RERA Tightens Oversight On Real Estate Project Accounts

The UP RERA body has announced a stricter compliance framework for real estate projects. In particular, the framework seeks to regulate real estate accounts, signalling a push towards financial transparency and protection for homebuyers. The new measure was announced during an awareness meeting organised by UP-RERA at their regional office of Bank of Baroda in Lucknow. Bank representatives and other financial institutions were present at the meeting. The revised banking regulations, which were issued on May 11, are aimed at tackling fund diversion. The regulations seek to ensure the disciplined use of money, and improve accountability from the developer and builder’s end. UP-RERA Chairman Sanjay Bhoosreddy has emphasised that the authority is focused on the primary objective of safeguarding the homebuyer while also ensuring timely project completion. The strongest safeguard extended by RERA is the 70 per cent escrow requirement; builders must keep 70 per cent of the money from homebuyers in a specified bank account. This ensures that the investor's money is safe and exclusive for the project. Withdrawals are only allowed after permission is granted to the project engineer, architect, and chartered accountant. The escrow requirement prevents builders and developers from using funds from one project to support another one. In addition to this, banks have been directed not to provide cheque books, debit cards, or transaction-enabled internet banking tools to the project accounts. This has further reduced the scope for unauthorised fund transfers. Another provision by the authority introduced by the regulatory authority is the prohibition on banks, NBFCs, lenders and investors from creating liens on collection or separate accounts. According to the regulatory body, project funds belong solely to the development of the project and should not be diverted for other liabilities or obligations. UP RERA has also proposed strict restrictions on “assured return” or “guaranteed return” schemes that are offered by builders and developers to attract sales. Such payouts can no longer be made using the funds, as the regulatory body believes that buyer money should only support the project the buyer paid for. Aside from these changes, the body has introduced reforms related to account closures and stalled projects. Separate accounts can be closed only after the project is completed with prior approval from RERA. Developers will also have to provide proof of transfer to the respective RWA bodies. If the project lapses or the registration of the project is revoked, the account will be frozen on an immediate basis according to RERA norms.