SPPL introduces fool-proof system

Elaborating on the new system, a high ranking SPPL official told The Indian Express, 8220;SPPL also gives loans to private developers to implement projects under the SRD scheme. The Escrow mechanism is nothing but a perfectly coordinated check and balance system involving the SPPL, the bank, the developers and the buyers of the flats. The mechanism ensures that the developer does not flee with the loan amount, leaving the project half way.8221;

The total cost of an SRD project comprises cost of constructing transit camps, cost of rehabilitation of the slum dwellers and statutory payments by the developer to the government. Under the new mechanism, SPPL will sanction 70 per cent of this cost as a loan to the developer. Two joint accounts are then opened, in the name of SPPL and the developer8217;s name called loan and sale account respectively.

Meanwhile, a reputed and trusted architect is appointed as its Project Management Consultant PMC to monitor the progress of the project. The PMC will file a mandatory report on the actual work done on the structure attaching photographs of the building from all angles and its estimated cost. This report will be in addition to the monthly project report to be submitted by the PMC.

If the PMC8217;s cost estimate is approved, the SPPL will release only 70 per cent of the amount to the developer.

When the developer sells a flat in the free sale component in the project, the amount is deducted from the loan account to be released next time. In addition, the buyer has to draw the cheque in favour of SPPL and not in favour of the developer.

8220;A developer would have disappeared with the money had we not effected these controls. Unlike in other banks and government schemes, SPPL will never release the full loan amount to the developer at one go. The final payment, about 50 per cent of the cost certified by PMC, will only be released after the project is completed. Now, as he has invested his own 30 per cent amount in the first place, he will have to complete the building. The developer will have to keep the stipulated deadline or else he will not be paid,8221; the officer said.

SPPL expects to construct about 25,000 flats under this system in the next 18 months. The company will construct 25,000 more flats on its own in the same time, the officer said.

The Escrow Accounting Mechanism is an improvised version of a real estate practice in Singapore. Instead of applying it here in toto, the SPPL officials have modified it to suit Mumbai8217;s real estate market.

The system has already shown its results. A leading developer, who has constructed several residential complexes at Andheri, Oshiwara and Kandivali, recently walked out of a deal with SPPL for not being able to meet the stringent provisions of the system. This, the officials claimed, has given out clear signals that developers cannot get away with cheating the government, at least not the SPPL, anymore.

Under the new mechanism the participating developer is given scope to earn profits even after providing free housing to slum dwellers in Mumbai.