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Maharashtra may go Gujarat way to help developers

Promoters want govt to drop clause that proposes retrospective effect of escrow account

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Talks of dropping clause on retrospective effect of escrow account doing rounds
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The Maharashtra government wants to go the Gujarat way by dropping a clause from the Real Estate (Regulation and Development) Act, 2016. The government proposes to do away with the clause that provides retrospective effect of escrow account for under-construction projects. This will apparently spare developers the headache of putting the investor's money only in those projects it is meant for.

Escrow refers to money held by a third-party on behalf of transacting parties. According to the Act, developers and promoters have to keep the buyer's amount for a specific project in the escrow account and that this fund has to be used with retrospective effect.

"We do want to keep this pro-buyer escrow account clause in tact but developers have been complaining that this can land them in trouble. They suggested that Maharashtra adopt the Gujarat model," said a senior government official from the state housing department. The Gujarat has dropped the escrow account clause from the Act.

Niranjan Hiranandani, chairman and MD of Hiranandani Group, told DNA that developers had met Chief Minister Devendra Fadnavis and requested him to adopt the Gujarat policy. "The retrospective effect of escrow account will not be feasible now. As developers, if we have already spent the money, how will we bring it back? Therefore, we have requested the chief minister to drop this clause," Hiranandani said.

However, Pankaj Kapoor, MD of real estate research firm Liasas and Foras, said that developers are blowing the issue out of proportion. "The state can only enhance the provision mentioned in the Act — it can neither dilute nor repeal it. If someone challenges the Gujarat government's decision, it will be forced to reverse it. In Maharashtra also, the government should not succumb to the pressure of developers who are in habit of crying for everything. In fact, the government has already allowed developers to show the land and construction cost that is estimated over 60% of the total cost of the project. In the said clause, there are loopholes that developers can easily exploit and withdraw the money for other ventures," Kapoor said.

Kapoor added that developers should follow the prescribed procedure of the Act. "Most developers indulge in using money from one project to buy land for another, and due to this the regular project suffers. This also delays the project and subsequently the procedure of handing over of flats. A Buyer should get his/her apartment on time if s/he had already paid the money," Kapoor said.

Maharashtra Housing Minister Prakash Mehta was not available for comment. However, a source in his ministry told DNA that Mehta does not want to take any risk by dropping the clause. "We have prepared a report and will send it to the chief minister for his approval. We are sure that the Opposition will make an issue out of it saying Maharashtra is following the Gujarat government's policy which is pro-developer and anti-buyer," the source said.

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