Pre-Sales in Real Estate Results: Bookings vs Reported Revenue

Open any listed developer’s quarterly update and you will usually see two headline numbers fighting for attention: what the company “sold” in the quarter and what it reported as revenue. They are rarely close. Reading pre-sales real estate results properly starts with understanding why, because the gap between bookings and reported revenue is not a red flag by itself. It is how property accounting works in India.

We have seen investors cheer a jump in quarterly revenue that was really a handful of old projects being handed over, and panic at a revenue drop in a quarter when the same company booked record sales. Both reactions read the wrong line. This guide walks through what pre-sales are, why revenue lags them, what the RERA law does to the cash, and a worked example you can redo on any developer’s numbers.

What pre-sales actually measure

Pre-sales (companies also call them bookings or sales bookings) are the value of flats, plots or offices for which buyers have signed up during the period. A buyer pays a booking amount, signs an agreement for sale, and then pays in instalments as construction moves along. The developer counts the full agreed value of that unit as a pre-sale in the quarter the booking happens.

Notice what that number is not. It is not cash in hand, since most of the money comes later. And it is not revenue, because the developer hasn’t delivered anything yet. It is closer to an order book entry: a promise to build and hand over a home, with the buyer’s promise to pay for it.

That makes pre-sales the best single read on demand. If a developer launches a tower and books most of it within a couple of quarters, the market wanted what it built, at the price it asked. That is the number that tells you about this quarter’s business. Reported revenue mostly tells you about decisions made years ago.

Why reported revenue lags pre-sales in real estate results

The reason is the revenue recognition principle. Under accrual accounting, a company records revenue when it is earned, not when cash comes in, and it recognises that revenue as it fulfils its obligations to the customer, either at a single point in time or over a period. Investopedia’s explainer on revenue recognition sets out the five-step model used under both US GAAP (ASC 606) and IFRS 15: identify the contract, identify the performance obligations, set the transaction price, allocate it, and recognise revenue when each obligation is fulfilled.

India’s version is Ind AS 115, Revenue from Contracts with Customers. The key question for a developer is whether its obligation to the buyer is satisfied over time, as the building goes up, or at a single point in time, usually when the finished unit is handed over.

Paragraph 35 of Ind AS 115 says revenue can be recognised over time only if one of three conditions is met: the customer receives and consumes the benefit as the work is done; the work creates or enhances an asset that the customer controls as it is created; or the work creates an asset with no alternative use to the seller and the seller has an enforceable right to payment for work completed to date. In a July 2018 press release, the Institute of Chartered Accountants of India (ICAI) pushed back on media reports that the standard allowed only the completed contract method for real estate. It said paragraphs 35 to 37 explicitly permit the percentage of completion method where the obligation is satisfied over time, and that conditions 35(b) and 35(c) are meant to address real estate.

So both routes are allowed. Which one a developer uses depends on its contracts and the facts of each case, and the choice is spelt out in the accounting policies note of its annual report. That note is the first thing we read before comparing two developers.

Pre-sales tell you about this quarter’s demand. Reported revenue, for a developer that books on handover, mostly tells you about launches from three or four years ago.

Completion-based versus progress-based recognition

Under point-in-time recognition, revenue from a project shows up in a lump when units are handed over. A developer that delivers three big projects in one quarter can post a spectacular revenue number, then a weak one the next quarter when nothing completes. The underlying business didn’t change at all; the handover calendar did.

Under percentage of completion, revenue builds steadily as construction progresses. Results look smoother, but they lean on estimates of total project cost and completion, which gives management more judgement calls and gives you more to check.

Where RERA fits in: the 70% rule on collections

Pre-sales turn into cash through collections, and collections are where the Real Estate (Regulation and Development) Act, 2016 changes things. Under Section 4(2)(l)(D) of the Act, the promoter has to declare that seventy per cent of the amounts realised from allottees for a project will be deposited in a separate account with a scheduled bank, to cover the cost of construction and the land cost, and used only for that purpose.

Money comes out of that account in proportion to the percentage of completion of the project, and only after an engineer, an architect and a practising chartered accountant certify that the withdrawal matches the progress. The promoter’s accounts must also be audited within six months of the end of each financial year, with the audit checking that money collected for a project was used for that project.

Two practical effects follow. First, a developer cannot freely move buyer money from a selling project into land purchases elsewhere, the way an unregulated developer could. Second, collections data becomes more meaningful, because a large part of it is ring-fenced for building the very homes that were sold.

Section 13 of the same Act adds one more guardrail: a promoter cannot accept more than ten per cent of the cost of an apartment, plot or building as an advance or application fee without first entering into a written agreement for sale and registering it. So once a buyer has paid more than that first tenth, the law expects a signed, registered agreement for sale to be in place.

