction and Legal.
1.1 Highlights from 2016 Budget for Real Estate sector
 100% deduction for profits to an undertaking in housing project for flats up to 30 sq.
metres in four metro cities and 60 sq. metres in other cities, approved during June 2016
to March 2019 and completed in three years. MAT to apply.
 Deduction for additional interest of 50,000 per annum for loans up to 35 lakh sanctioned
in 2016-17 for first time home buyers, where house cost does not exceed 50 lakh.
 Exemption from service tax on construction of affordable houses up to 60 square metres
under any scheme of the Central or State Government including PPP Schemes.
 Extend excise duty exemption, presently available to Concrete Mix manufactured at
site for use in construction work to Ready Mix Concrete.

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1.2 Need for Study
Real estate in India is about to witness remarkable change with the onset of real estate bill.
Some of the leading market analyst like Anuj Puri, JLL have said real estate sector would
experience the similar kind of boom which it had experienced in 2007. According to Puri Real
estate market in housing is predicted to grow with CAGR of 11.2% until 2020.
The phenomenal growth along with new bill will bring big opportunities for the global players
in India. The world sees India as land of opportunity for business and investment. Private
Equity investors like KKR, Blackstone, RedFort Capital and Everstone had an average return
on investments about 20 to 25% annually. Thus seeing this opportunities and return on
investment Real Estate market is bound to witness huge change in 2016 over the past year and
half.
Private Equity models were the hot cakes in real estate markets since 2007 and seeing this
investors are now eyeing risks involved over the investment. Currently the trend India and in
this case Ahmedabad there is no method envisaged by the developers on assessing of risks in
the Real Estate business.
Thus looking at the changing trend and urgent need this study has been thought for residential
sector in Ahmedabad. A small effort is made here to assess risk in real estate market and how
could this be incorporated in Private Equity Financing models.

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1.3 Aim
To propose financial approach model incorporating risk as a parameter using risk assessments
model for the city of Ahmedabad
1.4 The objectives of the study
 To prepare a comprehensive lists of risks based on Literature survey
 To conduct primary survey and understand the gravity / significance of these risks
 To study innovative models of real estate Project Finance to reduce the risks
 To study and suggest means to apply the said financial models in India.
1.5 Methodology
The study methodology for the given research is outlined below
1. Proposed study
Establishing of the need of study, aim and
objectives
2. Literature Review
Understanding of prevalent financial models for
real estate projects, review risk assessments
methods in real estate business
3. Data collection
Developer questionnaire survey on risks associated
with RE development. (Primary survey)
4. Data analysis
Analysing of the derived primary data using risk
assessment method.
5. Conclusion
To study and suggest means to apply the said
financial models in India.

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Literature Review
2.1 What is risk?
According to Hargitay and Yu (1993) risk is defined as where:
i. There is a probability of loss
ii. There is a probability that the investor will not receive the expected or required rate of
return
iii. There could be deviation of realizations from expectations
iv. There is variance or volatility of returns
Depending on origin Hargitay and Yu (1993), Brown and Matysiak (2000) and Baum and
Crosby (2008) define risks in real estate into two types:
a) Systematic Risks
Risks which are not under the control of the investors as well as developers like political and
economic issues.
e.g. – Market risk, cyclical risk, inflation, interest rate
b) Unsystematic Risks
Risks which have some degree of control by developers and investors
e.g. – Business risk, financial risk, liquidity risk, construction and execution risks
o Various authors have attempted to describe risks associated with different phases of Real
estate Planning or feasibility stage are liability matching, liquidity, marketability, taxation
liability, transaction cost, management cost, investor’s growth expectation
etc.(Fraser,1993)
o During execution or construction stage are market related risks, completion risk,
institutional risk, financial risk, physical risk, regulatory risk (Miller and Lessard, 2008)
According to a Royal Society investigation, Pidgeon, et al. (1992) classified risk into risks into
two types depending on the perception:
o Subjective Risks which cannot be quantified mathematically or statistically.
o Objective Risks which can be mathematical or statistically assessed.

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To further assess the risks in Real estate development I have reviewed many research papers
and a research paper by an Egyptian author discussed about risks in the context of developing
countries. My study approach builds up on the methodology adapted in this research paper. A
brief synopsis of the same is provided in the following section.
2.2 Fuzzy consensus Qualitative risk analysis as a framework for
evaluation of risk events in real estate developments (Aboushady & El-
sawy, 2014)
This paper adopts 3 models to evaluate and rank risk
1. Fuzzy expert system (FES) model which is used to determine qualification of the
experts
2. Fuzzy similarity aggregation model which is used aggregate experts opinion and.,
3. A three dimensional prioritization approach to rank risks qualitatively.
The whole evaluation system could be summed up in a four step process
Step-1: Surveying the Experts
This step consist of going to experts in the Real estate industry of Ahmedabad both developers
and consultants to find out the risks in Ahmedabad’s real estate development. The risks are
then are asked to be weighed in the scale of 1 to 5 , 1 stands for Very low , 2 for Low, 3 for
Medium, 4 for High and 5 for Very high.
Step-2: Applying Fuzzy Expert System (FES)
In this step the importance weight of each expert is decided on the basis of the attributes laid
down for their assessment being experience in real estate, academic qualification, role in the
company, diversity of experience
Step-3: Aggregating Experts opinions using Fuzzy Similarity Aggregation Algorithms
This step involves averaging the degree of similarity of each expert with respect to n number
of experts thus giving out weighted average opinion of each expert.
Step-4: Applying three dimensional ranking approach to rank risks qualitatively
In this approach a table is prepared listing risk events against probability of occurrence, impact,
level of detection and risk criticality.

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Hence, it gives us risk event table ranked from high to low which could be used for future
purpose in real estate development.
2.3 Construction finance for builders and developers (Patel, 2015)
The cash outlay for any real estate project comprises of the cost of land, site development,
construction and other related expenses. The only sources which are available to a builder or
developer for meeting such expenditure are:
 Own capital
 Loans and advances from relatives and business associated
 Receipts from disposal of investment
 Booking/deposit money from end users (buyers of dwelling units, shops, office spaces
or otherwise).
The gap between the requirement and the available resources can be bridge by taking credit
from financial institutions. Such loans and advances are called term loans/ construction finance.
Currently in case of real estate project finance generally two models are prevailing in case of
Ahmedabad.
 Informal Investors
 Simple Mortgage
2.3.1 Informal Investors
Informal investors are also known as equity partner in the project. Buying ownership interest
in a project through privately traded equity is called private equity investment. Partnership
interest in a private real estate company is popular mode of investment in Indian real estate
market. The amount of money invested by investor gets the same amount of units in the project.
2.3.2 Simple Mortgage
The transfer of property Act (1882) describe mortgage as “the transfer of an interest in specific
immoveable property for the purpose of securing the payment of an existing or future debt.”
The entity that lends the mortgage loan is called the mortgagee. The borrower of the mortgage
loan is regard as the mortgagor. The mortgagor repays the mortgage amount in serval
instalments over a period of time agreed upon by the mortgagor and the mortgagee. This time

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period is called the maturity of the loan. The mortgagor usually pays back the loan in serval
Equated Monthly instalment (EMIs). An EMI, in most cases, has both principal and interest
components. The EMI is also called as debt service and can be described in annual or monthly
bases. In simple mortgage the mortgagor (developer) simply declares an owner property as a
security to loan, amount which the mortgagor (developer) may need for purpose of
construction. (Prashant Das) In case of the Ahmedabad all the lending institute generally
provide loan only for the construction.
Some other methods of financing are
2.3.3 Debt Model
In these model when developer applies for the construction or project finance it gives guarantee
to bank or lending institute that the amount which is approved same amount of housing loan
will be taken from their institute. Advantage of this model to lending institute is the risk
reduction, the marketing cost of lending institute will reduced, low rate of NPA. The advantage
to customer will be as entire project is mortgaged by the developer customer don’t have to pay
the processing fees as well as mortgage stamp duty. From developer’s perspective developer
may get reduction in rate of interest.
2.3.4 Private Equity – Waterfall model
 Private equity can be thought of as an investment in preferred equity and a residual or
common equity position, where the operating partner’s residual interest is larger than its
preferred interest. When the operating partner is a real estate developer, the difference
between the size of the residual and preferred positions, called carried interest in private
equity funds, is referred to as the developer’s “promote” payment.
 The distribution of these residual cash flows, often referred to as the cash flow “waterfall”,
is driven by a host of factors including project performance, leverage, the relationship
between market capitalization rates and preferred returns, IRR cash distribution rules, and
the investment holding period.
 Cash distribution or waterfall rules in private equity structures employ performance-based
standards under which distribution percentages change once a performance threshold has
been met. However, the waterfall rules vary. Perhaps the simplest rule and the one most
common in real estate development allocates project cash flow “pari pasu” (in proportion

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to invested capital) until a preferred IRR target has been met, at which time cash flow
percentages between the operating partner and capital partner(s) shift toward the operating
partner. (Hutchison, 2012)
 The operating partner receives carried interest or promote payments. Under this rule,
carried interest or promote payments are earned only after the return of and preferred return
on invested equity capital.
 Other private equity distribution rules are similar, except that fund waterfalls are frequently
more liberal in the payment of carried interest. For instance, fund distribution rules often
call for the payment of carried interest on all profit, as defined in accountancy, subject to
the requirement that the capital partners meet their preferred return hurdle. This is
essentially a requirement that cash distributions be paid pari pasu until all invested equity
capital is returned, at which time carried interest or promote payments are received by the
operating partner.
 Alternatively, distribution rules may require pari pasu splits until the preferred return hurdle
has been met, but then a much higher “catch-up” operating partner split until a targeted
percentage of the total profit has been reached.

