Escrow a/c to keep 70% cash tough clause: Parsvnath

Pradeep Jain, chairman, Parsvnath Developers says the Real Estate Regulatory Bill will be positive for the industry because of provisions like escrow mechanism, timely completion of projects and project to be launched after all sanctions etc. He, however, said that the clause to keep 70 percent of buyers' fund in an escrow account cannot be uniformly implemented across India.

The bill will also prevent unorganised developers from entering the sector, he adds. The Cabinet on Tuesday approved Real Estate Regulatory Bill that is expected to bring about a sea change in the business practice of real estate developers. Below is the verbatim transcript of his interview on the CNBC-TV18 Q: What are your observations on the Bill and whether it looks more onerous than what the draft note was like and the impact for realty companies like yours? A: The Real Estate Regulatory Bill in my view is good to introduce but we need to see the final print. The provisions that we have seen through media like the escrow mechanism, timely completion of projects and project to be launched after all sanctions etc; is good for the industry. It prevents the unorganised developers from entering into the sector. Net-net the regulatory bill is good for the sector. Also read: Real Estate Regulatory Bill: How will it protect you Q: Can you give us more details on what the impact would be because of this escrow fund issue, if 70 percent of the funds are put into another account? What is your sense of what damage that would do to cash flows for companies like yours? A: In these days all the projects at Parsvnath are being executed through the escrow mechanism. With regards to the 70 percent, we need to see the fine print on how they have worked out the 70 percent. However, across the country this 70 percent is not going to work because somewhere the cost of construction is more, somewhere the cost of construction is less. For example in Mumbai the cost of construction is about Rs 4000-5000 a square feet and the realisation is about Rs 20000-25000 on average. In that scenario 25-30 percent is required for construction. However, during our discussion with the ministry, we had requested that whatever be the cost of construction, plus 5-10 percent on that need to be escrowed for construction and rest of the money to be paid to the developer. Because in India, the sanctions and holding cost, and debt cost for real estate sector is very high. There is also limited availability of debt. So, if the government wants to plug all the cash flow of the developer then it is not the right way. However, at the same time for completion of the project whatever money is required through escrow mechanism is very good provision, also some of the other clauses like all sanctions should be in place etc are good.