Transforming Real Estate Finance: MahaRERA's draft guidelines for bank accounts set to enhance transparency

In a bid to maintain discipline in the financial affairs of housing projects and safeguard the interests of home buyers, Maharashtra Real Estate Regulatory Authority (MahaRERA) has issued draft guidelines proposing maintenance of three bank accounts - 'Collection Account', 'Separate Account', and 'Transaction Account' - in the same scheduled bank for every project. This categorisation aims to facilitate the different types of transactions done in any particular project and ensure compliance, efficiency, transparency, accountability, and appropriate utilisation.
'Collection Account' will be meant to maintain all revenue from the allottees from time-to-time and any other charges excluding all taxes and statutory duties. While 'Separate Account" will be where 70% of the revenue realised from the project will be transferred to from the Collection Account. This amount will be solely utilised to cover land and construction cost as stated in the laws, loan interest, refunds as well as compensation of up to 70% to the buyer.
The third account - 'Transaction Account, will have up to 30% of the revenue received in the Collection Account. This will be to meet expenditures other than land and construction costs such as cancellation of any booking wherein the developer will be able to withdraw minimum 30% of the amount required to be paid to the allottees. Even the penalties on the promoter can be paid from the Transaction Account.
It will be bank's obligation to ensure fund's withdrawal does not happen from the Collection Account using traditional banking methods but only using auto-sweep facility.
These accounts are to be registered in the developer's and project's names, for example, "ABC Ltd. Collection Account for XYZ". Banks while doing due diligence for opening and operating a project's account or financing a real estate project will have to verify every parameter available on the MahaRERA's website.
At the time of project's completion, it will be made mandatory for the developer to obtain authority's approval to enable withdrawal of funds from Separate Account and its closure. Additionally, all transactions must cease upon project completion unless extended by MahaRERA, with bank account changes also requiring prior authorisation.
In an eventuality of any MahaRERA orders for freezing or defreezing of any accounts, the banks will have to immediately comply the same. Banks will also have to stop withdrawals and transfers from the accounts upon lapse of project's registration i.e. on the project's completion date unless certificate of extension is produced by the promoter.
MahaRERA's proposal doesn't stop there. The bank accounts maintained will have to be free from all encumbrances and should not be escrow account and free from lien, loans, and third-party control i.e. lender or bank or financial institution and cannot be attached by any other government authority unless a direction is issued by MahaRERA.
Given the impact on real estate stakeholders, the latest discussion paper on the subject is available on MahaRERA's website and suggestions, views and objections from all the stakeholders until April 15, to be sent on finance.suggestions2024@gmail.com.
So far, the developers make payments and transfers from the same bank account of where they collect revenue from the flat purchasers. This makes maintaining financial discipline challenging and complicating oversight. As per the discussion paper, the promoter it will be mandatory for the developer to furnish details of the Collection Account in the allotment letter and in the agreement for sale as well as any other communication with the homebuyers to receive payments towards the booking made. Furthermore, developers are required to disclose mortgage details and provide updated completion certificates certified by project accountants with Unique Document Identification Number (UDIN) numbers to prevent future complications.
To ensure smooth transactions, MahaRERA has proposed unambiguous framework for the scheduled banks. Such banks will be obligated to notify MahaRERA and developers post-account opening and disburse funds from the Separate Account only upon certification from project architects, accountants, and engineers. Additionally, banks are entrusted with the responsibility of safeguarding these accounts against system interference, bearing full liability for any breaches. These stringent regulations aim to instil financial discipline, transparency, and accountability in the real estate sector, ultimately protecting the interests of homebuyers and fostering trust in housing projects.
Discussing the new guidelines, MahaRERA Chairman had the following to say: "In the pursuit of timely housing project completion and bolstering transparency and accountability within the sector, MahaRERA's discussion paper on Collection, Separate, and Transaction accounts seeks to have a systematic policy framework on utilisation of funds, thereby guaranteeing their targeted allocation and distribution. The final decision on implementing the guidelines, which are framed keeping customer interests at the forefront, will be taken after a thorough review and consideration of all suggestions, objections and views received. MahaRERA's commitment is to elevate real estate sector's credibility and fostering greater customer satisfaction."
The new guidelines issued by MahaRERA for the operation and maintenance of bank accounts for registered real estate projects is a positive step that will help boost transparency and protect home buyer interests. This should help address past issues related to diversion of funds and financial mismanagement. While the guidelines bring much-needed standardization and oversight, strict enforcement will be crucial to achieve the goal of building trust in the system. When implemented in letter and spirit, it has the potential to make the real estate sector more organized and customer-centric.