UP RERA Cracks Down on Misuse of Homebuyers’ Funds in Real Estate Projects

• Developers barred from using RERA funds for assured return schemes
• Banks asked to tighten monitoring of escrow account transactions
• Directive aims to protect homebuyers and improve project completion timelines

Lucknow: Uttar Pradesh Real Estate Regulatory Authority (UP RERA) has directed developers and banks to strictly comply with revised norms governing the use of funds deposited in mandatory RERA escrow accounts. The authority has warned that money collected from homebuyers cannot be diverted towards assured return schemes, lease guarantees, or fixed-income commitments offered during property sales.

The latest directive comes amid growing concerns over the misuse of project funds by certain developers, particularly in the National Capital Region (NCR) and other parts of Uttar Pradesh. According to UP RERA, several builders were allegedly using money reserved for construction activities to fulfil financial promises made to investors and buyers under assured return schemes, affecting project timelines and increasing risks for homebuyers awaiting possession.

Under the provisions of the Real Estate (Regulation and Development) Act, 2016, developers are legally required to deposit 70% of the amount collected from buyers into a dedicated escrow account for each registered project. These funds are meant exclusively for construction and land-related expenses associated with that specific development. Withdrawals are allowed only in proportion to the percentage of project completion and must comply with statutory conditions.

UP RERA clarified that assured return schemes are financial arrangements between developers and investors and cannot be financed using money earmarked for project execution. The authority observed that diversion of funds often creates cash-flow stress within projects, slowing down construction and delaying handovers.

Officials noted that complaints from homebuyers and financial observations during project reviews revealed instances where builders used escrow account funds to service monthly returns promised under investment-linked property schemes. Such practices, according to the regulator, directly violate the intent of the RERA framework, which was introduced to bring transparency and accountability to India’s real estate sector.

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The authority has now instructed developers to maintain a strict separation between project-related expenses and liabilities arising from guaranteed return commitments. Banks managing RERA accounts have also been asked to strengthen monitoring systems and ensure that withdrawals comply with revised utilisation norms.

The move is expected to increase financial discipline across the sector and improve confidence among genuine homebuyers. Real estate experts believe that tighter monitoring of escrow accounts could reduce the risk of stalled projects and ensure that collected funds are utilised for actual construction progress rather than unrelated financial obligations.

Assured return schemes became highly popular during earlier real estate cycles, especially in commercial and mixed-use projects. Under these models, developers offered fixed monthly payouts or rental assurances to attract investors. However, many projects later faced liquidity issues, making it difficult for developers to sustain payouts while simultaneously funding construction activities. This often resulted in delayed deliveries and legal disputes.

Regulators across India have gradually intensified scrutiny of such schemes, with multiple RERA authorities emphasising that escrow accounts must remain dedicated to project development purposes only. UP RERA’s latest direction further strengthens this regulatory stance and sends a strong signal to developers regarding compliance and accountability.

Industry observers say the directive could also encourage healthier financial practices within the real estate sector by reducing dependency on aggressive fundraising models tied to guaranteed returns. For homebuyers, the move offers greater assurance that their money will be used for the timely completion of the homes they invested in.

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UP RERA stated that violations identified during audits, financial reviews, or regulatory scrutiny could invite action under the applicable provisions of the RERA Act. The authority reiterated that the primary objective behind the revised norms is to protect homebuyers, improve transparency, and ensure timely project delivery across the state’s real estate market.