THE ES­CROW QUES­TION

Does a developer have to de­posit 50% or 70% in a sep­a­rate ac­count for a hous­ing pro­ject?

HT Estates - - FRONT PAGE - Jee­van Prakash Sharma

When the se­lect com­mit­tee of the Ra­jya Sabha in its fi­nal rec­om­men­da­tions on the Real Es­tate (Reg­u­la­tion and De­vel­op­ment Bill) 2015 has clearly stated that a developer has to keep at least 50% of the to­tal money col­lected from home­buy­ers in an es­crow ac­count (a sep­a­rate ac­count for con­struc­tion pur­poses), why is it be­ing re­ported in the me­dia that the limit is 70%, in­clud­ing land costs?

In­ter­est­ingly, the Cab­i­net com­mit­tee had ap­proved the bill with the Ra­jya Sabha se­lect com­mit­tee’s rec­om­men­da­tion that the es­crow limit be set at 50%.

An­nounc­ing the de­ci­sion of the Cab­i­net Com­mit­tee, a Press In­for­ma­tion Bureau re­lease dated De­cem­ber 9, 2015, had stated, “The Union Cab­i­net chaired by the Prime Min­is­ter Shri Naren­dra Modi has ap­proved the Real Es­tate (Reg­u­la­tion and De­vel­op­ment) Bill, 2015, as re­ported by the Se­lect Com­mit­tee of Ra­jya Sabha. The Bill will now be taken up for con­sid­er­a­tion and pass­ing by the Par­lia­ment.”

One of the salient fea­tures of the bill, which the gov­ern­ment re­lease has high­lighted, is the de­posit of spec­i­fied amount in an es­crow ac­count -- a sep­a­rate bank ac­count to cover the con­struc­tion cost of the pro­ject for its com­ple­tion on time .

“The gov­ern­ment press re­lease says that a spe­cific amount has to be de­posited in a sep­a­rate bank ac­count to cover con­struc­tion costs. Nowhere does the re­lease say that the de­posited amount will also cover land cost. So where does this 70% fig­ure come from? Both state­ments can’t be cor­rect. If the cab­i­net com­mit­tee has ap­proved all the se­lect com­mit­tee rec­om­men­da­tions, as re­ported in the gov­ern­ment’s re­lease, then the de­posit limit is only 50% and that money will only be used for the pur­pose of con­struc­tion. How­ever, if the Cab­i­net com­mit­tee hasn’t ap­proved all the rec­om­men­da­tions of the se­lect com­mit­tee, then the gov­ern­ment re­lease is mis­lead­ing. Change in the limit and use of money de­posited in a sep­a­rate ac­count is a ma­jor mod­i­fi­ca­tion in the bill,” says a se­nior con­sul­tant in the ur­ban de­vel­op­ment min­istry.

The con­sul­tant feels the re­lease will cre­ate some con­fu­sion. “How will the land cost be cal­cu­lated? Who will cal­cu­late it? The bill needs fur­ther dis­cus­sion be­cause then it needs to be added that the with­drawal of money from the sep­a­rate ac­count is not only for con­struc­tion but also for pur­chase of land. This will def­i­nitely de­lay the whole process of pass­ing of the bill.”

Ac­cord­ing to section 2, sub clause (i)(d) of the Real Es­tate (Reg­u­la­tion and De­vel­op­ment Bill) 2015, as re­ported by the se­lect com­mit­tee of the Ra­jya Sabha, “That fifty per­cent, or such higher per­cent, as no­ti­fied by the ap­pro­pri­ate gov­ern­ment, of the amounts re­alised for the real es­tate pro­ject from the al­lot­tees, from time to time, shall be de­posited in a sep­a­rate ac­count to be main­tained in a sched­uled bank to cover the cost of con­struc­tion and shall be used only for that pur­pose…”

Many ex­perts who have been key contributors to the for­ma­tion of the bill say that de­vel­op­ers have al­ways tried to cre­ate hur­dles in the way of pro­vi­sions be­ing made for a sep­a­rate ac­count.

“Dur­ing UPA’s ten­ure, the orig­i­nal bill had a pro­vi­sion which made it manda­tory for a developer to de­posit 70% of money col­lected from buy­ers in a sep­a­rate ac­count to cover the cost of con­struc­tion, but when the BJP gov­ern­ment came to power, after con­sult­ing with de­vel­op­ers and other stake­hold­ers, the amount was re­duced to

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