Real estate project escrow accounts are being opened in Noida for transparency from july 2023. Extraordinary
Real estate project escrow accounts are being opened in Noida for transparency.
To address the issue of realtors diverting funds and delaying projects in Noida, authorities have introduced new measures requiring the joint operation of escrow accounts by both the realtor and authority staff. Previously, only realtors were allowed to handle funds, which resulted in several instances of fund diversion and defaulting on land cost payments to the authority. To rectify this situation, the Noida authority has initiated the process of opening escrow accounts for all 59 promoters involved in real estate projects in the area.
The need for these measures arose due to realtors failing to pay land cost dues amounting to a staggering ₹8,000 crore to the authority. Since the land was allotted on an instalment basis, these promoters were expected to make regular payments against the land they acquired. However, many of them neglected to fulfil their financial obligations, leading to significant delays and financial strains on the authority. By opening escrow accounts, the authority aims to ensure that dues are recovered and funds collected from homebuyers are not misused by the realtors.
Escrow accounts operate in a manner where both the authority and the realtor jointly manage transactions. This prevents the developer from making independent transactions, thereby ensuring greater transparency and accountability. Over the past week, four realtors have already opened their escrow accounts, with 55 others still pending, according to officials.
The initiative to open escrow accounts for real estate developers in Noida was introduced by the authority in July 2018. The primary objective was to prevent the misuse of funds collected from homebuyers and address project delays. However, the implementation of this scheme was largely ineffective initially, with only a small number of realtors complying with the requirement. Recognising the importance of these accounts in safeguarding the interests of all stakeholders, authorities have now reinvigorated their efforts to ensure wider compliance.
As per the terms of the escrow account scheme, developers are required to deposit 50% of the total collections from a project into the account. This provision enables the authority to recover its dues effectively. For instance, if a realtor has defaulted on ₹100 crores and needs to collect ₹200 crores from buyers for a particular project, half of the ₹200 crores (₹100 crores) will be deposited into the escrow account, ensuring that the authority can recover its payment. The applicability of the scheme varies on a case-by-case basis, depending on the outstanding dues for each project.
Officials have stated that escrow accounts have been successfully opened for two projects by the JM Group, as well as projects from Nimbus Group and Gulshan Homes. The authorities are actively pursuing other developers through notices and meetings to encourage compliance with the account-opening requirement. Their objective is to promote transparency, accountability, and timely delivery of projects.
By implementing the joint operation of escrow accounts, the Noida authority aims to address the issues of fund diversion and project delays in the real estate sector. These measures seek to protect the interests of homebuyers, ensure the recovery of dues owed to the authority, and promote a more efficient and transparent real estate market in Noida.
The Confederation of Real Estate Developers Association of India (CREDAI), a prominent lobbying group representing realtors, has expressed its opinion on the escrow account terms, calling for a more practical approach. The purpose of the escrow account is to prevent the misuse of funds and ensure that the collected money is dedicated to the construction and timely delivery of projects. However, CREDAI emphasises the need for a case-by-case execution of the escrow account requirement, as a blanket application may hinder construction progress if all funds are allocated solely to pay the land cost.
Amit Modi, Secretary of CREDAI, stated that while the objective of preventing fund misuse is commendable, it is essential to strike a balance that allows for practical implementation. He highlights the potential negative consequences of allocating all funds to land costs, as it may impede the progress of construction projects. Modi suggests that a more pragmatic approach, tailored to the specific circumstances of each project, would be more effective in achieving the intended goals of the escrow account scheme.
On the other hand, homebuyers express frustration over the delayed implementation of the escrow account scheme, which has had a direct impact on the outcome of their purchases. One such buyer, Arun Kumar, residing in Sector 74, mentions that the Noida authority initiated the escrow account scheme in 2018 to ensure realtors do not misuse the funds collected from buyers and to ensure the timely completion of projects. However, over the past five years, poor monitoring and implementation have resulted in buyers suffering the consequences.
Buyers like Arun Kumar stress the importance of effective monitoring and enforcement of the escrow account requirement to protect their interests as homebuyers. They believe that a lack of proper oversight has allowed some realtors to divert funds meant for construction and delay project completion, leaving buyers in a difficult situation.
In summary, while CREDAI acknowledges the objective of the escrow account scheme, they advocate for a practical approach to its implementation. They believe that a case-by-case basis for fund allocation would be more beneficial to the construction progress of projects. On the other hand, homebuyers express frustration over the delayed implementation and poor monitoring of the scheme, which has negatively affected their experiences as buyers.
