An escrow account is a special bank account mandated by RERA where developers must deposit at least 70% of the money collected from buyers for a specific real estate project. This money can only be used for the construction and land cost of that particular project.
How the RERA escrow works: 1. Developer opens a separate escrow account for each registered project 2. 70% of all buyer payments go into this account 3. Money can only be withdrawn in proportion to construction completion 4. Withdrawals require certification from an engineer, CA, and architect 5. The remaining 30% is available to the developer for other purposes
Why escrow matters for buyers: - Prevents fund diversion: Developer cannot use your money for other projects or purposes - Ensures construction progress: Money is released only as construction advances - Financial accountability: Regular auditing of escrow accounts - Protection against bankruptcy: Even if the developer faces financial trouble, the escrow funds are protected for your project
Before RERA: Developers routinely collected money from Project A's buyers to fund Project B's construction. This led to massive delays and many stalled projects. The escrow mechanism was introduced specifically to prevent this.
What buyers should verify: - The project has a valid RERA registration (escrow is mandatory for registered projects) - Payment receipts reference the correct project - Project completion status aligns with fund utilization
Note: The escrow mechanism is only as effective as its enforcement. RERA authorities monitor compliance, but buyers should also stay informed about their project's construction progress.