How RERA's 70% Account Protects Money Paid for an Unbuilt Bangalore Flat
Booking a flat that is yet to be built means trusting a developer with a large sum for years. One clause of the RERA Act tries to make that trust safer, by linking the larger part of the money to the buyer's own building. Here is what the clause says, how funds leave the account, what it cannot fix and how a buyer in Bangalore can test it.
What Section 4(2)(l)(D) Says
This provision of the Real Estate (Regulation and Development) Act, 2016 carries the rule. A signed declaration accepts it when the developer applies for registration. Buyers usually say escrow, but the statute speaks of a separate account.
The declaration contains these promises:
- 70% of each payment from allottees is deposited as and when it arrives
- The deposit goes to a scheduled bank, in an account distinct from the company's others
- Spending is limited to land and building work for the same project
- Withdrawals follow the share of work that is complete
- Before taking money out, the developer obtains certificates from three people: an engineer, an architect and a chartered accountant in practice
- An audit takes place within six months of every financial year end
The Reason for a 70% Share
In the past, money raised for one project could buy land for another. When sales dried up, the first project ran out of cash and buyers waited years. The Act answered this by locking up the largest share of collections.
The other 30% covers costs that are genuine yet neither land nor construction, such as advertising, sales commissions, overheads and the builder's margin. A business can therefore keep running, while the site gets the bigger portion.
Releasing Funds Step by Step
Money leaves the account in stages while the building rises, and no withdrawal may exceed the share of work completed that day. Suppose collections reach 60% of the price but only a quarter of the project is built. The surplus stays where it is.
Each withdrawal needs three signatures. Site progress is vouched for by an engineer together with an architect, while the accountant signs off on cost incurred and the amount that may be drawn. Three names on every release keep funds in step with the building.
| Aspect | What the Act provides |
|---|---|
| Amount deposited | 70% of buyer payments |
| Place | Exclusive account, scheduled bank |
| Uses | That project's land and construction only |
| Timing | Linked to percentage completed |
| Certificates | Engineer, architect, accountant in practice |
| Audit | Annual, in the six months after year end |
Yearly Audit
An accountant in practice examines the account every year and reports on two things. Whether collections were spent on the project they came from, and whether withdrawals matched completion.
The audit report goes to Karnataka's RERA authority in Form 7. If it arrives late, or never, treat that as a warning, because it is the only paper that checks the account from outside. A project two or three years old ought to have a report for each year that has closed.
Projects Within Its Reach
The rule comes with registration, so every registered project is covered, be it a tower, a villa layout or a plotted one. Registration can be skipped only for very small ventures, meaning land of 500 sq m at most or a total of eight apartments.
A booking made before registration lies outside the protection, as the account is opened when registering. That makes the RERA number worth waiting for. Resale flats in completed buildings are outside as well, since an individual owner sells and the building cost has been met.
Where the Rule Stops
Only one danger is addressed, which is the diversion of buyers' money to some other project. The rest of the risk remains: slow sales, rising costs, land disputes and delayed approvals may all postpone handover.
Keep these limits in mind:
- The 30% outside the account faces no such controls
- Bank loans taken by the developer carry the lender's own conditions, because the account holds only buyer money
- A certificate is as dependable as its signatory, which is why the audit matters
Penalties stand behind the rule. Under section 60, a breach of section 4 can draw a fine as high as 5% of the project's estimated cost. If section 7 is used to cancel registration, the authority can have the bank freeze the account and arrange for the unfinished work.
A Buyer's Verification List
The bank statement stays hidden from buyers, but many checks are within reach, and most can be done in minutes online.
- Find the project in the state RERA records and verify that its registration is still current
- Copy the project account named in the registration, and see that the sale agreement names the same one
- Pay through cheque or online transfer alone, to the payee named on the demand letter, and see that it matches the project account
- Study the quarterly updates, which report work done and homes booked
- Request each year's audit report, from the launch until today
- Compare the stage being billed with the site's actual progress
Paying with care is the buyer's side of the bargain. Cash, or money sent to an affiliate, a landowner or an individual, cannot land in the protected account. If a developer asks for such a payment, put your doubts in writing first.
Warning Patterns
A few patterns hint that money collected and work done are drifting apart. A schedule can ask for the bulk of the price in year one with the structure barely above foundation. Quarterly updates may go missing for long stretches, or show an unchanged completion figure.
Each pattern calls for questions, and none proves wrongdoing on its own. Before a registered agreement for sale, section 13 holds any advance to 10% of the cost, and a construction-linked plan afterwards ties each instalment to a visible stage. Complaints about suspected diversion can be filed under section 31. Our team can walk through a project's filings with you if you write via the contact page.
