RERA's 70% Rule: Where Your Instalments Go on an Under-Construction Flat in Bangalore
Suppose a buyer in Bangalore pays an instalment of Rs. 10 Lakhs towards a flat that is still a pit in the ground. Under RERA, Rs. 7 Lakhs of it must go into a dedicated bank account that serves this single project and nothing else. The pages below cover the law behind this, how the money is released, where the protection ends and what a buyer can verify personally.
The Gap in the Old System
Before 2016, a builder could gather cash from the buyers of one scheme and use it to buy land for the next. If sales then slowed, the first site ran out of funds and its buyers waited, sometimes for years. The 2016 central law breaks that chain by pinning most of every payment to the building it was meant for.
Only 70% is locked in. Marketing, brokerage, office costs and the builder's own profit are real expenses, but they are neither land nor construction, so they are met from the remaining 30%. The balance keeps a company running while the larger share stays at the site.
What the Law Asks For
The provision is section 4(2)(l)(D). A promoter accepts it in a declaration that goes in with the application for registration. The Act names it a separate account, although most people say escrow.
Taken together, the declaration commits the promoter to six things:
- Putting 70% of every receipt from buyers into the account as soon as it is received
- Holding it with a scheduled bank, separate from every other account the firm has
- Paying only for the plot and the building of that specific scheme from it
- Taking money out at the pace of physical progress
- Producing certificates from an engineer, an architect and a practising chartered accountant for each drawal
- Getting the books audited within six months after the end of each financial year
How the Money Comes Out
Funds are released in instalments as the structure rises, and no drawal may run ahead of the work done. Take a promoter who has received 60% of the price while only a quarter of the building stands complete. The difference has to remain in the bank.
Each release carries three certificates. Progress on site is reported by the engineer and the architect, and the accountant confirms the spend and the permissible amount. All three signatures are needed, so cash moves only as fast as the building does.
| Feature | Requirement |
|---|---|
| Portion of receipts | 70% |
| Where held | Dedicated account in a scheduled bank |
| Spending allowed | Plot cost and building cost of the scheme alone |
| Release pace | Tracks the completed share of the work |
| Approval | Engineer, architect and practising accountant |
| Review | Yearly audit, due inside six months of year end |
The Yearly Audit
An independent chartered accountant reviews the account each year. The report speaks to two issues. One is whether buyers' money was used on the scheme it was collected for, and the other is whether releases tracked progress.
In Karnataka, the report is submitted to the regulator on Form 7. When it is late or missing, that alone is a red flag, because the audit is the only outside test of the account. A scheme that has run for two or three years should have one report per closed financial year.
Which Schemes Are Covered
Registration with the state regulator, K-RERA, brings the rule with it. That applies to apartment, villa and plotted schemes alike. Small schemes are exempt: land up to 500 sq m, or a total of eight apartments or fewer, needs no registration.
Anything paid before registration falls outside, since the account comes into being with the registration. For that reason a buyer should hold back until the RERA number appears, paying at most a refundable token. A resale flat in a finished tower falls outside as well, since the seller is an owner and construction has been paid for long ago.
What the Rule Leaves Open
One danger is blocked here: buyers' money drifting to some other scheme. The remaining construction risks survive, whether sluggish sales, rising costs, land disputes or late approvals, and any of them can delay possession.
Three limits are worth bearing in mind:
- The 30% kept outside the account is spent without these controls
- Borrowings from banks are governed by the lender's conditions, since the account holds only buyers' payments
- A certificate carries weight only if the signer is careful, which is why the audit counts
The Act adds teeth. A promoter who breaks section 4 risks a fine under section 60 of as much as 5% of the project's estimated cost. After a revocation of registration (section 7), the regulator may tell the bank to freeze the account and get the unfinished work done.
What a Buyer Can Verify
Buyers never see the bank statement, yet these checks are available to everybody and need only a few minutes with the portal or the papers.
- Search the portal for the scheme and make sure its registration has not lapsed
- Write down the account number shown in the registration entry, and compare it with the one in the sale agreement
- Pay by cheque or transfer only, in the name shown on the demand letter, which must match the project account
- Go through the quarterly reports, which state work done as a percentage along with bookings
- Ask to see the audit report for every year since launch
- Weigh the stage being billed against the progress visible at the site
Careful payment is the buyer's duty under the arrangement. Cash, or a transfer to a group company, a land owner or a private person, never lands in the protected account. If asked to pay that way, query it in writing before a rupee moves.
Signs That Call for Questions
Certain signals show collections and construction pulling apart. A plan might demand the bulk of the price within twelve months although the site has barely reached foundation level. Quarterly updates may be absent for several periods or repeat the same completion figure.
These are reasons to ask, and they prove nothing alone. Section 13 caps any advance at 10% of the cost until the agreement for sale is registered, after which a construction-linked plan matches each payment to a stage on site. Someone who suspects diversion can complain under section 31. We are glad to help interpret a project's filings if you write via the contact page.
