Escrow Use Cases
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March 20, 2025
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6 MINS READ

Introduction
The real estate industry has been haunted by problems such as delays, financial fraud, and lack of transparency. To solve these problems, the Government of India put into law the Real Estate (Regulation and Development) Act, 2016, which is also referred to as RERA. Perhaps the most significant reform under the Act is the establishment of RERA accounts, which are intended to protect investments and promote accountability in real estate dealings.
Understanding the RERA Act and Its Aims
The RERA Act is a milestone bill with the objective of regulating the real estate sector and safeguarding the interests of homebuyers. The Act mandates developers to follow rigorous guidelines to enhance transparency and accountability. The Act has been crucial in encouraging regulated growth in the real estate segment, instilling confidence among buyers, sellers, and developers as well.
The Genesis of the RERA Act
Prior to the enactment of RERA in 2016, the real estate industry suffered from various issues. Projects remained stuck for decades, and builders used misappropriate amounts received from customers. In the absence of regulatory authority, scams became rampant, and homebuyers were left in the lurch. The government realized the importance of structure and transparency and therefore brought in the RERA Act to regulate and end malpractice. For a greater historical perspective, you may see the Real Estate (Regulation and Development) Act, 2016.
Key Aims of the RERA Act
The RERA Act was crafted with a few main aims:
On-time Project Completion: Project developers need to deliver projects within time or pay penalties.
Regulation of Funds: Money of homebuyers will be used only for the project they invested in.
Transparency and Accountability: There will have to be disclosure of minute project plans, approvals, and timelines in advance.
Consumer Protection: The legislation offers legal redress to consumers who experience problems such as delays or misrepresentation.
All these goals have introduced a much-needed sense of dependability in the sector. You can find more information on RERA's attributes at What is RERA Full Form? Understanding RERA Act 2016.
What Are RERA Accounts and Their Importance
RERA accounts are a fundamental mechanism within the RERA scheme. They are specifically designated escrow accounts for which developers must keep in deposit a large percentage (70%) of funds received from house buyers. It is with the aim of seeing that these amounts are utilized only for the completion and construction of the project concerned.
This protection prevents developers from misappropriating funds to other unrelated projects or for personal use, minimizing homebuyers' financial risks.
How RERA Accounts Work
Each developer is then mandated to create a distinct RERA account for every project. Here's how it works:
70% Fund Allocation Rule: Developers are mandated to place 70% of all collected funds from buyers in this account.
Managed Withdrawals: Funds can only be withdrawn subject to the proportion of project completion.
Regulatory Surveillance: Free professionals such as engineers, architects, and chartered accountants should certify the completion stage to authorize access of funds.
Withdrawing Funds: Regulations
Money from RERA accounts cannot be taken out at will. Developers must adhere to strict procedures that include:
Project engineer, architect, and CA certifications to confirm work progress.
Filing of revised project completion reports with the authorities.
Adherence to timelines and quality of construction.
These stringent procedures eliminate financial mismanagement, and the buyer's money is protected.
Advantages for Homebuyers
Transparency: Buyers are aware of how their money is utilized.
Reduced Risks: Funds are directed to the exact project they invest in, avoiding fraud.
Timely Completion: Developers are responsible for meeting project timelines.
Protection for Buyers: The threat of incomplete or abandoned projects is greatly minimized.
How Builders Gain from RERA Accounts
Improved Credibility: Compliance with RERA norms increases the confidence of prospective buyers.
Improved Project Planning: Effective fund management ensures hassle-free functioning.
Fiscal Discipline: Developers are encouraged to spend money judiciously, minimizing the likelihood of legal disputes.
Ensuring Compliance and Enforcement Under RERA
To preserve the integrity of the real estate sector, the RERA Act imposes strict compliance requirements. Failure to comply with these rules will result in stringent penalties and legal repercussions.
Requirements of Auditing and Reporting
Developers are required to get their RERA accounts audited every year so that funds are spent in the right way. These reports are provided to the RERA authorities for examination. Regular monitoring has seriously lowered instances of fund diversion.
Penalties for Non-Compliance
Non-compliance with the RERA Act invites harsh penalties. Builders can be penalized for up to 10% of the entire project cost or even imprisoned in extreme cases. Discover the entire range of penalties at Penalties Under RERA: What You Need to Know.
How Escrow Solutions Such as Castler Streamline RERA Compliance
As Warren Buffett once stated:
"Risk comes from not knowing what you're doing."
For hassle-free RERA compliance, Castler offers secure, compliant, and automated escrow solutions for effective RERA account management by developers and stakeholders. Here's how Castler makes RERA compliance hassle-free:
Automated Fund Management: Easy deposit and withdrawal with automated monitoring.
Compliance Assistance: Offers support for RERA, RBI, and banking regulations.
Real-Time Monitoring: Developers and homebuyers get real-time tracking of transactions.
Multi-Approval System: Simplifies CA, engineer, and architect approvals to release funds quickly.
Secure API Integration: Seamlessly integrates with real estate and banking platforms for efficient transactions.
RERA accounts have transformed how real estate transactions work in India. They promote transparency, secure homebuyers, and keep developers on their toes, which creates trust and trustworthiness in a traditionally unregulated industry. For homebuyers, an investment in RERA-approved projects offers a cushion. Likewise, developers going by the book acquire credibility as well as long-term advantages.
The launch of RERA accounts represents a major step towards a more equitable and reliable real estate sector, one that can be enjoyed by all parties involved.
FAQs
1. Who is required to open a RERA account?
Any builder developing a project with an area of over 500 square meters or 8 apartments is required to open a RERA escrow account.
2. How are withdrawals made from a RERA account?
Withdrawal of funds is possible only with the approval of a CA, engineer, and architect to utilize them solely for project completion.
3. Can homebuyers view information regarding the RERA account?
Yes, RERA ensures transparency so that homebuyers can view utilization of the project fund via state RERA portals.
4. What will happen if there is misuse of RERA funds by a developer?
Developers who are caught misusing RERA funds face heavy penalties, cancellation of the license, and even legal consequences.
5. In what ways does Castler assist in RERA account management?
Castler offers automated escrow solutions, ensuring compliance, safe fund management, and real-time tracking to ease RERA processes.
Written By

Chhalak Pathak
Marketing Manager