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2.4 Limited Liability Partnership (Ministry, corporate, & Affairs, 2012)
“The Limited Liability Partnership Act 2008 was published in the official Gazette of India on
January 9, 2009 and has been notified with effect from 31 March 2009. However, the Act, has
been notified with limited sections only. The rules have been notified in the official gazette on
April 1, 2009. The first LLP was incorporated in the first week of April 2009.”
The concept of LLP was introduced in 2008 and since then they are growing in popularity and
growing significantly. LLP have all the advantages of Private Limited Company such as limited
liability along with additional benefits like
1. “In India, for all purposes of taxation (Service Tax or any other stipulated Tax
payment), an LLP is treated like any other partnership firm.”
2. “Be limited to their agreed contribution in the LLP.”
3. “Further, no partner would be liable on account of the independent or unauthorized
actions of other partners, thus allowing individual partners to be shielded from joint
liability created by another partner's wrongful business decisions or misconduct.”
4. “LLP shall be a body corporate and a legal entity separate from its partners. It will have
perpetual succession. Indian Partnership Act, 1932 shall not be applicable to LLPs and
there shall not be any upper limit on number of partners in an LLP unlike an ordinary
partnership firm where the maximum number of partners cannot exceed 20, LLP Act
makes a mandatory statement where one of the partner to the LLP should be an Indian.”
5. “Provisions have been made for corporate actions like mergers, amalgamations etc.”
6. ”While enabling provisions in respect of winding up and dissolutions of LLPs have
been made, detailed provisions in this regard would be provided by way of rules under
the Act.”
7. “The Act also provide LP."
8. “The Registrar of Companies (Roc) shall register and control LLPs also.”
Characteristics of LLP
1. Separate legal entity: “Like a company LLP also has a separate Legal Entity. So the
partners and the LLP in are distinct from each other. This is like a company where
members are different from the company.”

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2. No requirement of minimum capital: “In case of companies there should be a
minimum amount of capital that should be brought by the members / owners who want
to form it. But to start an LLP there is no requirement of minimum capital.”
3. Minimum number of members: “To start a Limited Liability Partnership at least 2
members are required initially. However, there is no limit on the maximum number of
partners.”
4. No requirement of compulsory Audit: “All the companies, whether private or public,
irrespective of their share capital, are required to get their accounts audited. But in case
of LLP, there is no such mandatory requirement.” A Limited Liability Partnership is
required to get the audit done only if: -
a. If the contributions of the LLP exceeds Rs.25 Lakhs, or
b. If the annual turnover of the LLP exceeds Rs.40 Lakhs.
Benefits of LLP
1. “It is more flexible to organize the internal structure of LLP. Comparatively it is
complex to organize the internal structure of a company.”
2. “There is no maximum limit for the no. of partners in LLP. In the private limited
company shareholders are limited to the extent of 200 shareholders.”
3. “Raising and utilization of funds depends on the partners will. Funds can be bought and
utilized only as per the norms listed under the Companies Act, 2013.”
4. “LLP is exempt of Dividend Distribution Tax (DDT). Company has to pay DDT on
dividend distribution.”
Demerits of LLP
LLP as well have some limitations within. Some of them can be summarized as below.
Any act of the partner without the other partner, may bind the LLP
1. LLP cannot raise money from public.
2. Angel Investor or Venture Capital Firms does not prefer LLP.

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Registration Process of LLP
 Obtain Digital Signature for the partners.
 Apply for the DIN (Director Identification Number) Number which is necessary to
becoming a partner in the LLP.
 Apply for the Name Approval for the LLP Registration.
 Issued the Certificate of Incorporation which is the proof for the registration.
 File LLP Agreements and Open a Current Bank Account
2.5 Joint venture (KPMG, 2015)
 “Forms LLP”
 “Land owner gets 50% upfront”
 “Construction and financing risks with developer”
 “Capital gains would be applicable to land owner”
 “Development mix, product mix, amenities, FSI utilization, methodology for sharing
additional FSI cost, marketing plan for the project, project cost, sales price, and
timelines for development is required to be finalized by both parties”
 “The land owner has affirmative rights in matters like changes in capital structure,
additional capital outlay, increase in project cost, change in project consultant,
architects, etc.”
 “A penalty clause could be incorporated if the project is delayed beyond agreed
timelines after factoring in grace period and delay on account of points mentioned under
force majeure in the JVA”
2.6 Joint development (KPMG, 2015)
 “From a land owner perspective, only the economic interest/development rights is
transferred to the developer and the land owner retains possession of the land parcel”
 “10-15 per cent of the land value would be payable as an upfront deposit”
 “The land owner also gets either a revenue share or an area share from the project.”

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2.7 Development Management (KPMG, 2015)
 “Overall construction risk of the project tends to vest with the land owner”
 “the developer gets paid a marketing fee for marketing and branding the project”
 “From a developer perspective, DM provides them the opportunity to market multiple
projects across various cities and locations, thus building a scalable business model.”
 “The developer would be responsible for the management of the entire project”
 “The land owner gets access to the developer’s brand and development expertise”
 “Construction risk rests with the land owner who provides for the development cost.”
 “Fixed percentage of revenues of the project are shared with the developer, which may
include an upfront fee payment also”
 “DM is emerging as a preferred business model with corporates that have surplus land
parcels since they would typically like to have greater project control and not be a
passive partner in the project.”
 “In all the other options, the land owner typically sells the land, transfers the land into
a JV or transfers the economic interest in the land to the developer, whereas in this case
the land owner would retain full possession and control of the land.”
 “The land owner steps into the developer’s ‘shoes’ from an execution perspective, and
on account of that also gets maximum share in the project cash flows and future upsides
from the project.”

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Data Collection and Analysis
Objectives of this section is to identify different types of risk associated with residential real
estate development in Ahmedabad. The managers/owners of different developers’ group were
requested to rank these targets according to their experience.
The questionnaire was divided into following heads
a) Design Risks
b) Financial Risks
c) Construction Risks
d) Legal and Regulation Risks
Managers/owners were required to answer in scale of 1 to 5, 1= very low, 2= low, 3= medium,
4= high, 5= very high. Each risk was associated with probability of occurrence over the period
of development and its effect on cost to the development.
3.1 Loss due to Inflation
The following question tries to find out the effect of domestic inflation on the development and
its effect on the cost of the project.
Occurrence of event 1= Very low 2=Low 3=Medium 4=High 5=Very high
Loss due to Inflation 2 5 0 1 0
Cost of event 1= Very low 2=Low 3=Medium 4=High 5=Very high
Loss due to Inflation 0 5 2 0 1
Thus the results shows the effect of inflation on cost is low as well as the occurrence of the risk
event over the period of development of project is also low.
3.2 Increase in price of raw materials
The following question tries to find out what is average occurrence of increase in prices of raw
materials and its effect on the development of project.

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Increase in price of raw
materials
3 5 0 0 0
Increase in price of raw
materials
3 0 3 2 0
Thus the results shows that the effect of increase in raw materials over the project development
is high in terms of overall of project cost while its occurrence over the project life is low.
3.3 Increase in cost of equipment
The question tries to identify the occurrence of the risk event and its effect on the project cost.
Increase in cost of equipment 6 2 0 0 0
Increase in cost of equipment 5 2 1 0 0
Thus the results shows that increase in cost of equipment does not largely affect the cost of
project while its occurrence.
3.4 Increase in Labour wages
The question tries to find the occurrence of labour wages over the period of project life cycle
as well as its effect on project.
Increase in Labour wages 5 3 0 0 0
Increase in Labour wages 5 2 1 0 0

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Thus the results shows that increase in labour wages has low effect on the project cost as well
as its occurrence over the development is also low.
3.5 Currency devaluation and variable rate of exchange
The question tries to find out the effect of global economy on a residential project in
Ahmedabad.
Currency devaluation and
variable rate of exchange
8 0 0 0 0
Currency devaluation and
variable rate of exchange
4 4 0 0 0
The results show that the currency devaluation doesn’t affect the project cost as well as its
chances of occurrence is also very low.
3.6 Increase in borrowing rate of interest banks
The Question tries to find out the effect on the project cost and its occurrence during the
development of project.
Increase in borrowing rate of
interest banks
3 2 1 2 0
Increase in borrowing rate of
interest banks
1 2 1 1 3
The results show that increasing borrowing rate of interest has high effect on the project cost
as well as its chances of occurrence is also very high

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3.7 Decrease in the financial credibility of the contractors
The question tries to find what happens if the credibility of the contractor decreases in the
market
Decrease in the financial
credibility of the contractors
5 1 1 1 0
Decrease in the financial
credibility of the contractors
2 2 4 0 0
The results show that effect of contractor’s credibility in market does not affect the cost of the
project as well as its chances of occurrence is also very low.
3.8 Increase in the Govt. restriction to finance construction companies
The question tries to identify government restriction in financing construction companies
Increase in the Govt.
restriction to finance
construction companies
2 2 1 2 1
Increase in the Govt.
restriction to finance
3 1 3 0 1
The results shows that the effect of government restriction in financing of construction
companies increases the project cost as well as the occurrence of it during the project life is
high.

26
3.9 Increase in Design fees
The question tries to identify the effect of increase in design fees by the agency over cost and
its chances of occurrence during the project cycle.
Increase in Design fees 5 2 1 0 0
Increase in Design fees 3 3 1 1 0
The results show that the increase in design fees does not affect the cost of project while its
chances of occurrence during the project life is also very low as the design cost is prefixed
before the commencement of project.
3.10 Shortage of skilled contractors and sub-contractors
The question looks forward to identify the increase in cost of the project and its occurrence due
to shortage of skilled contractors and sub-contractors.
Shortage of skilled
contractors and sub-
contractors
0 4 3 0 1
Shortage of skilled
contractors and sub-
contractors
2 2 3 1 0
The results shows that project costs increases due shortage of skilled labours while its chances
of occurrence is also very high.

27
3.11 Poor labour productivity
The question tries to identify the occurrence of poor labour productivity as well increase in cost
of the project due to the same.
Poor labour productivity 2 1 4 1 0
Poor labour productivity 0 2 5 1 0
The results shows that the poor labour productivity affects the cost of the project as well as its
occurrence during the project life is high.
3.12 Lack of project management
The question tries to identify the risks or increase in cost of project due to lack of project
management and chances of occurrence during project life
Lack of project management 1 2 2 2 1
Lack of project management 0 2 4 2 0
The results show that lack of project management increases the cost of project as well as its
chances of occurrence during the project life is high.
3.13 Increase in the cost of land disputes
The question tries to identify the change in cost of project as well as it chances of occurrence
during the project life due to increase in cost of land disputes.

