The RERA 70% Separate Account Rule: How It Guards a Bangalore Buyer's Money
Every instalment paid on an under-construction flat in Bangalore goes to the developer long before the home exists. RERA answers the obvious worry with one rule: the bulk of each payment, 70%, is locked into a bank account opened for the project alone. This guide explains what the rule requires, how money leaves the account, where its limits are and which checks are open to a buyer.
What the Law Requires
The rule comes from sub-clause (D) of section 4(2)(l) in the RERA Act of 2016. A developer accepts it in a signed declaration when applying to register the project. Many people call the account an escrow account, although the Act itself uses the words "separate account".
The declaration commits the developer to six things:
- 70% of every amount realised from the allottees goes into the account as it is collected
- The account is a separate one, held in a scheduled bank
- The money pays only for the land and the building work of that one project
- Withdrawals keep pace with the share of work finished
- Three professionals (engineer, architect and practising chartered accountant) certify that share before each withdrawal
- The accounts are audited within six months of the end of every financial year
Why 70% and Not the Whole Amount
Before the Act, a developer was free to collect money on one project and spend it on land elsewhere. Once sales slowed, the first project ran short of cash and its buyers waited for years. The separate account was written to break that chain, by tying most of the buyers' money to the building they are paying for.
The remaining 30% is left outside the account for costs that are real but are not land or construction. Marketing, sales commissions, office overheads and the developer's margin come from this part. The split accepts that a business has running costs, while keeping the larger share for the site.
How Money Leaves the Account
The balance in the account is released in stages, as the building rises. Each withdrawal has to match how much of the building is complete on the day. A developer who has collected 60% of the sale price but built 25% of the project has to leave the difference in the bank.
Three professionals stand behind every withdrawal. The engineer and the architect certify how far the work has gone, and the chartered accountant certifies the cost incurred and the amount that may be drawn. Because all three must agree, the money trail is tied to what has been built on the ground.
The table below sums up the working of the account.
| Question | Answer under the Act |
|---|---|
| How much goes in | 70% of collections from allottees |
| Type of account | Separate, with a scheduled bank |
| What it pays for | Land and building costs of that project only |
| Pace of withdrawal | In step with the completion percentage |
| Who certifies | Engineer, architect and practising chartered accountant |
| How it is reviewed | Annual audit within six months of the financial year end |
The Annual Audit
Once a year, a chartered accountant in practice audits the project accounts. The audit has to confirm two points. The money collected for the project was used for that project, and the withdrawals kept pace with the percentage of completion.
In Karnataka the audit report is filed with the authority in Form 7. A late or missing report is a warning sign in its own right, because it is the one document that tests the account from the outside. Buyers of a project that is two or three years into construction should expect to find a report for each completed financial year.
Which Projects Are Covered
The duty travels with registration. Every project that must register with the Karnataka Real Estate Regulatory Authority (K-RERA) carries it, whether the homes are apartments, villas or plots. Registration is required unless the land is 500 sq m or less or the project has eight apartments or fewer.
A booking taken before registration falls outside this protection, since the separate account is opened as part of the registration itself. That is a strong reason to wait for the RERA number before paying. A resale flat in a completed building is also outside the rule, because the seller there is an owner and the construction money has already been spent.
What the Rule Does Not Do
The separate account lowers one risk, the diversion of money to another project. It is a control on where money goes, and it leaves the other risks of construction in place. Delays remain possible because of slow sales, a cost overrun, a dispute over land or a delayed approval.
Three limits are worth keeping in mind:
- The 30% outside the account is free of these controls
- The account holds buyers' payments, while bank loans to the developer are governed by the lender's own terms
- The certificates are only as good as the professionals who sign them, which is why the yearly audit matters
The Act backs the rule with penalties. A developer who breaches section 4 faces a penalty of up to 5% of the estimated cost of the project under section 60. If registration is revoked under section 7, the authority may direct the bank to freeze the project account and arrange for the remaining work to be carried out.
How a Buyer Checks the Account
A buyer has no direct view of the bank statement, but several checks are open to anyone. Most take a few minutes on the Karnataka RERA portal and with the papers the developer hands over.
- Search the project on the K-RERA portal and confirm that the registration is valid
- Note the project bank account shown in the registration details and in the agreement for sale
- Make every payment by cheque or bank transfer in the name printed on the demand letter, and match it to the project account
- Read the quarterly updates for the percentage of work completed and the number of homes booked
- Look for the annual audit report for each financial year since the launch
- Compare the stage for which money is demanded with the work visible on site
Payment discipline is the buyer's own part of the rule. Money paid in cash, or into the account of a group company, a landowner or an individual, never reaches the protected account. A request of that kind deserves a written question to the developer before any payment is made.
Signs Worth a Second Look
A few patterns suggest that collections and construction are moving apart. The payment schedule may ask for most of the price in the first year while the structure is still at the foundation. Quarterly updates may be missing for several periods, or show the same completion figure again and again.
Each of these is a reason to ask questions, and none is proof of wrongdoing. Section 13 of the Act already limits the advance to 10% of the cost before a registered agreement for sale. A payment plan linked to construction then keeps each later instalment tied to a stage that can be seen on site. Buyers who believe money is being diverted may file a complaint with K-RERA under section 31, and our team is glad to help read a project's filings through the contact page.
