Builders ask state to relax escrow clause

With the state government planning to release a draft of the Real Estate Regulatory Authority (RERA) by end-October, builders with projects under construction or delayed are a worried lot. They are now lobbying with the state government for relaxation of the clause where 70 per cent of the amount collected from buyers has to be deposited in a separate escrow account.

In the past one week, several top builders, including members of apex bodies, have met housing minister Prakash Mehta, requesting him to reduce the percentage of amount to be deposited in the escrow account from the current 70 per cent.

“We have put forth our demand that the clause of escrow account be relaxed in case of ongoing projects so that the already reeling real estate market is not affected. We expect a positive outcome from it, however, the government does not seem convinced about the same,” said one of the builders who was present at the meeting.

On his part, Mr Mehta said, “There were builders coming to meet me with various demands but I would like to make it clear that there will be no relaxation in terms of percentage and the clause is very important to stop builders from circulating money received from buyers in a number of projects.”

The minister added that the draft copy of RERA had been forwarded to the chief minister’s office (CMO) for its comments and it would be made available for suggestions from the public after being cleared by the CMO.

Ajay Jain, executive director, Centrum Investment Banking, said, “It is obvious for builders to be worried as the money from ongoing projects would have been already invested by them in other projects. This would now mean that they borrow money to deposit in the escrow account or opt to sell the apartments at lower prices that would also benefit buyers.”

The Centre passed the Real Estate (Regulation and Development) Act, which came into force on May 1, 2016, and is aimed at regulating the real estate sector in the country. Billed as buyer friendly, the Act is aimed at addressing problems buyers face when it comes to dealing with builders.

As per the Centre’s notification, rules under the RERA Act have to be formulated by central and state governments within a maximum of six months from the date of enactment. In addition, states are bound to form real estate regulatory authorities within a year from May 1, 2016.