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No Loan to Builders Who are not Registered under RERA?

Narendra Kumar

| Updated: Aug 24, 2017 | Category: RERA Registration

Registered under RERA

RBI has directed to all banks not to provide loans to real-estate players who are yet not registered under RERA. This will encourage the real-estate player to understand the requirement of RERA Registration.

  • In consultation with Reserve bank of India (RBI), banks have decided not to extend loans to those projects which have not been registered under RERA. Banks have also sought for additional collateral, including on personal properties of promoters as a guarantee while disbursing loans to real estate developers.
  • As per the new law, Real Estate (Regulation and Development) Act, 2016 (RERA), a developer will have to maintain 70% money collected from homebuyers in a separate account which would leave them with only 30% of the sale proceeds to use for any other purpose, as opposed to 100% which was available earlier.
  • For states where RERA has been implemented, real estate loans will be sanctioned only after getting the registration number is issued by the regulatory authority.
  • The Act came into force on May 1, 2017, but very few builders have registered under the Act so far. The aim is to get builders to register as RERA improves transparency in real estate sector and protect home buyer’s interest, builders are expected to disclose project-related information, including project plan, layout, and government approvals related information to prospective customers.

Bank Guidelines for Sanctioning of Loans

  • Banks have decided not to extend loans to those projects which have not been registered under RERA.
  • Monitor regularly whether the promoter has deposited 70percentt of the amount realized for real estate project with RERA.
  • The promoter could withdraw the amount to cover the cost of the project in proportion to the percentage of completion after it is certified by an engineer, an architect, and chartered accountant.
  • The promoter has to get his accounts audited by a chartered accountant within six months after the end of every financial year.
  • For ongoing projects wherein the loan has been partially disbursed or the project is already approved prior to May 1, 2017, bank officials have to ensure that the project is compliant and also that the registration number is obtained by July 31, 2017.
  • If the builders fail to get registered under RERA than buyers will also not get a loan from the Bank. Hence, buyers will have to make sure that the flats for which they are applying for a loan from a bank are registered with RERA.

Also, Read: RERA Provisions for On-going Projects in India

Narendra Kumar

Experienced Finance and Legal Professional with 12+ Years of Experience in Legal, Finance, Fintech, Blockchain, and Revenue Management.

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