Escrow accounts have not worked in Haryana housing
Deliveries delayed even though 30% money for a project has to be deposited in a separate account
Though real estate experts feel the provision of escrow in the proposed real estate regulation bill will discipline developers and force them to use funds for a specific project and complete it on time, a similar provision in The Haryana Development and Regulation of Urban Areas Act, 1975, has not enabled timely delivery of apartments in Gurgaon and Faridabad.
Section 5 ( 1) of the said Act, which deals with ‘Cost of Development Works’, states, “The colonizer shall deposit thirty per centum of the amount released, from time to time, by him, from the plot-holders within a period of ten days of its realization in a separate account to be maintained in a scheduled bank. This amount shall only be utilised by him towards meeting the cost of internal development works in the colony. After the internal development works of the colony have been completed to the satisfaction of the director, the colonizer shall be at liberty to withdraw the balance amount. The remaining seventy per centum of the said amount shall be deemed to have been retained by the colonizer, inter-alia, to meet the cost of land and external development works.”
The Act has not been enforced properly. “Every developer gets an escrow account opened. And though he deposits 30% of the total money collected from homebuyers he can withdraw it without seeking permissions from anyone. However, the Act states that the director of department of town and country planning can inspect the developers’ account and scrutinise his expenses to make sure that withdrawal from the escrow account is for the purpose for which it was created. This is where the problem is as the government agencies are not doing a good job,” says SK Sayal, managing director, Bharti Realty.
According to section 6 (I) of the Act, which deals with ‘Auditing of accounts,’ the director, or any other officer authorised by him shall be competent to inspect the accounts maintained by the coloniser who shall produce
terly report focusing on capital and rental price trends in the residential real estate market across seven major cities of India.
“Though the market looks grim with unsold residential inventory, there is an increase in office space absorption by IT/ITeS and e-commerce firms. This is expected to keep the commercial and home rental markets of Noida and Gurgaon upbeat,” s ays Narasimha Jayakumar, chief business officer, 99acres.com.
Other price trends include Delhi witnessing a dip of 2% in April- June 2015 as compared to the preceding quarter. Property prices in South Delhi grew insignificantly, while that in North and West Delhi dropped by 5% and 8%, respectively. The Dwarka price graph declined by 4% and East Delhi saw a stagnant trend. Mehrauli, surprisingly was the top grosser and saw a 7% rise in capital values in April-Jun 2015 as against the quarter ending March 2015. The upmarket Greater Kailash I and II witnessed a rise of 6% and 4% respectively.
The rental market of Delhi saw an improvement due to improvement in infrastructure and increased employment opportunities. Rental values in the region surged by an average of 5% in the last one year. East Delhi witnessed the highest growth of 10% between April-June 2014 and 2015, while values in North Delhi stagnated during the same period. East Delhi was followed by Dwarka with a spike of 6% in rental values. South and West Delhi clocked an increase of 5% and 4% respectively. before him all the relevant records required for this purpose.
“The colonizer shall get his accounts audited, after the close of every financial year, by a chartered accountant and shall produce a statement of accounts, duly certified and signed by such chartered accountant, in the manner prescribed,” section 6 (2) states.
Amit Jain, founder, Centre for Research and Analysis of Real Estate in India, an NGO working on real estate issues, wonders how the escrow account will be monitored. “If developers are allowed to withdraw money from the escrow account without anyone’s permission, then it’s very important to have in place measures for frequent and regular audits of the account. That’s why the Regulatory Bill proposes that that the amount from the separate account shall only be withdrawn by the promoter after it is certified by an engineer, an architect and a chartered accountant that the withdrawal is in compliance with the percentage of completion of the project.”
The bill also states that the promoter shall get his accounts audited within six months after the close of every financial year by a chartered accountant and publish on its website a statement of accounts duly certified and signed by the chartered accountant. It will also be verified during the audit that the amount collected for a particular project has been utilised for that project and the withdrawal has been in compliance with the percentage of completion of the project.
“If these provisions are not implemented strictly, the purpose of escrow accounts will be completely defeated,” says Jain.