What Is the 70% and 30% Rule in RERA? A Complete Guide for Homebuyers

Buying a home is one of the biggest financial decisions most people make. To protect homebuyers and increase transparency in the real estate sector, the Government of India introduced the Real Estate (Regulation and Development) Act, 2016 (RERA).

One of the most important provisions under RERA is the 70% and 30% rule, which helps ensure that builders use buyers' money responsibly and complete projects on time.

In this blog, we'll explain what the 70% and 30% rule means, why it was introduced, and how it benefits homebuyers.

What Is the 70% and 30% Rule Under RERA?

Under Section 4(2)(l)(D) of the RERA Act, every registered real estate developer must deposit 70% of the money collected from homebuyers into a separate escrow account.

This amount can only be used for:

  • Land acquisition costs
  • Construction expenses
  • Project development costs

The remaining 30% of the funds can be used by the builder for other legitimate business and administrative expenses, such as:

  • Marketing and advertising
  • Employee salaries
  • Office operations
  • Business expansion
  • Loan repayments (where applicable)

This rule prevents builders from diverting funds from one project to another.

Why Was This Rule Introduced?

Before RERA, many developers used money collected from one project to finance new projects. As a result:

  • Construction work slowed down.
  • Projects were delayed for years.
  • Homebuyers faced financial losses.
  • Many buyers had to pay both rent and EMIs simultaneously.

The 70% escrow rule was introduced to ensure that the majority of buyers' money is used only for the project they invested in.

How Does the Escrow Account Work?

Here's a simple example.

Imagine a builder collects ₹10 crore from buyers.

  • ₹7 crore (70%) must be deposited into a dedicated RERA escrow account.
  • ₹3 crore (30%) may be used for other approved business expenses.

The builder cannot freely withdraw money from the escrow account.

Withdrawals are allowed only according to the project's construction progress and must be certified by:

  • An engineer
  • An architect
  • A chartered accountant

This creates financial discipline and accountability.

How Can Builders Use the 70% Amount?

The money kept in the escrow account can be used only for expenses directly related to that project, including:

  • Purchase of land
  • Construction materials
  • Contractor payments
  • Labour wages
  • Engineering services
  • Project approvals
  • Infrastructure development

Using these funds for another project is generally prohibited under RERA.

What Can the Remaining 30% Be Used For?

The remaining 30% gives developers flexibility to manage business operations.

It may be used for:

  • Marketing campaigns
  • Sales commissions
  • Administrative expenses
  • Office rent
  • Employee salaries
  • Technology and software
  • Corporate overheads

This ensures developers can continue running their business while protecting buyers' investments.

Benefits of the 70% and 30% Rule

1. Protects Homebuyers' Money

The biggest advantage is that buyers' payments are largely protected from misuse.

2. Reduces Project Delays

Since project funds remain dedicated to construction, developers are more likely to complete work on schedule.

3. Increases Transparency

Developers must maintain proper financial records and follow RERA guidelines for fund utilization.

4. Improves Accountability

Builders cannot withdraw project funds without certified progress, reducing financial mismanagement.

5. Builds Buyer Confidence

Knowing that their money is safeguarded gives buyers greater confidence in investing in RERA-registered projects.

Does Every Project Follow This Rule?

The 70% escrow requirement generally applies to projects that are required to be registered under RERA. Certain projects may have different treatment depending on state-specific RERA regulations or project circumstances.

Therefore, buyers should always verify the project's RERA registration and review the information available on the respective State RERA portal.

How Can Buyers Check If a Project Is RERA Registered?

Before booking a property:

  • Ask the builder for the RERA registration number.
  • Visit your State RERA website.
  • Search using the registration number or project name.
  • Review project details such as approvals, timelines, developer information, and construction status.

Buying a RERA-registered property provides better legal protection and greater transparency.

Common Misconceptions About the 70% Rule

Myth 1: Builders cannot use any money.

Reality: Builders can access the escrow funds, but only for genuine project-related expenses and based on certified construction progress.

Myth 2: All money goes into the escrow account.

Reality: Only 70% of the amount collected from buyers must be deposited into the separate account.

Myth 3: RERA guarantees project completion.

Reality: RERA significantly improves accountability and transparency, but buyers should still evaluate the builder's reputation, financial stability, and project approvals before investing.

Tips for Homebuyers

Before purchasing a property:

  • Verify the RERA registration number.
  • Check the project's approval status.
  • Review the promised completion timeline.
  • Research the builder's previous projects.
  • Read the agreement carefully.
  • Monitor project updates on the State RERA portal.

Taking these steps can help reduce the risk of delays or disputes.

Conclusion

The 70% and 30% rule under RERA is one of the most significant reforms in India's real estate sector. By requiring developers to keep 70% of buyers' funds in a dedicated escrow account for project-related expenses, RERA promotes transparency, financial discipline, and timely project completion.

While no law can eliminate every risk, this provision gives homebuyers greater confidence that their investment is being used for its intended purpose. Before booking any property, always verify its RERA registration, review project details carefully, and choose a developer with a strong track record.

A well-informed buyer is better equipped to make a safe and confident real estate investment.

Frequently Asked Questions (FAQs)

1. What is the 70% rule in RERA?

It requires developers to deposit 70% of the money collected from buyers into a separate escrow account that can be used only for land and construction costs of that specific project.

2. Why is only 70% deposited?

The remaining 30% allows developers to cover business, administrative, marketing, and operational expenses while ensuring most buyer funds remain protected.

3. Can builders withdraw money from the escrow account anytime?

No. Withdrawals are linked to the project's construction progress and require certification from an engineer, an architect, and a chartered accountant.

4. Does the 70% rule apply to every project?

It generally applies to projects that must be registered under RERA, though state-specific regulations may affect implementation in certain cases.

5. How does this rule help homebuyers?

It reduces the risk of fund diversion, improves transparency, encourages timely project completion, and increases buyer confidence.

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