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Uttar Pradesh Real Estate Regulatory Authority has directed banks and developers to ensure that homebuyers’ funds deposited in mandatory RERA escrow accounts are not used for assured return or guaranteed income schemes. The regulator said several developers were diverting project funds towards financial commitments unrelated to construction, affecting execution timelines and buyer interests. UP RERA stated that escrow funds can only be utilised for construction and land costs under the Real Estate (Regulation and Development) Act, and asked banks to strengthen monitoring and compliance with revised fund utilisation norms.
Uttar Pradesh Real Estate Regulatory Authority has directed real estate developers not to use funds collected from homebuyers for assured return or guaranteed income schemes, stating that such utilisation violates provisions of the Real Estate (Regulation and Development) Act, 2016. Advertisement
The regulatory direction was issued by UP RERA amid concerns that some developers were diverting money deposited by homebuyers into mandatory escrow accounts towards payment obligations arising from assured return schemes offered to investors and buyers. The authority stated that funds maintained in separate project accounts under RERA can only be used for construction and land-related expenses associated with the registered project.
Under Section 4(2)(l)(D) of the RERA Act, developers are required to deposit 70% of amounts realised from allottees into a separate bank account maintained for the specific project. The funds are intended to ensure timely project completion and are permitted to be withdrawn only in proportion to the percentage of project completion and for specified project-related costs.
UP RERA stated that several developers had been using these project funds to meet financial liabilities arising from assured return schemes, lease guarantees and fixed-return commitments offered during property sales. According to the regulator, such diversion of funds affects project cash flows, construction progress and delivery schedules, thereby impacting the interests of homebuyers.
The authority observed that assured return schemes are essentially financial arrangements between promoters and buyers and cannot be financed using money earmarked for project development under statutory escrow requirements. Developers were instructed to maintain strict segregation between project funds and liabilities linked to financial return commitments.
Officials stated that the regulator had received complaints and observed instances where project execution slowed due to diversion of buyer funds towards servicing assured returns promised to investors. UP RERA indicated that the misuse of escrow funds increases financial stress within projects and creates risks for homebuyers awaiting possession.
The regulator further stated that developers must comply with statutory fund utilisation norms prescribed under the RERA framework and ensure transparency in financial management of registered projects. Any violations identified during regulatory scrutiny or audits could attract action under applicable provisions of the Act.
Assured return schemes were widely marketed in several residential and commercial projects during previous real estate cycles, particularly in the National Capital Region and parts of Uttar Pradesh. Under such schemes, developers offered fixed monthly returns or rental assurances to investors until possession or lease commencement.
Regulatory authorities and sector observers have increasingly scrutinised such schemes in recent years amid concerns regarding project delays, liquidity constraints and diversion of buyer funds. RERA authorities across multiple states have issued directions emphasising that escrow accounts must be used solely for project execution and not for unrelated financial obligations.
UP RERA stated that the latest directive was intended to safeguard homebuyer interests, strengthen financial discipline in project execution and ensure compliance with statutory requirements governing utilisation of project funds.
Source: PTI
5th Jun, 2025
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