Aug 18, 2023

Living the High-Tech Life: Escrow Account in Rera Act Safeguarding Real Estate Transactions

by Godrej Properties Limited



In the world of real estate transactions, security and transparency are paramount. To ensure that buyers and sellers are protected from potential risks, the concept of an escrow account and the RERA Act plays a crucial role. The Real Estate (Regulation and Development) Act, commonly known as the RERA Act, introduced in 2016, further strengthened the importance of escrow accounts in real estate dealings. In this article, we will delve into the significance of an escrow account and how it is relevant under the RERA Act.

What is an Escrow Account?

An escrow account meaning entails a financial arrangement where a neutral third party, often a bank or a financial institution, holds funds on behalf of two parties engaged in a transaction. These parties can be buyers and sellers, landlords and tenants, or lenders and borrowers. The primary purpose of an escrow bank account is to ensure a secure and fair exchange of goods, services, or money.

Escrow Account under RERA Act, 2016

The Indian Parliament enacted the RERA Act to regulate the real estate sector and safeguard the interests of homebuyers. One such essential provision is the mandatory use of escrow real estate accounts in certain situations.

a. Escrow Account for Project Development

As per the RERA Act, developers are required to open a dedicated escrow account for each of their projects. The primary objective is to ensure that the funds collected from buyers are utilized solely to construct and develop that specific project. This provision prevents developers from diverting funds to other projects, thereby promoting greater accountability and transparency.

b. Escrow Account for Property Sales

In cases where a property is being sold by one owner to another, the RERA Act encourages the use of escrow accounts to facilitate a secure transfer of ownership. The buyer deposits the purchase amount into the escrow account, and the seller is assured of payment upon successful transfer of the property title. This arrangement reduces the risk for both parties and provides a level of confidence in the transaction.

Conclusion: Escrow Meaning in Real Estate Decoded

The introduction of the RERA Act has been a game-changer in the real estate industry, and the provision of mandatory escrow accounts has significantly contributed to enhancing the overall transparency and credibility of the sector. Escrow accounts serve as a protective shield for buyers, sellers, and investors, instilling a sense of trust in real estate dealings.



Q: What does "escrow" mean in real estate?

A: It refers to a financial arrangement where a third party, a bank or financial institution, holds funds or documents on behalf of two parties engaged in a transaction. 

Q: Are escrow accounts mandatory for all real estate transactions under the RERA Act?

A: While escrow accounts are not mandatory for all real estate transactions, the RERA Act makes it compulsory for developers to open escrow accounts for their projects. 

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