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RERA Designated Bank Account

The Real Estate (Regulation and Development) Act, commonly known as RERA, introduced the concept of designated bank accounts to regulate the real estate sector effectively. Under RERA, developers are required to open and maintain a separate designated bank account for each of their projects. These accounts serve as escrow accounts and are exclusively used for depositing funds received from homebuyers for that particular project.

Importance Of RERA Designated Bank Account

• Transparency: RERA-designated bank accounts promote transparency by segregating funds collected from homebuyers for specific projects. This separation ensures that the money is utilized solely for the development and completion of the respective project, reducing the risk of fund diversion or misappropriation.

• Accountability: Developers are mandated to provide regular updates and disclosures regarding the inflow and outflow of funds from these accounts. This accountability mechanism enhances trust among homebuyers and regulatory authorities, as it enables scrutiny of financial transactions related to real estate projects.

• Investor Protection: The establishment of designated bank accounts under RERA enhances investor protection by safeguarding their financial interests. Homebuyers can have confidence that their funds are secure and will be utilized for the intended purpose of completing the project within the stipulated timeline.

• Legal Compliance: Compliance with RERA regulations regarding designated bank accounts is mandatory for developers. Non-compliance can lead to penalties and legal repercussions, emphasizing the importance of adhering to these regulatory requirements.

A set of 3 RERA Accounts

• At the time of registration of the project with the RERA Authority, the promoter is required to provide details of 3 accounts, namely:

  • 100% RERA Project Collection Account

  • 70% RERA Designated Account

  • 30% RERA Current Account

  
  All these three accounts are opened by the bank as a set of 3 accounts and the mechanism of the flow of funds from one account to the other is fixed.

  1. 100% RERA Project Account – The total amount collected from the homebuyers is deposited into this account. The details of this account are given to the buyers to pay the advances towards the units allotted. The funds in this account are auto-debited and are credited to the 70% RERA designated Account and 30% RERA Current account in the ratio 70:30 respectively.

  2. 70% RERA Designated Account – This is the account which shall be regulated as per the provisions of section 4(2)(l)(D) of the Act. Out of the total amount collected from the homebuyers, 70% is deposited into this account. The amount from this account can be withdrawn upon issue of certificates from the professionals.

  3. 30% RERA Current Account – The remaining 30% of the amounts collected from the homebuyers is deposited into this account and can be withdrawn without any restriction on the usage or without obtaining any certificates from the professionals.

Restriction on Withdrawal

• There are restrictions on the promoter regarding the withdrawal and usage of funds from the RERA Designated Bank Account.

  • Utilization of Funds – The funds withdrawn from the RERA Designated Bank account shall be utilized to cover the cost of the project i.e, land cost and construction cost. In other words, the amount withdrawn shall be utilized towards the project only.

  • Withdrawal – The funds shall be withdrawn by the promoter in proportion to the percentage of completion of the project. This percentage of completion of the project shall be certificated by engineer, architect and chartered accountant in practice.

Closure of the RERA Designated Account on Completion of the Project

• Upon completion of the project and receipt of the completion certificate from the Competent Authority, the promoter has to apply for completion of the project. During the process of application for completion of the project, the promoter shall obtain certificates from the professionals. On issuance of forms by the professionals, the promoter is relieved from the compliances of maintaining the RERA-designated bank account for that project.