28
Increase in the cost of land
disputes
3 0 1 1 3
Increase in the cost of land
disputes
0 1 2 1 4
The results shows that increase in cost of land disputes increases the cost of project
considerably as well as its chances of occurrence is also high.
3.14 Incomplete design information
The question tries to identify the change in cost of project as well its occurrence due to
incomplete design information.
Incomplete design
information
4 3 1 0 0
Incomplete design
information
2 2 0 3 1
The results shows that the incomplete design moderately affects the cost of the project as well
as chances of its occurrence are moderate.
3.15 Increase in the regulation costs
Increase in the regulation
costs
0 6 2 0 0

29
Increase in the regulation
costs
1 2 5 0 0
The results shows that increase in regulation costs highly affects the cost of the project as well
has high chances of occurrence during its project life.
3.16 Delay of work drawings
Delay of work drawings 3 5 0 0 0
Delay of work drawings 4 3 1 0 0
The result delay in working drawings do not affect the cost of the project as well its chances of
occurrence is also low
3.17 Ambiguities, fault and inconsistent specification
Ambiguities, fault and
inconsistent specification
0 7 1 0 0
Ambiguities, fault and
inconsistent specification
3 3 2 0 0
The results shows that inconsistent specifications does not affect the cost of the project as well
as its chances of occurrence during the project life is also low

30
3.18 Design difficulty impacting construction work
Design difficulty impacting
construction work
0 5 3 0 0
Design difficulty impacting
construction work
1 6 1 0 0
The result shows that the design moderately impacts the construction of work in terms of cost
as well its occurrence is also moderate during the project life cycle.
3.19 Delay of the owner progress payment
Delay of the owner
progress payment
1 2 3 0 2
Delay of the owner
progress payment
2 1 1 2 2
The results shows that delay in owner’s progress of payments highly affects the cost of the
project as well as its occurrence rate is also high.
3.20 Increase in the cost of purchasing land
Increase in the cost of
purchasing land
0 1 2 1 4

31
Increase in the cost of
purchasing land
0 0 1 0 7
The result shows that increase in cost of land increases cost of project largely as well as its
occurrence is also high.
3.21 Incorrect data and information such as surveying mistakes
Incorrect data and
information such as
surveying mistakes
2 3 2 1 0
Incorrect data and
information such as
surveying mistakes
3 1 3 0 1
The result shows occurrence of surveying mistakes in the project life is low and its effect on
project cost is also low.
3.22 Increase in registration costs
Increase in registration costs 0 6 2 0 0
Increase in registration costs 2 4 2 0 0
The result shows that increasing registration costs occurs moderately as well as increases the
cost of project moderately.

32
3.23 Increase in income taxation
Increase in income taxation 1 3 1 2 1
Increase in income taxation 0 2 3 3 0
The results shows that increase in income tax highly increases the cost of project as well as its
chances of occurrence is high.
3.24 Summary Analysis at Glance
Risks
Probability of
occurrence
Magnitude of
Impact
Total
Currency devaluation and variable rate of exchange 0.2 1.3 0.3
Increase in cost of equipment 0.2 1.5 0.4
Increase in Labour wages 0.2 1.6 0.4
Delay of work shop drawings 0.3 1.3 0.4
Increase in design fees 0.3 2 0.6
Decrease in the financial credibility of contractors 0.3 2.2 0.8
Ambiguities , fault and inconsistent specification 0.4 1.8 0.8
Incorrect data and information such as surveying
mistakes
0.4 1.8 0.8
Increase in price of raw materials 0.3 2.5 0.8
Incomplete design information 0.3 2.6 0.9
Design difficulty impacting construction work 0.4 2.1 1.0
Increase in registration costs 0.4 2.1 1.0
Loss due to Inflation 0.4 2.6 1.1
Increase in the regulation costs 0.4 2.5 1.1
Increase in the Government restriction to finance
0.5 2.2 1.2
Shortage of skilled contractors and subcontractors 0.5 2.5 1.4
Increase in the borrowing rate of interest (banks) 0.4 3.5 1.6
Poor labour productivity 0.6 2.8 1.7
Lack of project management 0.6 3.1 1.9
Increase in income taxation 0.5 3.3 1.9
Delay of the owner progress payment 0.6 3.2 2.0
Increase in the cost of land disputes 0.6 4.3 2.7
Increase in the cost of purchasing land 0.8 5 4.1

33
From the above results it clearly shows that the real estate developers are facing primarily risks
pertaining to Financial and Construction Risks. Design and Legal Risks do not account much
of the risks faced by them.
Financial Risks which are faced by developers are
 Increase in the borrowing rate of interest (banks)
 Increase in the Govt. restriction to finance construction companies
 Increase in income taxation
 Delay of the owner progress payment
Construction risks had risks pertaining to
 Increase in the cost of purchasing land
 Lack of project management
 Poor labour productivity
 Shortage of skilled contractors and subcontractors
While Legal risks being only,
 Increase in the cost of land disputes

34
Application of Existing Models in the case of Ahmedabad
4.1 Case Study – Residential Project in Bopal, Ahmedabad
The information regarding the case study with various activity associated with their duration
and cost are discuss below.
Project Type: - Residential (2 BHK)
Location: - Bopal
Zone: - R2, TP no. – 1
Land Size: - 5000 sq. Yard
Jantri Rate: -₹ 12,000 per sq. Yard
Actual Cost of Land: - ₹ 27,000 per sq. Yard
FSI: - 2.25 (1.8 free FSI, 0.45 Paid FSI)
Super built up: - 40 %
Total Built up area: - 11,250 sq. Yard
Total number of Units in Project: - 147
Size of Each Unit: - 120 sq. Yard
Construction Cost: - ₹ 7000 per sq. Yard
4.1.1 Land acquisition activity
The process involve for purchase of land with various activities such as Land payment as Bana
Chithi, Title Certificate, Bana Khat Registration Fees, and payment of Register Bana Khat,
Stamp Duty & other Fees (Advocate Fees) can be considered as Land acquisition activity. The
above activities with associated with time duration and Cost are shown in table below. Initially
after selecting particular land for purchase the first step is to give Bana chithi to land owner (as
a token amount) in case study applied the time taken for Bana chithi was about 3 months and
cost associated with that was 11 lakh. The next step would be title certificate which takes 1
month and cost was about 1.5 lakh. After title certificate registration fees for bana khat have to
be done which takes about 1 month and cost for that was 50,000. The next step involved is
payment of land to register bana khat as per jantri rate (12,000 per sq. Yard) which takes
generally two months and cost in case study was 6.75 crore. Now remaining payment of land
as per market price (27,000 – 12,000 = 15,000 per sq. Yard) have to be done. So for that time

35
taken was approximately 1 month and costs about 6.64 crore. During land acquisition activity
additional charges such as stamp duty (0.049 ₹ per sq. Yard of market price), advocate fees
(0.1% of Land Price).
Table 1 List of Land Acquisition Activity associated with their time and duration
DURATION (IN
MONTHS)
ACTIVITY COST
1
LAND PAYMENT BANA CHITHI
₹ 3,66,666.67
2 ₹ 3,66,666.67
3 ₹ 3,66,666.67
4 TITLE CERTIFICATE ₹ 1,50,000.00
5 BANA KHAT REGISTRATION FEES ₹ 50,000.00
6 LAND PAYMENT REGISTER BANA
KHAT
₹ 5,89,00,000.00
7
8 LAND FULL PAYMENT ₹ 7,50,00,000.00
9 STAMP DUTY ₹ 66,82,500.00
TOTAL ₹ 14,18,82,500.00
4.1.1.1 Design Activity
The design activity may include activities such as N.A permission, AUDA/AMC Cost, Land
survey, Design option, housing typology, house size, design format, appointment with architect
and structural engineer, site clearance, construction of bore well, electric connection, etc. All
above cost associated with time duration shown in table below. The cost for Land survey,
Design option, informal house type, house size, design format were about 6 lakh and time for
those activities were about 1 month. N.A permission charges were 100 ₹ per sq. Yard.
Ownership certificate (50 per transaction) and other charges. The list of AUDA/AMC cost with
fees of extra paid FSI are shown in table below, and time taken for approval of project was 2
months. After permissions from AUDA/AMC the site clearance, construction of bore well,
electric connection can take place. In case study it costs about 8 lakh with duration of 1 month.
Architect fees are taken as 2% of total construction cost, Structural engineer fees 1% of total
construction cost, 1% of total construction cost as a license engineer.

