SMALL AMENDMENT, BIG IMPACT
tions has said that in some areas cost of land came to nearly 80% of the cost of the project. In spite of that the commitee fixed a limit of 50% or such higher percentage as notified by various state governments in their rules to recover only construction cost and not land cost.
“In some cases in which land cost adds to 80% of the cost of construction, the developer will withdraw almost the full amount from the escrow account to recover cost of land before construction work starts. This section has now become open to misuse. Developers will show high land cost to withdraw as much as they can from the account before starting construction,” says Rajeev Ranjan Pandey, a Delhi High Court lawyer. He also adds that many prominent developers are sitting on land parcels they bought 20 to 30 years ago at very cheap rates. “However, these developers will quote current market value of the land parcels to withdraw money from the escrow account.” Even the process of withdrawing money from an escrow account laid down in the bill is in favour of developers.
“The RERB says t hat an engineer, an architect and chartered accountant in practice will have to certify that the withdrawal (from escrow account) is in proportion to the percentage of the completion of the project. It doesn’t say whether these professionals should work independently or be employed by the developer. provision, a developer will deposit 70% of the amount collected from the allottees from time to time in a separate account to cover the cost of land and construction
Experts say that the amended provision gives freedom to developers to withdraw money to recover land cost even before they start the construction work in the project
If the land cost is 60% of the total cost of the project, the developer can withdraw 60% of the money from the escrow account and only 10% will be left for construction work.
The process of withdrawing money from an escrow account as defined in the RERB is in favour of developers.