The Greater Noida authority on Wednesday said it will open escrow accounts to ensure builders spend money collected from homebuyers on completing projects instead of diverting it to other projects/purposes.
The objective is to win over the trust of homebuyers, who have stopped paying instalments to builders due to delay in delivery of flats. The account will be controlled by the authority and the builder.
Escrow refers to money held by a third-party on behalf of transacting parties.
About 40 builders in Greater Noida have stopped work midway on 95 group housing projects as they do not have funds to carry on with the construction, said officials. Disruption of work has affected about one lakh buyers.
“Homebuyers have stopped payment after realising that the builders are not carrying out work at the site... Buyers think if they pay the remaining amount, the builder will divert these funds to some other project instead of spending on completing their project. But with escrow account the builder will not be able to draw money without the consent of the authority,” said Deepak Agarwal, chief executive officer, Greater Noida authority.
Builders have failed to pay Rs 2,600 crore land dues to the Greater Noida authority citing slowdown in sales. The authority said if the builders fail to pay land dues till September 23, it will initiate strict legal action against them, including cancellation of group housing plots.
Officials said two to three new projects, which are yet to begin construction will also come under the new scheme of escrow account.
Homebuyers have been demanding an escrow account since a long time.
However, the authority and builders came up with the idea a bit late, said buyers.
“It is at the right time. If a buyer has paid 95% of flat cost and needs to pay only 5%, opening of an escrow account will ensure that the builder spends it on the project and delivers the project fast. It will help because most of the projects are at their completion stage,” said Agarwal.
Realtors’ body, Confederation of Real Estate Developers Association of India (CREDIA), discussed the escrow account scheme in detail with the officials in Greater Noida authority office in Chitvan Estate on Wednesday.
“We needed an out of the box solution to wipe away negativity that prevails in realty sector, particularly in Noida and Greater Noida... Escrow account idea can help bring in fresh capital into the market,” said Getamber Anand, president (national), CREDAI.
Once the money collected by builders is deposited in the escrow account, the authority will ensure 30% of it goes into paying land dues and 70% is spent on completing the project.
“It’s better late than never. If it is executed with transparency, it can work out and benefit buyers. But it should also be implemented in Noida and Yamuna E-way areas,” said SK Nagrath, president of Jaypee Aman flat owners welfare association.