Builders happy with es­crow pro­posal

Real es­tate ex­perts want clar­ity on hous­ing min­istry pro­posal

HT Estates - - FRONT PAGE - Van­dana Ram­nani

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

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