Know How RERA Escrow Accounts Protect Homebuyers

Learn what a RERA escrow account is, its benefits, and how it ensures compliance in real estate. Discover how home loans make investing in RERA-approved properties easier.
Home Loan
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2 min
19 November 2024
When you buy a house, you expect it to be built on time and as promised. But how do you ensure your money is rightfully utilised towards the project? That is where a RERA escrow account comes into play.

A RERA escrow account is a special bank account under the Real Estate (Regulation and Development) Act, 2016 (RERA). It protects homebuyers by ensuring their money is spent only on the project they invested in. This system brings transparency and trust to the real estate market.

Let us understand what a RERA escrow account is, how it works, and why it is important.

What is a RERA escrow account?

A RERA escrow account is a secure account where a builder must deposit at least 70% of the funds collected from buyers. This money can only be used for construction and land-related costs for that specific project.

The remaining 30% of the funds can be used for other purposes, but only after the builder fulfils certain conditions. The rules are strict to ensure the money is not misused.

For example, if you’re buying an apartment in a RERA approved project, the money you pay goes into this escrow account. The builder cannot withdraw funds unless it is for approved expenses related to that project.

Why is a RERA escrow account important?

The real estate sector in India faced challenges before RERA. Buyers often suffered from delayed projects, incomplete work, or developers using funds for other projects. The RERA escrow account was introduced to fix these problems.

It ensures that:

  • Funds are secure – Your money is spent only on your project.
  • Timely project completion – Builders cannot divert funds to other projects.
  • Transparency – Buyers can trust that their payments are being used responsibly.
  • Accountability – Builders must follow strict guidelines to access funds.

Key benefits of a RERA escrow account

  • Protects buyers: The escrow account prevents misuse of funds. Buyers can feel confident that their money is safe and used only for their project.
  • Ensures timely delivery: Since funds are earmarked for the specific project, builders are more likely to complete work on time.
  • Builds trust: Builders who comply with RERA and use escrow accounts gain buyers' trust. Transparency in financial transactions improves their reputation.
  • Regulates cash flow: Builders must justify every withdrawal from the escrow account. This regulates cash flow and ensures that funds are used efficiently.
  • Boosts real estate sector: By promoting accountability, RERA escrow accounts attract more buyers. This helps the entire real estate market grow responsibly.

How does a RERA escrow account work?

  • Project registration: Developers must register their project under RERA to open an escrow account.
  • Funds deposit: At least 70% of the funds collected from buyers are deposited into this account.
  • Controlled withdrawals: Builders can withdraw money only for approved expenses like construction or land costs. They must provide proof of work progress and certifications.
  • Audit and compliance: The account is audited regularly. Builders must follow all RERA rules to stay compliant.

Compliance rules for builders

Builders must:

  • Open a separate RERA escrow account for each project.
  • Deposit at least 70% of the collected funds into the account.
  • Provide regular updates and financial records to authorities.
  • Ensure that withdrawals are linked to project milestones.
Failure to comply with these rules can result in heavy penalties or project cancellation.

How a home loan helps with RERA-approved projects

Buying a home in a RERA-approved project ensures safety and transparency. But what if you do not have enough funds? A home loan can help bridge the gap.

Lenders provide home loans tailored for real estate purchases. These loans not only fund your dream home but also ensure you invest in trustworthy, RERA-compliant projects.

A reliable home loan helps you manage your investment effectively while keeping your EMIs affordable. Bajaj Housing Finance offers flexible home loan options tailored to meet diverse requirements. With Bajaj Housing Finance, you gain:

1. High loan amount: Secure a home loan of up to Rs. 15 crore* to bring your dream home to life.

2. Low interest rates: Enjoy interest rates starting 8.25%* p.a, and EMIs as low as Rs. 741/lakh*.

3. Quick approval: Get approved within 48 Hours* of applying – sometimes even sooner.

4. Flexible repayment tenure: Choose a repayment term of up to 32 years for comfortable EMIs.

5. Simple application: Take advantage of doorstep document collection for a smooth process.

6. Balance transfer facility: Move your existing home loan and get a top-up loan with better terms.

If you are planning to invest in a RERA-approved project, do not let finances hold you back. Consider a home loan from Bajaj Housing Finance to turn your dream home into a reality.

Frequently asked questions

What is the purpose of an escrow account under RERA?
The RERA escrow account ensures that the funds paid by homebuyers are used only for the specific project. It prevents builders from misusing the funds, ensuring transparency and accountability in real estate transactions, promoting timely project completion and safeguarding the interests of buyers.

How does the RERA escrow account protect homebuyers?
The RERA escrow account protects homebuyers by ensuring their funds are used strictly for project-related expenses. It prevents builders from diverting money to other projects, ensuring timely construction and reducing the risk of project delays or unfinished work, thus offering financial security to homebuyers.

Are there penalties for developers misusing the escrow account?
Yes, developers face penalties if they misuse funds in the RERA escrow account. Misuse or non-compliance with RERA regulations, such as improper withdrawals or failure to maintain transparency, can lead to fines, project cancellations, or legal action, ensuring accountability and protecting homebuyers’ interests.

What percentage of funds must be deposited in the RERA escrow account?
Under RERA, at least 70% of the funds collected from homebuyers must be deposited into the escrow account. These funds are exclusively used for project-related expenses, such as construction costs, ensuring that the money is spent efficiently on the project for which it was intended.

How can a buyer verify the use of funds from a RERA escrow account?
A buyer can verify the use of funds from a RERA escrow account by requesting updates on the project’s financial records and withdrawal reports. RERA mandates regular audits, and buyers can seek transparency through official channels or access project details from the regulatory body for assurance.

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