36
Table 2 List of AUDA/AMC cost
Table 3 List of Design activity associated with their cost and duration
HEADS PER UNIT CHARGES UNIT TOTAL
ZONING CERTIFICATE ₹ 100.00 PER PLOT ₹ 100.00
TP/DP PART PLAN ₹ 300.00 PER PLOT ₹ 300.00
FORM "F" ₹ 100.00 PER PLOT ₹ 100.00
HISSA FORM 2(a) HISSA MAPANI ₹ 300.00 PER PLOT ₹ 300.00
SCRUTINY FEES FOR LAND ₹ 1.50 PER SQ.M ₹ 10,056.00
SCRUTINY FEES FOR CONSTRUCTION ₹ 3.00 PER SQ.M ₹ 20,112.00
DEVELOPMENT CHARGES FOR LAND ₹ 1.50 PER SQ.M ₹ 10,056.00
DEVELOPMENT CHARGES FOR CONSTRUCTION ₹ 3.00 PER SQ.M ₹ 20,112.00
BETTERMENT CHARGES ₹ 1,33,245.00
TREE PLANTATION CHARGES ₹ 125.00 PER UNIT ₹ 7,875.00
SOLID WASTE CHARGES ₹ 100.00 PER UNIT ₹ 6,800.00
DRAINAGE CHARGES ₹ 3,000.00 PER UNIT ₹ 4,50,000.00
SECTION 23 PROVIDING SERVICE FEEs ₹ 86,000.00
LAMINATION CHARGES ₹ 20.00 PER SQ.FT ₹ 4,600.00
OTHER CONSULTING CHARGES ₹ 5,00,000.00
FEES FOR FSI ₹ 1,08,00,000.00
TOTAL ₹ 1,20,49,656.00
DURATION
(IN
MONTHS)
ACTIVITY COST
10
LAND SURVEY,DESIGN OPTION,INFORMAL HOUSE TYPE, HOUSE
SIZE, DESIGN FORMAT
₹ 6,00,000.00
11 NA PERMISSION OTHER CHARGES ₹ 5,75,000.00
12 APPOINTMENT OF ARCHITECT, STRUCTURAL ENGINEER ₹ 11,81,250.00
13 NA PERMISSION COST ₹ 5,00,000.00
14
AUDA/AMC COST ₹ 1,20,49,656.00
15
16
SITE CLEARNACE , CONSTRUCTION OF BORE WELL, ELECTRICAL
CONNECTION
₹ 8,00,000.00
39 REMAINING FEES OF ARCHITECT, STRUTURAL ENGINEER ₹ 19,68,750.00
TOTAL ₹ 1,76,74,656.00

37
4.1.1.2 Marketing Activity
The marketing activity may include brochure cost, advertisement holding cost, broker charges
etc. All the marketing activity associated with their time and cost applied on case-study is
shown below. At 16 month after the commencement of the project as a part of pre launching
activity brochures are printed which cost about 40,000. After the construction begin at 21
month advertisement holding cost(10 lakh), broker charges(50% of units were sold by the
broker so broker fees is taken as 2% of selling price of unit) were approx. 28.80 lakh, and once
again brochures were printed which cost about 40,000.
Table 4 List of Marketing activity associated with their cost and duration
DURATION
(IN MONTHS)
ACTIVITY COST
16 PRE LAUNCHING ACTIVITY BROCHURE COST ₹ 40,000.00
21
ADVERTISING BROCHURE COST ₹ 40,000.00
BROKER CHARGES ₹ 28,80,000.00
ADVERTISING HOLDING COST ₹ 10,00,000.00
30 BROCHURE COST ₹ 40,000.00
TOTAL ₹ 40,00,000.00
4.1.1.3 Construction Activity
To have better understanding of construction activity entire project was divided in 8 stages.
The work of progress in each stage with cost and time is shown in table below. The first stage
construction activity include excavation, hollow plinth, column, 1st slab the time taken was 2
months with cost per sq. Yard for that work is 1250. Second stage construction cost about 850
per sq. Yard which includes activities such as Hollow Plinth plaster, 1st floor slab, and 2nd
floor slab. The cost of 3rd stage of construction 1000 per sq. Yard and list of activities as per
table. The cost of 4th stage pf construction 1100 per sq. Yard. The 5th stage, 6th stage, 8th
stage costs are 1000, 1300 and 500 respectively

38
Table 5 List of Construction activity associated with their cost and duration
DURATION
(IN MONTHS)
STAGES ACTIVITY COST
17 1st
STAGE
EXCAVATION, HOLLOW PLINTH,
COLUMN, 1ST SLAB
₹ 2,25,00,000.00
18
19 2nd
STAGE
HOLLOW PLINTH, PLASTER, AST FLOOR
SLAB, 2ND FLOOR SLAB
₹ 1,53,00,000.00
20
22
3rd
STAGE
3RD FLOOR SLAB, 4TH FLOOR SLAB, 1ST
FLOOR BRICK WORK, 2ND FLOOR BRICK
WORK, SAMPLE HOUSE READY
₹ 1,80,00,000.00
23
24
4th
STAGE
4TH FLOOR SLAB, 5TH FLOOR SLAB, 1ST &
2ND FLOOR INTERNALPLASTER, 3RD
FLOOR BRICK WORK, LINTEL
₹ 1,98,00,000.00
25
26 5tH
STAGE
TERRACE FLOOR SLAB, R.C.C. OF STAIR
CABIN, R.C.C. OF OVERHEAD TANK
₹ 1,80,00,000.00
27
28
6th
STAGE
PARAPET TERRACE, EXTERNAL &
INTERNAL PLUMBING, STAIR CABIN,
PLASTER (G+4), DRAINAGE WORK,
PARKING B.B.C. THEN P.C.C. , COMMON
PLOT DEVELOPMENT, LANDSCAPE,
UNDERGROUND TANK, CLUB HOUSE
CONSTRUCTION
₹ 2,34,00,000.00
29
7th
STAGE
APPLICATION OF ELECTRIC CONNECTION ₹ 9,50,000.00
31
8th
STAGE
DOORS & WINDOWS FITTING, ELECTRIC
WORK, TERRACE WATER PROOFING,
INTERNAL AND EXTERNAL FLOORING,
KITCHEN, WASH BASIN, FINISHING IN
STAIRS ₹ 90,00,000.00
32
33
34 CAMPUS DEVELOPMENT ACTIVITY,
LANSCAPING, LIGHT IN PARKING, PAVER
BLOCK WORK, RCC ROAD, MAIN GATE,
SECURITY CABIN
35
36
TOTAL ₹ 12,69,50,000.00

39
4.1.1.4 Sales Activity
To meet the above expenditures the main source is by selling the units which can be considered
under the sales activity. As same in above expenditure activities the sales activity is also written
on the timeline (sales in each month) for the case-study. In the early stage of project when land
acquisition activity and design activity is ongoing selling price of the units are quit low.
Table 6 Number of Units sold at each month
Table 7 Selling Price of Units respectively to month of sales
Table 8 Loan Disbursement Schedule in Simple Mortgage
MONTH NO. OF UNITS SOLD
1 TO 5 5
6 TO 10 10
11 TO 16 5
17 TO 21 8
22 TO 24 32
24 TO 39 87
MONTH PRICE PER SQ.YARD
1 TO 5 ₹ 17,500.00
6 TO 10 ₹ 18,500.00
11 TO 16 ₹ 18,750.00
17 TO 21 ₹ 19,500.00
22 TO 24 ₹ 20,000.00
24 TO 39 ₹ 24,000.00
after completion of foundation work 19th
Month ₹ 2,44,46,127
after completion of sample house 23rd
Month ₹ 2,44,46,127
after completion of terrace slab 27th
Month ₹ 2,44,46,127
after completion of plaster work 29th
Month ₹ 2,44,46,127

Table 9 Payment Schedule for the customers respect to month of their purchase
MONTH A B C D E F G H I J K L M N O P Q R
A 1 TO 5 20.00%
B 6 TO 10 10.00% 20.00%
C
11 TO
16
10.00% 20.00%
D
17 TO
18
10.00% 30.00%
E 19 30.00%
F 20 30.00%
G 21 15.00% 15.00% 15.00% 15.00% 15.00% 15.00% 45.00%
H
22 TO
24
45.00%
I 25 15.00% 15.00% 45.00%
J 26 15.00% 15.00% 15.00% 15.00% 45.00%
K 27 15.00% 15.00% 45.00%
L 28 15.00% 15.00% 15.00% 15.00% 15.00% 15.00% 15.00% 15.00% 15.00% 45.00%
M 29 15.00% 15.00% 15.00% 15.00% 15.00% 15.00% 45.00%
N 30 15.00% 15.00% 15.00% 15.00% 15.00% 15.00% 15.00% 15.00% 15.00% 15.00% 15.00% 15.00% 45.00%
O 31 15.00% 30.00% 30.00% 45.00%
P 32 15.00% 15.00% 45.00% 90.00%
Q 33 90.00%
R 34 90.00%
35 10.00% 10.00% 10.00% 10.00% 10.00% 10.00% 10.00% 10.00% 10.00% 10.00% 10.00% 10.00% 10.00% 10.00% 10.00% 10.00% 10.00% 10.00%
36 TO
39
100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00%
90,000.00 90,000.00 90,000.00 90,000.00 90,000.00 90,000.00 90,000.00 90,000.00 90,000.00 90,000.00 90,000.00 90,000.00 90,000.00 90,000.00 90,000.00 90,000.00 90,000.00 90,000.00

Table 10 Revenue Generation of each month in Simple Mortgage
TIME IN
MONTHS
NO. OF
UNITS
SOLD
PAYMENT RECEIVED
TOTAL
SELLING
AMOUNT
INCOME
1
A 5 20 % OF A ₹ 1,05,00,000.00 ₹ 21,00,000.00
2
3
4
5
6
B 10 20% OF B+ 10% OF A ₹ 2,22,00,000.00 ₹ 54,90,000.00
7
8
9
10
11
C 5 10% OF B+20% OF C ₹ 1,12,50,000.00 ₹ 44,70,000.00
12
13
14
15
16
17
D 2 30% OF D+ 10%OF C ₹ 46,80,000.00
₹ 25,29,000.00
18
19 E 2 30 % OF E ₹ 46,80,000.00 ₹ 14,04,000.00
20 F 2 30 % OF F ₹ 46,80,000.00 ₹ 14,04,000.00
21 G 2 45% OF G+15% A,B,C,D,E,F ₹ 46,80,000.00 ₹ 1,08,04,500.00
22
H 32 45% OF H ₹ 7,68,00,000.00 ₹ 3,45,60,000.0023
24
25 I 5 45% OF I+15% OF A,B ₹ 1,44,00,000.00 ₹ 1,13,85,000.00
26 J 5 45% OF J+15% OF C,D,E,F ₹ 1,44,00,000.00 ₹ 1,02,73,500.00
27 K 4 45% OF K+15% OF G,H ₹ 1,15,20,000.00 ₹ 1,74,06,000.00
28 L 4 45% OF L+15% OF I,J,K,A,B,C,D,E,F ₹ 1,15,20,000.00 ₹ 1,99,30,500.00
29 M 16 45% OF N+15% OF G,H,I,J,K,L ₹ 4,60,80,000.00 ₹ 4,07,34,000.00
30 N 16
45% OF N+15% OF
H,I,J,K,L,A,B,C,D,E,F,G
₹ 4,60,80,000.00 ₹ 4,94,32,500.00
31 O 16 45% OF O+ 30% OF M,N +15% OF L ₹ 4,60,80,000.00 ₹ 5,01,12,000.00
32 P 7 90 % OF P+15% OF M,N,O ₹ 2,01,60,000.00 ₹ 5,27,04,000.00
33 Q 7 90 % OF Q ₹ 2,01,60,000.00 ₹ 1,81,44,000.00
34 R 7 90 % OF R ₹ 2,01,60,000.00 ₹ 1,81,44,000.00
35 REMAINING 10%OF ALL UNITS SOLD ₹ 3,90,03,000.00
36
₹
90,000.00
35
INCLUDES ELECTRICITY CHARGES RS
20,000, AUDA CHARGES RS 60,000,
LEGAL CHARGES RS 10,000
₹ 31,50,000.00
37 39 ₹ 35,10,000.00
38 38 ₹ 34,20,000.00
39 35 ₹ 31,50,000.00
TOTAL ₹ 40,32,60,000.00

