Off-plan sales: revenue over time or at handover

This is the single highest-stakes judgment for a developer's P&L: concluding over-time versus point-in-time recognition can shift several years of revenue and margin into a completely different reporting period, materially affecting reported profitability, covenant compliance and investor perception. The wrong conclusion (or an undocumented one) is a leading cause of restatement risk in the region's real estate sector.

Is the contract for a specific identified unit that becomes enforceable at signing, or only at a later registration/notarization date? On buyer default, does the contract and local off-plan law entitle the developer to payment for work completed to date plus a reasonable margin, or only to retain instalments as a capped penalty? Can the developer redirect or resell the specific unit to another buyer, or does the unit have no alternative use to the developer? Has a jurisdiction-specific legal opinion been obtained and documented per project, rather than copying a conclusion from another market or group entity?

1) Identify the promise: is the developer selling a specific identified unit under a contract that is enforceable once signed (a 'contract' per IFRS 15.9), or is a contract for accounting purposes only formed later (e.g. at a required registration/notarization date)? 2) Test the over-time criteria in order: (a) does the customer simultaneously receive and consume benefits as the developer performs (rarely met for a multi-year built unit); (b) does the developer's performance create or enhance an asset the customer controls as it is created (only if the buyer has recognisable control of the specific unit/work-in-progress under local law before completion); (c) does the asset have no alternative use to the developer AND does the developer have an enforceable right to payment for performance completed to date, including a reasonable profit margin (not just cost or a penalty-capped forfeiture)? 3) Obtain a jurisdiction-specific legal opinion on (i) whether the off-plan contract/escrow law gives the developer a right to full performance-to-date payment (cost + margin) on buyer default, or only a right to retain instalments/impose a capped penalty, and (ii) whether the unit can practically and contractually be redirected to another buyer. 4) If enforceable right to payment (cost+margin) exists AND no alternative use -> recognize revenue over time using an output or input method that faithfully depicts progress; if either condition fails -> recognize revenue at the point in time control transfers (typically legal handover/possession). 5) Document the conclusion per project/contract form (not company-wide) and revisit if the contract wording, escrow law, or market practice changes; get board/audit committee sign-off given the P&L impact.

Measurement base: if over-time criteria are met, measure progress using an output method (e.g. surveyed physical completion, units of delivery) or a reliable cost-to-cost input method, excluding from the progress calculation any component (such as land) whose control transferred to the buyer at contract inception under a separate performance obligation. If point-in-time applies, all cash received before control transfer is measured and carried as a contract liability (advances from customers) at the amount received, with no revenue recognized until handover. Subsequent measurement: for over-time contracts, revenue and contract asset/liability positions are remeasured each period as estimated total contract cost and price are updated (recognize the cumulative catch-up); for point-in-time contracts, the contract liability is simply derecognized against revenue at handover, with no interim remeasurement of margin.

Disclose per unit/project or contract-form population: revenue recognition method applied (point in time vs over time) and the judgment basis; the legal basis relied upon (statute/escrow law and legal opinion) for the enforceable-right-to-payment conclusion; contract liabilities (advances from customers) as a separate line, not netted against contract assets from different contracts; disaggregation of revenue by timing (point in time vs over time) if both populations exist; significant judgments and changes in judgment period-over-period, with quantified impact if the conclusion changed.

• Assuming over-time treatment merely because instalments are collected progressively (collection pattern is irrelevant to the control/enforceability test)
• copying another market'
• s or group entity'
• s conclusion without a jurisdiction-specific legal opinion, when escrow/off-plan laws differ materially between KSA, UAE, Egypt and other markets
• recognizing revenue at contract signing (neither point-in-time control transfer nor a valid over-time measure of progress)
• treating a capped/limited penalty-on-default clause as if it were a right to full cost-plus-margin payment
• failing to reassess the conclusion when contract templates or local regulation change mid-project.