What is an Escrow Account in Real Estate?

Before RERA 2016, one of the most common causes of stalled housing projects in India was fund diversion — builders collecting money from buyers in Project A and secretly using it to acquire land for Project B, pay salaries, or service loans. When the money ran out, Project A construction stopped, leaving thousands of buyers stranded.

RERA's escrow account rule directly addresses this. For every registered project, the builder must open a separate, dedicated bank account and deposit a minimum of 70% of all collections from buyers into it. This money is ring-fenced — legally it can only be used for that project's construction and land costs, nothing else.

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Why 70% and not 100%? RERA allows builders to use 30% of collections freely — for project-related overheads, marketing, loan repayments, and working capital. The 70% minimum ensures the core construction funds are protected while giving builders operational flexibility.

How the RERA Escrow Rule Works

1

Buyer Pays Instalment

You pay an instalment to the builder — booking amount, construction-linked payment, or any other collection.

2

70% Goes to Escrow Account

The builder must deposit ≥70% of your payment into the project's dedicated escrow account within a specified time. The remaining 30% can be used for operational costs.

3

Builder Needs to Withdraw for Construction

When the builder needs funds for construction — purchasing cement, steel, paying contractors — they request withdrawal from the escrow account.

4

Three Professionals Must Certify

Before any withdrawal is released, the project's Architect, Structural Engineer, and Chartered Accountant must certify in writing that construction has reached the declared stage and the withdrawal is proportionate.

5

Funds Released for Construction Only

Bank releases funds only for the construction purpose stated. The audit trail ensures money stays within the project.

Before and After RERA — Fund Flow Comparison

AspectBefore RERAAfter RERA (Escrow Rule)
Fund DestinationBuilder's general bank account — no restriction70% to dedicated project escrow account
Fund UsageBuilder could use funds for any purposeStrictly for that project's construction and land
Withdrawal ProcessNo oversight — builder decidesRequires Architect + Engineer + CA certificates
Cross-Project DiversionCommon and undetectableLegally prohibited — criminal offence
Buyer VisibilityNoneEscrow details on RERA portal
Penalty for MisuseNone — civil dispute onlyUp to 10% of project cost + imprisonment

How to Verify a Project's Escrow Account

Steps to Verify Escrow Compliance Before Buying
  • Search the project on your state RERA portal — escrow bank and account number must be disclosed in the project registration
  • Ask the builder to show the latest escrow account statement — a reputable builder will share this proactively
  • Check the proportion of collections vs escrow deposits — if the ratio is significantly below 70%, raise the concern formally
  • Verify the three certifying professionals (architect, engineer, CA) are independent and registered professionals — not the builder's employees
  • Confirm that any RERA complaints against the builder do not include allegations of escrow violations — visible on RERA portal complaint section
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Practical limitation: While the escrow rule is a powerful protection, enforcement varies by state. Some state RERA authorities have stronger oversight than others. MahaRERA (Maharashtra) is known for stricter enforcement. For projects in states with weaker RERA implementation, supplement your escrow check with a thorough builder track record review.
RERA Builder-Buyer Agreement Occupancy Certificate Possession Certificate Due Diligence Under Construction Property Corpus Fund

Frequently Asked Questions

An escrow account in real estate is a dedicated bank account mandated by RERA where builders must deposit at least 70% of all amounts collected from buyers. This money is ring-fenced — it can only be used for construction and land costs of that specific project. The rule prevents builders from diverting buyer funds to other projects, which was the most common cause of stalled projects in India before RERA.
Under Section 4(2)(l)(D) of RERA 2016, builders must deposit a minimum of 70% of all amounts collected from buyers and investors into a separate designated bank account for each project. The remaining 30% can be used freely for business operations. Withdrawals from the escrow require certification from the project's architect, structural engineer, and chartered accountant.
Yes. The escrow bank name and account number must be disclosed in the RERA project registration — visible on your state RERA portal. You can ask the builder to show escrow account statements as part of your due diligence. Builders with strong track records are usually transparent about this. If a builder refuses to show escrow details, treat it as a red flag.
Misuse of escrow funds is a RERA violation. Penalties include a fine of up to 10% of the project's estimated cost for the first offence. A second violation can result in imprisonment of up to 3 years, or both fine and imprisonment. Buyers can report escrow violations to the state RERA authority with evidence — such as construction being stalled despite collections continuing.
The escrow rule applies to all RERA-registered projects — which covers residential and commercial projects with plot area above 500 sq m or more than 8 apartments. Projects exempt from RERA registration (small projects, completed buildings) are not covered by this rule. This is one more reason why buying only from RERA-registered projects is strongly recommended.
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Browse RERA-verified projects on ApartmentsForSale.in — all listings include RERA registration numbers.
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