42
4.1.2 Applications of Models in above stated case study.
Table 11 Results of Traditional Models in the case study
Head
Owner’s
Equity
Informal
Investors
Simple
Mortgage
Debt Model
Water Fall
Model
Total revenue ₹ 40.33 Crore ₹ 40.33 Crore ₹ 40.33 Crore ₹ 40.33 Crore ₹ 40.33 Crore
Total construction
cost
₹ 12.70 Crore ₹ 12.70 Crore ₹ 12.70 Crore ₹ 12.70 Crore ₹ 12.70 Crore
Total cost of land ₹ 14.19 Crore ₹ 14.19 Crore ₹ 14.19 Crore ₹ 14.19 Crore ₹ 14.19 Crore
Total cost of
marketing
Total cost of
clearances
Tax @35% ₹ 5.32 Crore ₹ 1.52 Crore ₹ 4.56 Crore ₹ 3.90 Crore ₹ 1.76 Crore
Investment by
Developer
Net Profit to
Developer
Benefit/cost Ratio 0.38 0.16 0.31 0.28 0.43
Thus we can clearly draw out from the above results that the models Simple Mortgage and
Water Fall Model of Private Equity are the models which gives highest benefit to cost ratio
(Net profit / Investment by Developer).
Note: The above models were prepared before the onset of RERA Authority in India which
was set up in March 2016, therefore the income was generated from second month itself which
is against the RERA laws i.e. money from the customers could only be collected from the stage
of construction.

43
Conclusion / Recommendation
5.1 Crowd Funding for Real Estate (Moll & Benjamin, 2014)
Crowd Funding
The practice of funding a project or venture by raising many small amounts of money from a
large number of people typically via Internet.
There are two type of crowdfunding models available in market
o Donation / Reward based
Under this model, backers either donate money to support a cause or receive a pre-
determined reward for their capital. E.g.:- Kickstarter, IndieGogo
o Investment based
In this model website creates a market place where investors can choose from a variety
of potential investments. Under this model investors expect to receive a market rate of
return on the capital they invest. E.g.:- Prodigy
Its Working
 It focuses on giving loans to Real estate developer to fix up and sell a property.
 These loans are backed up by personal guarantee from developer.
 Maturity period is from 6 to 18 months or depending upon the project and investors
would take an annual interest between 7 to 10% annually and return on capital at
maturity.
Advantages
 Greater Transparency
As both investors and sponsors are screened and investors receive detailed investment
information about an investment. Also there are multiple potential investments available
for investors to screen and choose from.
 More Investors and smaller minimum
The amount could vary from few hundred thousand to millions among number of investors.

44
 Lower fees
The charges taken by crowd funding agencies is very less than that of banks where one
requires to pay the brokerage fees as well bank charges which sometimes go as high as
10%.
 Benefits of having local investors
Having local investors as part of the investors can sometimes help sponsors with regulatory
approvals and also suggest sponsor what type of product is acceptable in their community.
 Enhanced reporting and accountability
These would have developers rating and as well as they need to provide high quality
information timely and in easy understanding formats.
Disadvantages
 Unrealistic projections
Due to variability in market scenario investors don’t receive that amount of return what
was originally proposed.
 Lack of personal relationship with the project sponsor.
As the investor is going to be carried out by a third party investor aka crowdfunding agency,
he/she does not carry one to one interaction with the sponsor.
Different from REIT
 REIT gives away as much as 90% of the profit generated by the trust back to the
shareholders whereas here it more like venture capitalist and invests in a previously
known property selected by investor.
 REIT gives a lower rate of return whereas the return is higher on the investment made
by crowdfunding.
 Maturity period is predefined in crowdfunding and investors has variety of options to
choose from whereas in REIT the investment made by the trust is unknown to the
investor and has minimum tie up period.

45
5.2 Regulatory framework for Crowdfunding in various Jurisdictions
(SEBI, 2014)
5.2.1 United States of America
“US entrepreneurs may publicly advertise and market their company’s investment opportunity,
of whatever size, to ‘accredited investors’ (in effect, individuals with over $1 million in liquid
net worth or annual incomes over $200,000), including through the Internet or social media, as
well as through print, radio or television.”
It is intended to allow start-up and other companies to use online intermediaries to obtain
modest amounts of capital. Under this act, for a transaction to be qualified as a crowdfunding
transaction, it must meet specified requirements, including the following:
The amount raised not to exceed $1 million in a 12 month period individual investments in a
12-month period are limited to:
 “The greater of $2,000 or 5 percent of annual income or net worth, if annual income or
net worth of the investor is less than $100,000”
 “10 percent of annual income or if annual income or net worth of the investor is
$100,000 or more”
 “Transactions must be conducted through an intermediary entity called a “funding
platform.”
 “Crowdfunding requires the issuing company (emerging growth company) to file a
disclosure document with SEC at least 21 days prior to first sale, and requires scaled
financial disclosure, including audited financial statements for raises of over
$500,000.”
 “Annual reports must be filed with SEC by the issuer company which completes a
crowdfunding round.”
 “Funding platforms (but not broker-dealers) cannot: offer investment advice or make
recommendations to investors. They cannot solicit transactions for securities offered or
displayed on its platform, or compensating employees or agents for doing so. They
cannot hold or manage any investor funds or securities.”

46
5.2.2 New Zealand
 “The new regulations in New Zealand enables companies to raise up to a maximum of
$ 2 Million from 20 investors in a year through crowdfunding without having to issue
a prospectus.”
 “The market regulator, Financial Markets Authority, has asked both, equity crowd-
funding platforms and peer-to-peer lenders, to apply for a license to operate.”
5.2.3 Australia
 “The current regulations allow a start up to raise not more than $ 20 Million or transfer
equity to more than 20 people in any given 12 months. This system restricts this channel
to a set of sophisticated investors. These rules are under revision.”
5.2.4 Canada
 “There are registration requirements for Crowd Sourced Equity Funding Platforms,
including Integrity, proficiency and solvency requirements, and for the persons
operating them.”
5.2.5 United Kingdom
 Loan-Based Crowdfunding Platforms: These include peer-to-peer lending platforms
or peer-to-business lending platforms on which consumers can invest in loan
agreements.
 Investment-Based Crowdfunding Platforms: These include the platforms on which
consumers can buy investments, such as equity or debt securities that are not listed or
traded on a recognized exchange, or units in an unregulated collective investment
scheme.
Loan-Based Crowdfunding Platforms:
 “The new regulations intend to safe guard the interests of the investors by ring fencing
the investments from the platform's finances. Therefore in case anything happens to the
platform, the investments would not be hurt. The platforms also need to have a
contingency plan or a third party in place to ensure seamless operations.”

47
 “Platforms must also have capital reserves to cushion the effect of defaults. Each
platform will need to hold £20,000 from October this year and £50,000 from April
2017.”
 “The marketing of the products should not be misleading and all the risks should be
adequately highlighted.”
 “Thus loan-based crowdfunding is still very much an investment, rather than savings
product.”
 “Investors can cancel their agreement without any penalty within a cooling period of
14 days if the firm does not provide access to a secondary market.”
Investment-Based Crowdfunding Platforms:
 “Very similar rules apply to investment-based crowdfunding as loan-based - i.e. the
marketing must be fair and not misleading, risks should be highlighted and systems
must be in place to separate your money from theirs - and ensure there are adequate
capital reserves.”
 “The 14 day cooling off period and access to financial ombudsman also apply.”
 “Aside from systems requirements, there are new rules on who is actually allowed to
invest their money in crowdfunding. These include:
o retail clients who are advised,
o retail clients classified as corporate finance contacts or venture capital contacts,
o retail clients certified as sophisticated or high net worth, or
o Retail clients who confirm that they will not invest more than 10 per cent of
their net investible assets in these products.
o The investors must also pass an online appropriateness test to prove they are
aware of the risks.”
5.2.6 France
 “There is no maximum investment cap specified for a particular investor, which makes
the investors decide on their risk appetite.”
 “The new rules have done away with that cap, allowing for an unlimited number of
investors to pitch in cash.”

