Has es­crow pro­vi­sion been di­luted?

Changes made in RERB by the Union Cab­i­net will al­low builders to with­draw larger chunks of money from es­crow ac­count

HT Estates - - FRONT PAGE - Jee­van Prakash Sharma

The changes are very, very sub­tle but can have a ma­jor im­pact on the es­crow pro­vi­sion (money set aside by real es­tate de­vel­op­ers for a spe­cific pro­ject which can­not be chan­nelised else­where. This pre­vents de­lays in de­liv­ery of projects). There were dif­fer­ences be­tween the two ver­sions of the Real Es­tate Reg­u­la­tion Bill – one pre­pared by the se­lect com­mit­tee of the Ra­jya Sabha on July 30, 2015, and the one which was passed by the Lok Sabha on March 15, 2016. Changes in the lat­ter bill were re­lated to section 4 (l) (D) which deals with the es­crow pro­vi­sion.

An amend­ment, pur­port­edly done by the Union Cab­i­net, put a ques­tion mark on the ef­fi­cacy of the es­crow pro­vi­sion in RERB.

Ac­cord­ing to the Ra­jya Sabha ver­sion, the developer has to de­posit 50% of home­buy­ers’ money in an es­crow ac­count to cover con­struc­tion costs. If, let us pre­sume, a buyer pays ₹ 10,000 per sq ft for an apart­ment to a real es­tate developer, the developer will de­posit ₹ 5,000 (per sq ft) in the es­crow ac­count, with­draw­ing it for con­struc­tion work. The re­main­ing ₹ 5,000 is re­served for other ex­penses.

The amend­ment by the Union Cab­i­net, which has been passed by Ra­jya Sabha and Lok Sabha, says that the developer has to de­posit 70% in the es­crow ac­count to cover the ‘ cost of con­struc­tion and land’. This means the es­crow de­posit has been in­creased from 50% to 70% by the Union Cab­i­net with ‘land’ added to the pro­vi­sion. So, the developer can, through the es­crow ac­count, re­cover land cost along with cost of con­struc­tion.

Realty ex­perts quizzed on the amend­ment by HT Es­tates say this in­clu­sion has di­luted the whole es­crow pro­vi­sion. “After the amend­ment, if for in­stance a developer col­lects money from a home­buyer for an apart­ment in a pro­posed real es­tate pro­ject at the rate ₹ 10,000 per sq ft. He will keep ₹ 3,000 with him and de­posit the re­main­ing ₹ 7,000 in the es­crow ac­count. Now be­fore he starts con­struc­tion, he can with­draw money to cover his land cost. If he can show land cost at 60% of the to­tal cost of the pro­ject, he can with­draw 60% from the es­crow ac­count be­fore start­ing con­struc­tion work. Only 10% will re­main in the ac­count,” says Amit Jain, a real es­tate con­sul­tant who has been ac­tively in­volved in the for­mu­la­tion of the bill.

Ex­perts won­der why out of ten chap­ters, 92 sec­tions and thou­sands of words of the RERB pre­pared by the Ra­jya Sabha se­lect com­mit­tee, only 12 words in the bill were deleted and five words added in section 4 (l) (D) which deals with the es­crow pro­vi­sion.

Even the Ra­jya Sabha se­lect com­mit­tee while re­cod­ing its ob­ser­va­tions and rec­om­menda-

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