The RERA 70 Percent Escrow Rule and How It Protects a Bengaluru Buyer's Money

For years the great fear of the under construction buyer in Bengaluru was simple and well founded: you paid a builder for a flat in one project, and the builder quietly used your money to buy land for the next. When the first project stalled for want of funds, the buyers who had financed it were left with a half built shell. The 70 percent escrow rule under the real estate law was written to stop exactly this. This guide explains that rule, why it protects the money you pay a builder, and how a buyer can check it is actually being followed.

The short answer. Under Section 4 of the real estate regulation law, a builder must deposit at least 70 percent of the money collected from buyers into a separate project account with a bank, and that money can be used only for the land and construction cost of the same project. Withdrawals are allowed only in proportion to how much of the project is built, and only after an engineer, an architect and a chartered accountant jointly certify the stage. The rule stops your money funding someone else's project.

What is the RERA 70 percent escrow rule?

The rule requires a builder to park at least 70 percent of the amounts collected from buyers in a separate, project specific account maintained with a scheduled bank. It comes from Section 4 of the Real Estate Regulation and Development Act, the same registration provision that brings a project under regulatory oversight. The remaining portion the builder may use more freely, but the bulk of buyer money is ring fenced for the project those buyers are financing. The word escrow simply captures the idea that the money is held apart and released only for a defined purpose, under conditions, rather than sitting in the builder's general funds to be spent at will. It is one of the central protections the law introduced for the under construction buyer. It helps to see why the figure is 70 percent rather than the whole amount. Building a project genuinely costs money for land, approvals, marketing and the builder's own margin, and the law accepts that a portion of collections legitimately goes to those. What it does not accept is the bulk of buyer money floating free, so it draws the line at 70 percent, protecting the majority that should physically build the homes while leaving the builder room to run the business. Understanding that balance stops a buyer from either dismissing the rule as toothless or over trusting it as a complete guarantee.

Why does it protect a buyer?

It protects you by cutting off the single most damaging practice in the sector, the diversion of one project's funds to another. Before the rule, a builder could collect from buyers in Project A, use it to acquire land or service debt for Project B, and leave Project A starved of the very money meant to build it. By requiring 70 percent of your payments to stay in a dedicated account usable only for your project, the law keeps the funds aligned with the flat you are actually buying. This does not make a project risk free, but it removes a specific and common failure mode, and it means that a builder who honours the rule cannot lawfully treat your advance as working capital for unrelated ventures. For a buyer, that alignment of money to project is the heart of the protection.

How is money released from the account?

The builder cannot simply draw from the account at will; withdrawals are tied to construction progress and must be certified by professionals. The law allows the builder to take out money in proportion to the percentage of the project that has actually been completed, and each drawdown must be certified jointly by an engineer, an architect and a chartered accountant, so that the money released matches the work done. The chartered accountant also issues a cost certificate for each withdrawal and audits the project accounts after the financial year. This mechanism is what turns the escrow rule from a slogan into a control, because it links the release of your money to verified progress on the ground rather than to the builder's cash needs. A builder ahead on collections but behind on construction cannot freely pull the difference out. This is also why the certification is a joint one rather than a single professional's sign off. Requiring an engineer, an architect and a chartered accountant to concur on the stage of completion makes it harder for any one of them to be leaned on to overstate progress, and it ties the financial record kept by the accountant to the physical reality assessed by the engineer and architect. For a buyer the reassuring implication is that a drawdown is not just a bank transfer but a small audited event, with a paper trail that a diligent regulator or a suspicious buyer can later examine.

Which projects does the rule cover?

The escrow requirement applies to projects that are registered under the real estate law, which is why registration is the gateway to every protection the law offers. Projects above the size thresholds set by the law must register with the state regulatory authority before they are marketed, and registration carries with it the separate account obligation and the withdrawal controls. The practical lesson for a buyer is that the escrow protection travels with registration, so a project that is not registered, or that should be registered but is not, sits outside this safety net entirely. Confirming that the project is registered is therefore the first step, both to access the escrow protection and to unlock the broader disclosures the law requires a builder to make. This is worth stressing because buyers sometimes assume that any large, reputable looking project is automatically covered. Reputation is not registration, and a specific phase or tower within a larger development may carry its own registration status, so check the registration for the exact project and phase you are buying into rather than relying on the developer's overall standing.

How can a buyer check the rule is being followed?

Start from the project's registration and its disclosures on the state regulatory authority's portal, and use them to sanity check money against progress. A registered project has a page on the regulator's portal carrying its details and periodic updates, including the disclosures the builder is required to file, and reading these tells you whether construction is keeping pace with what has been collected and drawn. Where the certified progress and the physical reality on site diverge, that gap is a question worth raising. You can also ask the builder directly about the separate project account and the certification behind drawdowns, and a compliant builder should be able to speak to this comfortably. If a builder is evasive about the account or the project is not even registered, treat that as a serious signal rather than a technicality. A simple habit sharpens this check. On each site visit, note roughly how far the construction has progressed, then compare that impression against the completion the builder is reporting to the regulator. The two should broadly agree. A building that is visibly at the foundation stage while the paperwork claims far more, or collections that have raced ahead of any visible work, are exactly the mismatches the escrow mechanism is designed to expose, and a buyer who watches for them is using the rule as it was intended to be used.

What the rule does and does not guarantee

The escrow rule is a strong protection against diversion, but it is not a guarantee that a project will finish or finish on time. It keeps the bulk of buyer money aligned to the project, which removes one major cause of stalled builds, yet a project can still run into trouble from poor management, market conditions or genuine cost overruns despite compliant accounts. It also does not substitute for your own due diligence on title, approvals and the builder's track record. Think of it as one pillar of protection among several, alongside the project's registration, its quarterly disclosures, and the remedies the law gives you if the builder defaults. A buyer who understands both what the rule secures and what it leaves open is far better placed to judge the real risk of an under construction purchase.

Your escrow and RERA checklist for Bengaluru

Work through these seven steps before you commit to an under construction flat.

1. Confirm the project is registered with the state real estate regulatory authority.
2. Understand that at least 70 percent of your payments must sit in a separate project account.
3. Know that money is released only in proportion to certified construction progress.
4. Read the project's disclosures on the regulator's portal and compare progress to collections.
5. Ask the builder about the separate account and the engineer, architect and CA certification.
6. Treat an unregistered project, or an evasive builder, as a serious warning.
7. Remember the rule prevents diversion but does not guarantee timely completion.

The takeaway for a Bengaluru buyer

The 70 percent escrow rule is one of the most useful things the real estate law did for ordinary buyers, because it attacks the precise mechanism that once left so many financing projects they never saw finished. Your money, in the main, has to stay with your project and can be drawn only as the building actually rises. For a buyer the practical move is straightforward: buy into registered projects, use the regulator's disclosures to keep money and progress in view, and read any reluctance to discuss the project account as the flag it is. The rule does not remove every risk, but it removes a big one, and knowing how it works turns you from a hopeful payer into an informed one.

Last updated 2026-09-10. PropNewz Team.