48
5.2.7 Indian Scenario
The provisions in the existing legal framework for raising funds by companies are regulated
under Companies' Act 2013 and Securities Act i.e. SEBI Act, 1992, Securities Contracts
(Regulation) Act, 1956, Depositories Act, 1996. Raising of pooled managed investment funds
by various entities such as Alternative Investment Fund (AIF), Mutual Fund (MF) etc. is
regulated under Securities Laws.
Ways out
 Public Issue
 Private Placements
 Institutional Trading Platform
 Alternative Investment Funds
5.2.7.1 Is Crowdfunding Really needed?
“Since the "Crowdfunding" phenomenon is gaining its popularity, its importance cannot be
ignored. To regulate crowdfunding, it is very important to take note that while it is necessary
to ensure that Start-ups/SMEs could raise funds at ease, it is equally important to ensure that
no systemic risks are created wherein retail investors are lured by some unscrupulous players
by substituting the existing framework, which has been developed over a period of time through
experience and observation. Hence, there is necessity to strike a proper balance between
investor protection and the role equity markets can play in supporting economic development
and growth.”
5.2.7.2 Proposal for Crowdfunding in India
“Peer-to-Peer lending do not fall within the regulatory purview of SEBI, as they do not
generally involve issuance of securities for financial return, and may require authorization from
other regulators. For example, Peer-to-Peer lending may fall under the purview of RBI.
Taking into account various provisions under the Indian law and crowdfunding framework in
other jurisdictions, this proposal seeks to explore the possibilities of having Security Based
Crowdfunding framework in India within the existing legal framework.”
Under the Security Based Crowdfunding, the possible routes which are being explored are as
follows:

49
1. Equity based Crowdfunding (EbC)
2. Debt based Crowdfunding (DbC)
3. Fund based Crowdfunding (FbC)
The first 2 routes are primarily based on the Private Placement route as defined under Section
42, Companies Act 2013.
Before dealing with these routes it is important that the following are established:
 the investors that are allowed to invest through the crowdfunding platforms,
 the types of entities that are allowed to raise funds through this channel and the
disclosure requirements,
 the types of entities that are allowed to set up internet based Crowdfunding Platforms
to enable online solicitation from such investors,
5.2.7.3 Who can invest?
“In Indian scenario, considering the necessity to provide alternative funding sources to Start-
ups and at the same time to ensure that retail investors are not made to bear the risks of Start-
up ventures, it is proposed to permit only Accredited Investors to participate in crowdfunding.”
 “Who have a minimum annual gross income of Rs.10 Lacs”
 “Who have filed Income Tax return for at least last 3 financial years.”
 “Who certify that they will not invest more than Rs.60,000 in an issue through
crowdfunding platform”
 “Who certify that they will not invest more than 10% of their net worth through crowd
funding.”
 “Subscribe shall not be made to more than 200 investors in a financial year”
5.2.7.4 Investment Conditions:
 “The ERIs and HNIs must sign a 'Risk Acknowledgement' that they understand the risk
of illiquid nature of investment and potential loss of entire investment, and that they
can bear the loss.”
 “The issue has to be in demat form thus all the accredited investors need to hold a demat
account.”

50
 “The payment has to be made through a cheque or a demand draft or another banking
channel. Payment by Cash and Credit Cards shall not be accepted.”
 The ERIs must be an Indian citizen / NRI.
 “Investments by foreign investors shall, however, be subject to guidelines as may be
specified by RBI and government of India from time to time.”
5.2.7.5 Who can raise fund
 “A company intending to raise capital not exceeding Rs.10 Crores in a period of 12
months.”
 “a company which is not promoted, sponsored or related to an industrial group which
has a turnover in excess of Rs.25 Crores or has an established business”
 “a company which is not listed on any exchange,”
 “a company which is not more than 48 months old”
 “a company which proposes to engage in non-financing ventures, i.e. funds raised
through the crowdfunding platform will not be further used for providing loans or
investments in other entities”, and
 “A company which is not engaged in real estate and activities which are not permitted
under industrial policy of Government of India.”
Further, to ensure only genuine entities raise funds through this mode:
 “The issuing company, its directors, promoters or associates have not been prohibited
from accessing or operating in the capital markets or restrained from buying, selling or
dealing in securities under any order or direction passed by the SEBI.”
 “The issuing company, its directors, promoters or associates are not mentioned as a
'defaulter' or a 'wilful defaulter' by RBI”
 “In a given period of 12 months, Issuers shall not use multiple crowdfunding platforms
to raise funds.”
 “Issuers shall not directly or indirectly advertise their offering to public in general or
solicit investments from the public.”
 “Issuer shall compulsorily route all crowdfunding issues through a SEBI recognized
Crowdfunding Platform.”

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 “Issuers shall not directly or indirectly incentivize or compensate any person to promote
its offering.”
 “Issuers shall provide provisions for oversubscription. This may include maximum
oversubscription amount to be retained, which should not exceed 25% of the actual
issue size; intended usage of the oversubscribed amount. The total amount retained.
including the actual issue size and oversubscription, shall not exceed the limit of Rs.10
Crores”
5.2.7.6 Who can set up a Crowdfunding Platform.
“It is proposed that any online offering or issue or sale through the internet can be made only
through a SEBI recognized crowdfunding platform.”
Class I Entities:
 “Recognized Stock Exchanges with nationwide terminal presence (RSEs)”
 “SEBI registered Depositories”
Class II Entities:
 “Technology Business Incubators (TBIs)”
 “promoted by Central Government or any State Government through bodies such as
NSTEDB (National Science & Technology Entrepreneurship Development Board)
under Department of Science & Technology”
 “functioning as a society registered under societies act of 1860/or as a non-profit
making section 8 company”
 “having at least 5 years of experience”
 “having a minimum net worth of Rs.10 Crores”
 “should have attained self-sufficiency and”
 “should display only those companies which share a common focus thrust areas as the
TBI”
Class III Entities:
 “Associations and Networks of PE or Angel Investors”
 “with a track record of a minimum of 3 years”
 “with a minimum member strength of 100 active members from the relevant industry”
 “Which are registered as Section 8 companies under Companies Act 2013 with a paid
up share capital of Rs.2 Crores.”

52
5.3 Crowd Funding for Indian Real Estate
All the primary conditions being the same as proposed by SEBI for Indian scenario, for
crowdfunding funding to get implemented it should be like under:
5.3.1 Loan-Based Crowdfunding Platforms
• To safe guard the interests of the investors by ring fencing the investments from the
platform's finances. Therefore in case anything happens to the platform, the investments
would not be hurt. The platforms also need to have a contingency plan or a third party
in place to ensure seamless operations.
• Platforms must also have capital reserves to cushion the effect of defaults.
• The marketing of the products should not be misleading and all the risks should be
adequately highlighted.
• Loan-based crowdfunding is very much an investment, rather than savings product.
• Investors can cancel their agreement without any penalty within a cooling period of 14
days if the firm does not provide access to a secondary market.
 Applications of Proposed Model in Case Study
 The model is compiled according to Real Estate Regulatory Authority (RERA) of India,
which means money is taken from the customer after construction begins.
 Interest rate here changes from 15% per annum in case of simple mortgage to 12% in
crowd funded simple mortgage as money is easily available from investors at 8 to 10%
per annum from investors.
 Taxation stands at 35%
 Loan from Crowdfunding platform is taken only for Construction Activity.
 Rest all the conditions being the same.

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 Sales Activity.
Table 12 Sales Activity Assumed according to RERA
MONTH NO. OF UNITS SOLD
1 TO 5 0
6 TO 10 0
11 TO 16 0
17 TO 21 28
22 TO 24 32
24 TO 39 87
Table 13 Revenue Generation according to RERA
TIME IN
MONTHS
NO. OF
UNITS
SOLD
PAYMENT RECEIVED
TOTAL
SELLING
AMOUNT
INCOME
17
D 17 20% OF D ₹ 4,21,20,000.00
₹ 42,12,000.00
18 ₹ 42,12,000.00
19 E 5 10% OF D+20 % OF E ₹ 1,63,80,000.00 ₹ 74,88,000.00
20 F 5 10% OF E+30 % OF F ₹ 1,17,00,000.00 ₹ 51,48,000.00
21 G 2 45% OF G+15% D,E,F ₹ 46,80,000.00 ₹ 1,26,36,000.00
22
H 32 45% OF H ₹ 6,72,00,000.00
₹ 1,00,80,000.00
23 ₹ 1,00,80,000.00
24 ₹ 1,00,80,000.00
25 I 5 45% OF I ₹1,44,00,000.00 ₹ 64,80,000.00
26 J 5 45% OF J+15% OF D,E,F ₹ 1,44,00,000.00 ₹ 1,70,10,000.00
27 K 4 45% OF K+15% OF G,H ₹ 1,15,20,000.00 ₹ 1,59,66,000.00
28 L 4 45% OF L+15% OF I,J,K,D,E,F ₹ 1,15,20,000.00 ₹ 2,17,62,000.00
29 M 16 45% OF M+15% OF G,H,I,J,K,L ₹ 4,60,80,000.00 ₹ 3,92,94,000.00
30 N 16 45% OF N+15% OF H,I,J,K,L,D,E,F,G ₹ 4,60,80,000.00 ₹ 4,98,24,000.00
31 O 16 45% OF O+ 30% OF M,N +15% OF L ₹ 4,60,80,000.00 ₹ 5,01,12,000.00
32 P 7 90 % OF P+15% OF M,N,O ₹ 2,01,60,000.00 ₹ 5,27,04,000.00
33 Q 7 90 % OF Q ₹ 2,01,60,000.00 ₹ 1,81,44,000.00
34 R 7 90 % OF R ₹ 2,01,60,000.00 ₹ 1,81,44,000.00
35 REMAINING 10%OF ALL UNITS SOLD ₹ 3,92,64,000.00
36
90,000
35
INCLUDES ELECTRICITY CHARGES RS
20,000, AUDA CHARGES RS 60,000,
LEGAL CHARGES RS 10,000
₹ 31,50,000.00
37 39 ₹ 35,10,000.00
38 38 ₹ 34,20,000.00
39 35 ₹ 31,50,000.00
TOTAL ₹ 40,58,70,000.00

