Noida begins opening escrow accounts of realty projects for transparency

With a view to ensure transparency and to ascertain that funds collected from homebuyers are not misused by builders, the Noida authority has started opening escrow accounts of each delayed realty project.

These escrow accounts will be operated jointly by the realtor and the authority staff, unlike earlier when only the realtor was allowed to handle funds.
The move comes after most realtors were found diverting funds to other ventures, thereby delaying the projects in Noida and defaulting on land cost payments to the authority. So far, four realtors have opened escrow accounts in the past one week and 55 are left to open them, said officials.

“We have started opening the escrow accounts of all 59 promoters who have realty projects in Noida. In all, these promoters have failed to pay land cost dues adding up to ₹8,000 crore to the authority. As they got the land on an instalment basis, they need to make payments against the land in parts. But as they are not in the habit of paying instalments, we have started opening escrow accounts so that we can recover our dues and the realtor cannot misuse the funds collected from homebuyers,” said Swatanra Kumar, chief finance controller, Noida authority.

In an escrow account, since the authority and the realtor together make transactions, the developer cannot make a transaction on its own, said officials.
JM Group’s two projects, and one each from Nimbus Group and Gulshan Homes have opened escrow accounts for transparency and accountability, said officials.
”We are pursuing other developers through notices and meetings so that they open these accounts and help in the delivery of projects,” said Kumar.

The authority in July 2018 came up with this scheme under which each developer was supposed to open an escrow account in order to stop the misuse of the funds collected from homebuyers and delay the project. The authority could not effectively implement the same as only one or two realtors had opened these accounts that year, said officials.

The authority said as the per terms of the escrow account, 50% of total collections in a project must be put into this account so that the authority can recover its dues.
“For example, if a realtor has defaulted on 100 crore and needs to collect 200 crore from buyers in a project, then . 50% of 200 crore — 100 crore — will be put into this account and we can collect our payment. The scheme is on a case to case basis, depending upon the dues against a project,” said Kumar.The Confederation of Real Estate Developers Association of India (CREDAI), a realtors’ lobbying group, said the escrow account terms should be “practical”.

“The escrow account opening will work if the motive is to stop fund misuse and to ensure that the money is spent on construction and delivery of delayed projects. But it should be practical and executed on a case to case basis because if all the money collected will go to pay the land cost, then the construction will suffer in projects,” said Amit Modi, secretary, CREDAI.Homebuyers said the implementation has been delayed, thereby affecting the final outcome.

“In 2018, the Noida authority started the escrow account scheme to make sure realtors do not misuse funds collected from us and a project is completed on time. But in the past five years, due to poor monitoring and implementation, buyers are made to suffer,” said Arun Kumar, a homebuyer and resident of Sector 74.