Ind AS 115: A Challenge or Opportunity for Real Estate Developers?

Ind AS 115: Navigating the Shift in Revenue Recognition for Real Estate Developers 

In 2015, India's Ministry of Corporate Affairs introduced the Indian Accounting Standard (Ind AS 115), aligning Indian practices with the globally accepted International Financial Reporting Standards (IFRS 15) standards. Effective from April 1, 2018, Ind AS 115 replaced older revenue recognition standards, such as Ind AS 11 and 18, primarily aiming for transparency and consistency, particularly in sectors like real estate and construction.

Before Ind AS 115, real estate companies typically used the Percentage of Completion Method (POCM), recognising revenue gradually as construction progressed. The shift to Ind AS 115 mandated revenue recognition only upon actual transfer of control to buyers—usually at project completion—causing significant disruptions to financial reporting and cash flows. This regulatory change coincided with two other major shifts: the introduction of RERA in 2016, which imposed stringent timelines for project completion, and the implementation of GST in 2017, making ready-to-move properties comparatively more attractive. These factors created a compliance and financial burden, causing sudden revenue volatility, decreased reported profits, and cash flow pressures. Initial industry-wide profit write-backs totalled nearly ₹20,000 crores, complicating Minimum Alternate Tax (MAT) calculations and driving an increased reliance on debt financing.

Real estate developers adapted strategically through several measures, including focusing on ready-to-move or near-completion properties, entering into joint development agreements to share risks and accelerate revenue realisation, and shifting from outright sales to leasing or revenue-sharing models. Many also diversified into commercial leasing and Real Estate Investment Trusts (REITs) to stabilise revenue streams.

This transitional period spurred industry consolidation, benefiting stronger players and enhancing investor confidence through increased transparency. Although listed developers initially faced significant challenges due to revenue fluctuations, strategic realignment and the adoption of advanced ERP systems for compliance are gradually leading to more predictable revenue patterns. Going forward, Ind AS 115, despite its challenging start, may eventually boost investor trust and foreign investment in India's real estate market. However, continued regulatory refinements and technological integration remain crucial to ensuring sustained growth and stability in the sector.