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Table 14 Loan Disbursement Schedule in Crowd Funded Simple Mortgage
after completion of foundation work 19th
Month ₹ 2,44,46,127
after completion of sample house 23rd
Month ₹ 2,44,46,127
after completion of terrace slab 27th
Month ₹ 2,44,46,127
after completion of plaster work 29th
Month ₹ 2,44,46,127
Table 15 Cash Flow after PAT in Crowdfunded Simple Mortgage
Time in
Months
Expenditure Revenue Net Cash Flow
Cumulative Cash
Flow
Tax PAT
Cash Flow
After PAT
1 ₹ 3,66,666.67 ₹ - ₹ -3,66,666.67 ₹ -3,66,666.67 ₹ - ₹ - ₹ -3,66,666.67
2 ₹ 3,66,666.67 ₹ - ₹ -3,66,666.67 ₹ -7,33,333.33 ₹ - ₹ - ₹ -3,66,666.67
3 ₹ 3,66,666.67 ₹ - ₹ -3,66,666.67 ₹ -11,00,000.00 ₹ - ₹ - ₹ -3,66,666.67
4 ₹ 1,50,000.00 ₹ - ₹ -1,50,000.00 ₹ -12,50,000.00 ₹ - ₹ -1,50,000.00
5 ₹ 50,000.00 ₹ - ₹ -50,000.00 ₹ -13,00,000.00 ₹ - ₹ -50,000.00
6 ₹ 2,94,50,000.00 ₹ - ₹ -2,94,50,000.00 ₹ -3,07,50,000.00 ₹ - ₹ - ₹ -2,94,50,000.00
7 ₹ 2,94,50,000.00 ₹ - ₹ -2,94,50,000.00 ₹ -6,02,00,000.00 ₹ - ₹ - ₹ -2,94,50,000.00
8 ₹ 7,50,00,000.00 ₹ - ₹ -7,50,00,000.00 ₹ -13,52,00,000.00 ₹ - ₹ - ₹ -7,50,00,000.00
9 ₹ 66,82,500.00 ₹ - ₹ -66,82,500.00 ₹ -14,18,82,500.00 ₹ - ₹ - ₹ -66,82,500.00
10 ₹ 6,00,000.00 ₹ - ₹ -6,00,000.00 ₹ -14,24,82,500.00 ₹ - ₹ - ₹ -6,00,000.00
11 ₹ 5,75,000.00 ₹ - ₹ -5,75,000.00 ₹ -14,30,57,500.00 ₹ - ₹ - ₹ -5,75,000.00
12 ₹ 11,81,250.00 ₹ - ₹ -11,81,250.00 ₹ -14,42,38,750.00 ₹ - ₹ - ₹ -11,81,250.00
13 ₹ 5,00,000.00 ₹ - ₹ -5,00,000.00 ₹ -14,47,38,750.00 ₹ - ₹ - ₹ -5,00,000.00
14 ₹ 60,24,828.00 ₹ - ₹ -60,24,828.00 ₹ -15,07,63,578.00 ₹ - ₹ - ₹ -60,24,828.00
15 ₹ 60,24,828.00 ₹ - ₹ -60,24,828.00 ₹ -15,67,88,406.00 ₹ - ₹ - ₹ -60,24,828.00
16 ₹ 8,40,000.00 ₹ - ₹ -8,40,000.00 ₹ -15,76,28,406.00 ₹ - ₹ - ₹ -8,40,000.00
17 ₹ 1,14,94,461.27 ₹ 42,12,000.00 ₹ -72,82,461.27 ₹ -16,49,10,867.27 ₹ - ₹ - ₹ -72,82,461.27
18 ₹ 1,14,47,775.69 ₹ 42,12,000.00 ₹ -72,35,775.69 ₹ -17,21,46,642.95 ₹ - ₹ - ₹ -72,35,775.69
19 ₹ 78,00,623.25 ₹ 74,88,000.00 ₹ -3,12,623.25 ₹ -17,24,59,266.21 ₹ - ₹ - ₹ -3,12,623.25
20 ₹ 77,52,999.29 ₹ 51,48,000.00 ₹ -26,04,999.29 ₹ -17,50,64,265.50 ₹ - ₹ - ₹ -26,04,999.29
21 ₹ 42,19,360.36 ₹ 1,26,36,000.00 ₹ 84,16,639.64 ₹ -16,66,47,625.86 ₹ - ₹ - ₹ 84,16,639.64
22 ₹ 92,53,223.77 ₹ 1,00,80,000.00 ₹ 8,26,776.23 ₹ -16,58,20,849.63 ₹ - ₹ - ₹ 8,26,776.23
23 ₹ 92,06,625.81 ₹ 1,00,80,000.00 ₹ 8,73,374.19 ₹ -16,49,47,475.44 ₹ - ₹ - ₹ 8,73,374.19
24 ₹ 1,00,59,561.88 ₹ 1,00,80,000.00 ₹ 20,438.12 ₹ -16,49,27,037.32 ₹ - ₹ - ₹ 20,438.12
25 ₹ 1,02,56,488.57 ₹ 64,80,000.00 ₹ -37,76,488.57 ₹ -16,87,03,525.90 ₹ - ₹ - ₹ -37,76,488.57
26 ₹ 93,10,923.27 ₹ 1,70,10,000.00 ₹ 76,99,076.73 ₹ -16,10,04,449.16 ₹ - ₹ - ₹ 76,99,076.73
27 ₹ 95,09,363.57 ₹ 1,59,66,000.00 ₹ 64,56,636.43 ₹ -15,45,47,812.74 ₹ - ₹ - ₹ 64,56,636.43
28 ₹ 2,38,65,327.02 ₹ 2,17,62,000.00 ₹ -21,03,327.02 ₹ -15,66,51,139.75 ₹ - ₹ - ₹ -21,03,327.02
29 ₹ 13,70,850.09 ₹ 3,92,94,000.00 ₹ 3,79,23,149.91 ₹ -11,87,27,989.85 ₹ - ₹ - ₹ 3,79,23,149.91
30 ₹ 4,15,928.40 ₹ 4,98,24,000.00 ₹ 4,94,08,071.60 ₹ -6,93,19,918.25 ₹ - ₹ - ₹ 4,94,08,071.60
31 ₹ 18,30,557.49 ₹ 5,01,12,000.00 ₹ 4,82,81,442.51 ₹ -2,10,38,475.74 ₹ - ₹ - ₹ 4,82,81,442.51
32 ₹ 17,84,732.88 ₹ 5,27,04,000.00 ₹ 5,09,19,267.12 ₹ 2,98,80,791.38 ₹ 1,78,21,743.49 ₹ 3,48,82,256.51 ₹ 3,30,97,523.63

55
33 ₹ 17,38,450.01 ₹ 1,81,44,000.00 ₹ 1,64,05,549.99 ₹ 4,62,86,341.37 ₹ 57,41,942.50 ₹ 1,24,02,057.50 ₹ 1,06,63,607.49
34 ₹ 16,91,704.32 ₹ 1,81,44,000.00 ₹ 1,64,52,295.68 ₹ 6,27,38,637.05 ₹ 57,58,303.49 ₹ 1,23,85,696.51 ₹ 1,06,93,992.19
35 ₹ 16,44,491.17 ₹ 3,92,64,000.00 ₹ 3,76,19,508.83 ₹ 10,03,58,145.88 ₹ 1,31,66,828.09 ₹ 2,60,97,171.91 ₹ 2,44,52,680.74
36 ₹ 15,96,805.89 ₹ 31,50,000.00 ₹ 15,53,194.11 ₹ 10,19,11,339.99 ₹ 5,43,617.94 ₹ 26,06,382.06 ₹ 10,09,576.17
37 ₹ 48,643.76 ₹ 35,10,000.00 ₹ 34,61,356.24 ₹ 10,53,72,696.23 ₹ 12,11,474.69 ₹ 22,98,525.31 ₹ 22,49,881.56
38 ₹ - ₹ 34,20,000.00 ₹ 34,20,000.00 ₹ 10,87,92,696.23 ₹ 11,97,000.00 ₹ 22,23,000.00 ₹ 22,23,000.00
39 ₹ 19,68,750.00 ₹ 31,50,000.00 ₹ 11,81,250.00 ₹ 10,99,73,946.23 ₹ 4,13,437.50 ₹ 27,36,562.50 ₹ 7,67,812.50
The IRR of project after tax comes about 18.68%. Total money invested by developer ₹ 19.27
Crore and total income ₹ 40.33 Crore. So Benefit to cost Ratio (Net income/Total investment
by developer) comes 0.34. Total Tax Paid by developer ₹ 4.58 Crore. Gross profit before tax
comes about ₹ 11.11 Crore. So net profit of developer after tax ₹ 6.49 Crore.
5.3.2 Investment-Based Crowdfunding Platforms
• Very similar rules apply to investment-based crowdfunding as loan-based - i.e. the
marketing must be fair and not misleading, risks should be highlighted and systems
must be in place to separate your money from theirs - and ensure there are adequate
capital reserves.
• The 14 day cooling off period and access to financial ombudsman also apply.
• It is proposed to permit only Accredited Investors to participate in crowdfunding.
 Applications of Proposed Model in Case Study
• The model is compiled according to Real Estate Regulatory Authority (RERA) of India,
which means money is taken from the customer after construction begins.
• Taxation stands at 35%
• Investment or Equity from the crowdfunding platform would be taken as per Water-
Fall Rules explained in section 2.10.4
• Cost of Equity of Crowdfunding Platform would stay at 12% with 70% stake
• Cost of Equity for Developer will be at 18% including management fees with 30%
stake.
• Rest all the conditions being the same.

