Study: Rera to stop apartment funding

FOR UNDER construction projects, since most of the projects were partially built in the earlier tax regime, only a portion of input credit can be availed, which will increase the cost of purchase

Mumbai, July 16: With the Rera making it mandatory for developers to deposit 70 per cent of the receipts through any kind of sale in an escrow account, ‘apartment funding’ mode of raising funds from investors is likely to perish, says property consultant Jones Lang LaSalle.

Rera, which came into effect from May 1, requires developers to deposit 70 per cent of the payments through any kind of sale in an escrow account, which is to be used for project expenses and is not available to the promoter developer until completion of the project.

“Apartment Funding (AF) is a fund-raising structure where the involved investors acquire real estate units at deeply discounted prices. Such funding route would not only ensure quick sale of multiple units which would support their financial needs and they had no restrictions on its usage,” JLL India associate director, capital markets research, Akshit Shah said.

However, with this regulation in Rera, the key benefit for the developers to get upfront funding from apartment funds is lost, he said.

“While the developers receive all the money, they can take out only a small part of it for purposes other than projectrelated expenditures,” Mr Shah said.

He further said with GST being introduced, the cost of purchase has increased by 6.57 per cent for under-construction projects.