The Real Estate Regulatory Bill passed in the Rajya Sabha, when implemented at the state level, is likely to break the politician-builder nexus when it comes to financial funding as a promoter for any given project.
City real estate experts said that the bill makes it mandatory for every builder to make separate escrow accounts, where 70 per cent of the funds will be deposited for every project. An escrow account is a temporary account held by a third party during the process of a transaction between two parties.
It also mandates that details of the promoter of the project has to be mentioned, which will deter the political class from investing their black money in real estate.
“Every other politician, is directly or indirectly acting as a promoter in most of the real estate projects by investing his or her black money with builders. Those politicians will now have to face the heat because of the escrow account,” said Vikram Mehta, president, Confederation of Real Estate Broker’s Association Of India (CREBAI).
However, Ajay Chaturvedi, real estate expert, opined that for every law framed for the real estate sector, there is going to be a loophole and builders will find one till it is implemented in every state. One example could be that the political class will form private equity firms and will fund the equity player and later the equity player will fund builders in the form of loans. This way when funds are transferred via private equity players they turn into white money from black as the transaction is done on paper.
The motto behind the escrow account, as defined by the Centre, is that the builders should deposit dedicated funds for a particular project in the account, which will restrict them from circulating the funds for other projects.
While builders have opined that if there is fine and punishment for not delivering on time, there should also be some regulations on agencies giving approvals.
“The government has got various regulations and the real estate industry has welcomed it, but timelines will be more closely adhered to and also the quality of construction in projects will increase. A definite time frame for approval of projects needs to be built in, maybe at a later stage if not now,” said Rajesh Prajapati, managing director, Prajapati Constructions.