56
Table 16 Cash Flow of the Company
Months Expenditure
Expenditure taken
care by Crowdfunding
Expenditure taken
care by Developer
Project Income
Project Cash
Flow
Project IRR
at end of each
month
1 ₹ 3,66,666.67 -₹ 3,66,666.67 ₹ 0.00 ₹ 0.00 -₹ 3,66,666.67 < 0
2 ₹ 3,66,666.67 -₹ 3,66,666.67 ₹ 0.00 ₹ 0.00 -₹ 3,66,666.67 < 0
3 ₹ 3,66,666.67 -₹ 3,66,666.67 ₹ 0.00 ₹ 0.00 -₹ 3,66,666.67 < 0
4 ₹ 1,50,000.00 -₹ 1,50,000.00 ₹ 0.00 ₹ 0.00 -₹ 1,50,000.00 < 0
5 ₹ 50,000.00 -₹ 50,000.00 ₹ 0.00 ₹ 0.00 -₹ 50,000.00 < 0
6 ₹ 2,94,50,000.00 -₹ 2,94,50,000.00 ₹ 0.00 ₹ 0.00 -₹ 2,94,50,000.00 < 0
7 ₹ 2,94,50,000.00 -₹ 2,94,50,000.00 ₹ 0.00 ₹ 0.00 -₹ 2,94,50,000.00 < 0
8 ₹ 7,50,00,000.00 -₹ 7,50,00,000.00 ₹ 0.00 ₹ 0.00 -₹ 7,50,00,000.00 < 0
9 ₹ 66,82,500.00 -₹ 66,82,500.00 ₹ 0.00 ₹ 0.00 -₹ 66,82,500.00 < 0
10 ₹ 6,00,000.00 -₹ 6,00,000.00 ₹ 0.00 ₹ 0.00 -₹ 6,00,000.00 < 0
11 ₹ 5,75,000.00 -₹ 5,75,000.00 ₹ 0.00 ₹ 0.00 -₹ 5,75,000.00 < 0
12 ₹ 11,81,250.00 -₹ 11,81,250.00 ₹ 0.00 ₹ 0.00 -₹ 11,81,250.00 < 0
13 ₹ 5,00,000.00 -₹ 5,00,000.00 ₹ 0.00 ₹ 0.00 -₹ 5,00,000.00 < 0
14 ₹ 60,24,828.00 -₹ 60,24,828.00 ₹ 0.00 ₹ 0.00 -₹ 60,24,828.00 < 0
15 ₹ 60,24,828.00 -₹ 60,24,828.00 ₹ 0.00 ₹ 0.00 -₹ 60,24,828.00 < 0
16 ₹ 8,40,000.00 -₹ 8,40,000.00 ₹ 0.00 ₹ 0.00 -₹ 8,40,000.00 < 0
17 ₹ 1,12,50,000.00 ₹ 0.00 -₹ 70,38,000.00 ₹ 42,12,000.00 -₹ 70,38,000.00 < 0
18 ₹ 1,12,50,000.00 ₹ 0.00 -₹ 70,38,000.00 ₹ 42,12,000.00 -₹ 70,38,000.00 < 0
19 ₹ 76,50,000.00 ₹ 0.00 -₹ 1,62,000.00 ₹ 74,88,000.00 -₹ 1,62,000.00 < 0
20 ₹ 76,50,000.00 ₹ 0.00 -₹ 25,02,000.00 ₹ 51,48,000.00 -₹ 25,02,000.00 < 0
21 ₹ 39,20,000.00 ₹ 0.00 ₹ 0.00 ₹ 1,26,36,000.00 ₹ 87,16,000.00 > 0
22 ₹ 90,00,000.00 ₹ 0.00 ₹ 0.00 ₹ 1,00,80,000.00 ₹ 10,80,000.00 > 0
23 ₹ 90,00,000.00 ₹ 0.00 ₹ 0.00 ₹ 1,00,80,000.00 ₹ 10,80,000.00 > 0
24 ₹ 99,00,000.00 ₹ 0.00 ₹ 0.00 ₹ 1,00,80,000.00 ₹ 1,80,000.00 > 0
25 ₹ 99,00,000.00 ₹ 0.00 -₹ 34,20,000.00 ₹ 64,80,000.00 -₹ 34,20,000.00 > 0
26 ₹ 90,00,000.00 ₹ 0.00 ₹ 0.00 ₹ 1,70,10,000.00 ₹ 80,10,000.00 > 0
27 ₹ 90,00,000.00 ₹ 0.00 ₹ 0.00 ₹ 1,59,66,000.00 ₹ 69,66,000.00 > 0
28 ₹ 2,34,00,000.00 ₹ 0.00 -₹ 16,38,000.00 ₹ 2,17,62,000.00 -₹ 16,38,000.00 > 0
29 ₹ 9,50,000.00 ₹ 0.00 ₹ 0.00 ₹ 3,92,94,000.00 ₹ 3,83,44,000.00 > 0
30 ₹ 40,000.00 ₹ 0.00 ₹ 0.00 ₹ 4,98,24,000.00 ₹ 4,97,84,000.00 > 0
31 ₹ 15,00,000.00 ₹ 0.00 ₹ 0.00 ₹ 5,01,12,000.00 ₹ 4,86,12,000.00 > 0
32 ₹ 15,00,000.00 ₹ 0.00 ₹ 0.00 ₹ 5,27,04,000.00 ₹ 5,12,04,000.00 10.90%
33 ₹ 15,00,000.00 ₹ 0.00 ₹ 0.00 ₹ 1,81,44,000.00 ₹ 1,66,44,000.00 15.68%
34 ₹ 15,00,000.00 ₹ 0.00 ₹ 0.00 ₹ 1,81,44,000.00 ₹ 1,66,44,000.00 20.16%
35 ₹ 15,00,000.00 ₹ 0.00 ₹ 0.00 ₹ 3,92,64,000.00 ₹ 3,77,64,000.00 29.32%
36 ₹ 15,00,000.00 ₹ 0.00 ₹ 0.00 ₹ 31,50,000.00 ₹ 16,50,000.00 29.69%
37 ₹ 0.00 ₹ 0.00 ₹ 0.00 ₹ 35,10,000.00 ₹ 35,10,000.00 30.46%
38 ₹ 0.00 ₹ 0.00 ₹ 0.00 ₹ 34,20,000.00 ₹ 34,20,000.00 31.18%
39 ₹ 19,68,750.00 ₹ 0.00 ₹ 0.00 ₹ 31,50,000.00 ₹ 11,81,250.00 31.42%

57
Table 17 Cash Flow returns of Developer and Crowdfunding Platform
Month
Equity return to CF
@12%
Equity return to
Developer @ 18%
Profit remaining with
company
Profit sharing with CF
platform (70%)
Profit sharing with
developer (30 %)
1 ₹ 0.00 ₹ 0.00 ₹ 0.00 ₹ 0.00 ₹ 0.00
2 ₹ 0.00 ₹ 0.00 ₹ 0.00 ₹ 0.00 ₹ 0.00
3 ₹ 0.00 ₹ 0.00 ₹ 0.00 ₹ 0.00 ₹ 0.00
4 ₹ 0.00 ₹ 0.00 ₹ 0.00 ₹ 0.00 ₹ 0.00
5 ₹ 0.00 ₹ 0.00 ₹ 0.00 ₹ 0.00 ₹ 0.00
6 ₹ 0.00 ₹ 0.00 ₹ 0.00 ₹ 0.00 ₹ 0.00
7 ₹ 0.00 ₹ 0.00 ₹ 0.00 ₹ 0.00 ₹ 0.00
8 ₹ 0.00 ₹ 0.00 ₹ 0.00 ₹ 0.00 ₹ 0.00
9 ₹ 0.00 ₹ 0.00 ₹ 0.00 ₹ 0.00 ₹ 0.00
10 ₹ 0.00 ₹ 0.00 ₹ 0.00 ₹ 0.00 ₹ 0.00
11 ₹ 0.00 ₹ 0.00 ₹ 0.00 ₹ 0.00 ₹ 0.00
12 ₹ 0.00 ₹ 0.00 ₹ 0.00 ₹ 0.00 ₹ 0.00
13 ₹ 0.00 ₹ 0.00 ₹ 0.00 ₹ 0.00 ₹ 0.00
14 ₹ 0.00 ₹ 0.00 ₹ 0.00 ₹ 0.00 ₹ 0.00
15 ₹ 0.00 ₹ 0.00 ₹ 0.00 ₹ 0.00 ₹ 0.00
16 ₹ 0.00 ₹ 0.00 ₹ 0.00 ₹ 0.00 ₹ 0.00
17 ₹ 0.00 ₹ 0.00 ₹ 0.00 ₹ 0.00 ₹ 0.00
18 ₹ 0.00 ₹ 0.00 ₹ 0.00 ₹ 0.00 ₹ 0.00
19 ₹ 0.00 ₹ 0.00 ₹ 0.00 ₹ 0.00 ₹ 0.00
20 ₹ 0.00 ₹ 0.00 ₹ 0.00 ₹ 0.00 ₹ 0.00
21 ₹ 87,16,000.00 ₹ 0.00 ₹ 0.00 ₹ 0.00 ₹ 0.00
22 ₹ 10,80,000.00 ₹ 0.00 ₹ 0.00 ₹ 0.00 ₹ 0.00
23 ₹ 10,80,000.00 ₹ 0.00 ₹ 0.00 ₹ 0.00 ₹ 0.00
24 ₹ 1,80,000.00 ₹ 0.00 ₹ 0.00 ₹ 0.00 ₹ 0.00
25 ₹ 0.00 ₹ 0.00 ₹ 0.00 ₹ 0.00 ₹ 0.00
26 ₹ 80,10,000.00 ₹ 0.00 ₹ 0.00 ₹ 0.00 ₹ 0.00
27 ₹ 69,66,000.00 ₹ 0.00 ₹ 0.00 ₹ 0.00 ₹ 0.00
28 ₹ 0.00 ₹ 0.00 ₹ 0.00 ₹ 0.00 ₹ 0.00
29 ₹ 3,83,44,000.00 ₹ 0.00 ₹ 0.00 ₹ 0.00 ₹ 0.00
30 ₹ 4,97,84,000.00 ₹ 0.00 ₹ 0.00 ₹ 0.00 ₹ 0.00
31 ₹ 4,86,12,000.00 ₹ 0.00 ₹ 0.00 ₹ 0.00 ₹ 0.00
32 ₹ 4,37,21,211.86 ₹ 74,82,788.14 ₹ 0.00 ₹ 0.00 ₹ 0.00
33 ₹ 0.00 ₹ 1,62,77,031.86 ₹ 3,66,968.14 ₹ 2,93,574.51 ₹ 73,393.63
34 ₹ 0.00 ₹ 0.00 ₹ 1,66,44,000.00 ₹ 1,33,15,200.00 ₹ 33,28,800.00
35 ₹ 0.00 ₹ 0.00 ₹ 3,77,64,000.00 ₹ 3,02,11,200.00 ₹ 75,52,800.00
36 ₹ 0.00 ₹ 0.00 ₹ 16,50,000.00 ₹ 13,20,000.00 ₹ 3,30,000.00
37 ₹ 0.00 ₹ 0.00 ₹ 35,10,000.00 ₹ 28,08,000.00 ₹ 7,02,000.00
38 ₹ 0.00 ₹ 0.00 ₹ 34,20,000.00 ₹ 27,36,000.00 ₹ 6,84,000.00
39 ₹ 0.00 ₹ 0.00 ₹ 11,81,250.00 ₹ 9,45,000.00 ₹ 2,36,250.00

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