Builders happy with escrow proposal
Real estate experts want clarity on housing ministry proposal
The housing ministry’s proposal to allow builders to divert up to half the amount collected from a buyer for a specific project to other projects has been welcomed as a “fair and positive step” by the developer community. Experts, however, say that the amount to be put in an escrow account should not be uniform but differ for metros and far-flung areas. Issues such as establishing single window clearance and an efficient regulatory body also need to be addressed first, consultants say.
The amount collected for a project from the allottees and put in an escrow account to be used only for construction of that project has now been reduced to 50% from the earlier 70%. The earlier clause in the Real Estate (Regulation & Development) Bill, drafted by the previous UPA government, was aimed at keeping a check on the developers and preventing them from diverting buyers’ money to start new projects instead of finishing the one for which money was collected. The real estate lobby was pushing hard for dilution of this clause.
This is a “fair” clause and we welcome it, says Getamber Anand, president elect Credai (Confederation of real estate developers association of India), adding the builder community would also want the taxing authority and the urban local bodies to be made part of the bill.
Sanjay Dutt, executive managing director, South Asia, Cushman & Wakefield is of the view that the proposal to review the Real Estate Regulatory Bill to allow builders to use 50% of buyer funds whilst reducing the mandatory holding in escrow account to only 50% ( from previous 70%), will be a welcome move, should the parliamentary committee accept the same. From the developers’ perspective, this will allow them to utilise the money for construction activities to ensure timely completion of the project. This is positive for developers who will have more access to capital in short term for time bound activities relating to specific projects
The dilution, according to experts is necessary as the amount kept in an escrow account can be used only for construction and usually the major cost in any project is that of land. Most developers have already paid for the land parcel before launching the project and construction cost is generally not more than 30%. A major chunk therefore would have been left unutilised in the escrow account.
By making developers block capital, there will be an opportunity loss that he will be forced to pass on to the buyer. This is like asking somebody to park ₹ 20 crore when you need only ₹ 3 crore for construction. There is