The controversy around UDS and Pre-launch schemes

The RERA act has been weeding out many small time builders from the market who have been rotating money between projects. 

Why?

RERA puts in several restrictions on money movement meant for the project through escrow account route. It increases the financial commitment per project from developer from the pre-RERA period.

What is the way around?

Since, they might not have the increased financial resources that are mandated under RERA and adhere to the timelines promised, builders seem to have introduced a pre-launch/ undivided share mode of financing to augment finances circumventing the RERA rules. 

What is happening?

The very fact that a project is in Pre-launch sends a message that the builder doesn't have the required resources to move forward. In the case of a sudden slump or slowdown hitting the global economy, and the sales slowing down, the builder might not honor his RERA commitments.

During 2018-2020, every second project is offering some sort of pre-launch scheme outside RERA. Earlier, the money used to be pooled from a dedicated set of customers who were backing the builder across several projects continuously. There was a personal connect and the commitments were honoured during 2012 and 2018. But, RERA restrictions and success of the scheme seems to have pushed several individuals who have no idea of the builder's capabilities and resources are jumping into these schemes with out proper due diligence.

Voices against the practice 

The number of people joining the schemes seems to be alarming, which forced the state government and CREDAI to issue public statements against these schemes. Some news items have started projecting the total money ruling in at 30,000 cr and calling it a scam. I don't know how the media arrived at these conclusions but it is very heartening to see media, CREDAI and media waking up before a big blow up happens. Unfortunately, a blow up could be in works already. 

Pray, nobody is hurt!!!      

https://timesofindia.indiatimes.com/city/hyderabad/t-govt-to-crack-the-whip-on-illegal-land-schemes/articleshow/81861470.cms

https://www.thehansindia.com/business/credai-hyderabad-urges-buyers-to-go-for-rera-projects-637485