Bad news for realtors across the board

This wasn’t surprising at all, in fact many investors would have thought about it earlier and may have been anticipating government’s crackdown across the board. And that has actually begun. I would say all this is fallout of the Satyam saga.

First it was global investment banking major Credit Suisse, who came up with a report that contained bad news for the blue chip companies and yesterday the Income Tax department ordered special audit of DLF accounts of FY06.

Apparently, DLF had allegedly tried to lower its tax liability by understating sales for 2005-06.

The IT department may have restricted it’s investigation to DLF but Credit Suisse’s report pointed a finger at all the bigwigs in the industry.

It’s report on corporate governance practices of major real estate companies, it said that DLF, Unitech, IVRCL, IBREL, Parsvnath and Sobha Developers are lacking in transparency and that certain key financial disclosures have not been adequately provided.

Both DLF and Unitech, for instance, showed “revenues on a percentage of completion method even where the cash receipt is yet not due,” the report said.

Unitech's investments in telecom, an unrelated business at a time when the real estate business needed funds, are also under the scanner.

In FY08, DLF sold real estate projects (assets) amounting to Rs 5,560 crore to a promoter-controlled entity, DLF Assets. It also cancelled an earlier sale of assets worth Rs 1,890 crore.

Another builder, Parsvnath Developers too has a mismatch between revenue recognition, cash flows and capitalisation of interest expense.