A worked example: one developer, three numbers

Let us take a hypothetical listed developer, ABC Realty, that recognises revenue when units are handed over. All figures below are made up to show the mechanics.

In a quarter, ABC Realty reports:

• Pre-sales of ₹1,200 crore, mostly from a new tower launched this quarter
• Collections of ₹800 crore, from instalments on projects sold over the last few years
• Revenue from operations of ₹450 crore, from one project handed over this quarter

A quick reader sees revenue at ₹450 crore and thinks the company is a ₹1,800 crore a year business. That is wrong in both directions. The ₹1,200 crore of bookings won’t hit revenue until that tower is handed over, perhaps three or four years out. And the ₹450 crore is a single handover; next quarter’s figure could be zero or double, depending on what completes.

Now the RERA lens. If all ₹800 crore of collections came from RERA-registered projects, at least ₹560 crore (70% of ₹800 crore) has to go into the separate project accounts. Only the remaining ₹240 crore or so is free for other uses, and even the escrowed money comes out only as construction progresses and is certified.

Next, a single flat. Say a buyer books a ₹1 crore apartment in the new tower. Before a registered agreement for sale is signed, ABC Realty can take at most ₹10 lakh (10% of ₹1 crore). The full ₹1 crore enters pre-sales in the booking quarter. Cash arrives over the construction schedule. Revenue of ₹1 crore lands in the quarter the flat is handed over.

Same project, two accounting routes

Suppose ABC Realty sells out a ₹1,000 crore project in Year 1 and finishes it at the end of Year 4, with construction 25% done at the end of Year 1, 50% by Year 2, 75% by Year 3 and 100% by Year 4.

Same project, same buyers, same cash. Over four years every column adds to ₹1,000 crore. What changes is the shape. Handover accounting gives three blank years and one huge one; completion accounting spreads it evenly. If you compare a handover-based developer’s Year 4 with a completion-based developer’s Year 4, you will draw silly conclusions about who is “growing faster”.

Every column in the table adds up to the same ₹1,000 crore. The accounting method changes when profit shows up, not how much the project earns.

How we read pre-sales real estate results in a quarterly update

Here is the checklist we run through, in rough order of how much it tells us.

1. Pre-sales trend, not one quarter. Launch timing makes single quarters lumpy. Compare the half-year or full year against the company’s own guidance and the previous year.
2. Volume and price split. If the update gives area sold (often in lakh square feet) alongside value, split the two. Rising value with flat volume means higher realisation per square foot, which can be pricing power or simply a richer project mix.
3. Collections against pre-sales. Bookings are promises; collections are cash. A company booking strongly but collecting slowly may be offering easy payment plans or seeing cancellations.
4. Accounting policy. Check whether revenue is recognised on handover or over time before comparing margins or growth with a peer.
5. Handover pipeline. For a handover-based developer, the list of projects nearing completion is effectively next year’s revenue forecast.
6. Net debt movement. With 70% of collections ring-fenced, net debt rising while pre-sales boom can mean land buying is being funded with borrowing.

Two traps deserve a mention. One is cancellations: a gross bookings figure can include sales that later unwind, so read the footnotes for net numbers. The other is joint development deals, where the developer may report the full value sold while sharing revenue with a landowner. Check whether the investor presentation spells out the company’s share; if it doesn’t, ask why.

What this means for anyone tracking realty stocks

For listed developers, pre-sales momentum and the launch pipeline say more about the next few years than reported revenue does. So a quarter with a revenue miss need not be bad news if bookings are strong; the forward book is what you are really buying.

Profit and loss figures still matter. They confirm that projects are delivered and margins hold up when units are finally handed over. But for a handover-based developer, treat reported revenue as a lagging indicator and pre-sales plus collections as the leading one.

For a broader framework on reading results line by line, our guide on how to analyse quarterly results of a company covers the general steps. You can see how these numbers appear in real updates in our coverage of Mahindra Lifespace’s Q2 results and Raymond Realty’s Q2 results.

Quick recap

Pre-sales are bookings, measured at full contract value in the quarter a buyer signs up. Revenue arrives either when the unit is handed over or as construction progresses, depending on how the contract meets the Ind AS 115 tests. RERA ring-fences 70% of what buyers pay for each project and caps the pre-agreement advance at 10%. Put those three facts together and the “mismatch” in a developer’s results stops looking like a mismatch.

Disclaimer: This article is for educational purposes only and is not investment advice. All company names and figures in the worked examples are hypothetical. Please consult a SEBI-registered investment adviser before making any investment decisions.