1. Introduction

Real estate regulation has always aimed at protecting consumers and ensuring the judicious use of project funds. Historically, the framework under the RERA Act, 2016, along with the Andhra Pradesh Real Estate Rules (2017), set guidance for fund allocation and withdrawal but left room for ambiguity. The 2025 Circular introduces tighter controls by mandating a three-tiered bank account system for project funds, reinforced by technology (auto-sweep transfers) and stricter compliance mechanisms.

2. Structure of Fund Management Accounts

Old Provisions

• Account Configuration: Under the earlier regime, the promoter typically operated with a single account or a loosely structured segregation of funds. Although funds were allocated in approximate proportions (70% for construction-related expenses and 30% for operational expenses), the process often relied on manual interventions and periodic audits.
• Withdrawal Process: Funds were released upon submission of certificates (by the architect, engineer, and chartered accountant) attesting to project progress. However, there was limited real-time control or granular oversight of how funds were distributed.

New Provisions

Mandatory Three-Account System:
Promoters now must open three distinct bank accounts in a scheduled branch within Andhra Pradesh:

• 1. RERA Collection Bank Account:
     • Role: Receives 100% of collections from allottees (net of indirect taxes and statutory dues).
     • Functionality: This account acts solely as the initial repository, with withdrawals not permitted via traditional means.
  2. RERA Separate Bank Account:
     • Role: Receives an automatic transfer of 70% of funds from the Collection account via an auto-sweep facility.
     • Usage: The funds here are earmarked strictly for construction, land costs, and loan servicing (subject to conditions) and must remain free from liens or third-party intervention.
  3. RERA Transaction Bank Account:
     • Role: Receives the remaining 30% of funds.
     • Usage: Used exclusively for operations such as meeting tax requirements, processing a portion of cancellation refunds, and handling penalties that are not classified as project costs.

These clearly demarcated accounts serve to ensure that monies collected are not inadvertently mixed or misused, unlike earlier setups where the segregation was less formalized.

3. Fund Transfer and Usage Mechanism

Old Provisions

• Fund Allocation: Although funds were conceptually divided (70:30), there was less emphasis on automated, real-time transfers. Any manual intervention risked mixing project funds or causing delays in releasing funds for construction.
• Documentation: Certification was required at the time of withdrawal, but there was no mandated auto-sweep facility or prescribed nomenclature to ensure transparency.

New Provisions

• Auto-Sweep Facility: Entire amount received in the Collection Bank Account is automatically transferred in a 70:30 ratio to the RERA Separate and RERA Transaction accounts, respectively. This ensures an enforced and immediate segregation that minimizes administrative delays.
• Prescribed Nomenclature: Naming of each account must strictly follow a prescribed format i.e

“Name of Promoter” + RERA Collection Bank Account for + “Project Name”

(e.g., “ABC Ltd. RERA Collection Bank Account for XYZ”) to facilitate audit, traceability, and quick identification.

• Utilization Restrictions: Separate Bank Account can only be used for construction and land costs (and certain interest costs on project-linked loans), as stipulated under the 2017 Rules. In contrast, the Transaction Bank Account is the only usable account for operational expenses, cancellation refunds, or payment of penalties that do not qualify as project costs.

4. Compliance, Auditing, and Certification

Old Provisions

• Certification Process: Withdrawals were based on certificates issued by the architect, engineer, and chartered accountant. Although this provided a check on progress, the process was often retrospective and periodic.
• Audits: Annual audits were the norm with less emphasis on frequent or real-time financial reporting.

New Provisions

• Mandatory Certifications for Withdrawals: Funds withdrawn from the Separate Account now require the submission of updated and prescribed forms (Form 1: Architect Certificate; Form 2: Engineer Certificate; and Form 3: CA Certificate) for each transaction. These certificates must be uploaded to the AP RERA portal, ensuring closer-to-real-time validation of progress.
• Quarterly Compliance and Detailed Reporting: Promoters are now required to file quarterly reports along with audited passbook statements and “No Lien Certificates” for any fixed deposits created from surplus funds. This rigorous oversight enhances transparency and accountability.
• Enhanced Duties of Banks and Professionals: Banks must operate as per the strict guidelines (e.g., no withdrawals by cheque, debit card, etc.), and any deviation can result in immediate regulatory actions. Professionals who erroneously certify progress face enhanced penalties, including actions by their respective regulatory bodies.

5. Procedural Enhancements for Account Changes and Project Closure

Old Provisions

• Changing Accounts: Earlier procedures for altering bank accounts were less formalized, often entailing ad hoc compliance with account balance certifications.
• Project Closure: Closure of project accounts post-completion was managed via a general clearance process, with limited detailed oversight.

New Provisions

• Formalized Account Change Process: If there should be a need to change the bank managing the RERA accounts, the promoter must submit a formal application using designated forms (Forms 8A, 8B, 8C, and 8D). This ensures that all account balances are duly certified and that funds are entirely transferred from the previous accounts to the new ones with proper approval from AP RERA.
• Clear Guidelines for Project Closure:
  On project completion, the promoter must seek closure of the RERA accounts by submitting all requisite documents. The Authority then reviews and approves the closure based on the verification of fund utilization and compliance with all guidelines.

6. Enhanced Accountability and Enforcement

Old Provisions

• Enforcement Mechanism: Penal actions were outlined under the Act, but specifics, particularly in relation to fund mismanagement, were more flexible and did not always promote proactive intervention.

New Provisions

• Defined Penalties: Non-compliance now attracts stringent penalties as mentioned under sections 60 and 63 of the RERA Act, 2016.
• Monitoring and Freezing of Accounts: The Authority can direct banks to freeze accounts immediately on the lapse or revocation of project registration. Such control helps protect remaining funds and discourages deviations from the sanctioned usage.
• Responsibility of Professionals: If any professional issue false or misleading certificates, the Authority may refer the matter to their regulatory bodies for disciplinary proceedings. This adds an additional layer of deterrence against negligence or malfeasance.

7. Summary Table: 

8. Conclusion

The 2025 circular represents a significant evolution in RERA’s approach to managing real estate project funds. By introducing a multi-account system, automated transfers, enhanced certification processes, and strict reporting requirements, AP RERA has elevated transparency and accountability to a new level. These measures are vital for curbing financial mismanagement and ensuring that every rupee contributed by homebuyers is exclusively dedicated to its intended purpose—primarily construction and development.

In addition, the formalized process for changing accounts and the explicit measures for project closure ensure that funds remain secure and traceable throughout the project lifecycle. As the industry adapts to these changes, stakeholders—from promoters and banks to professionals—will need to update their systems, thereby reinforcing a culture of compliance and trust.