Developers · Capital · The Propah POV

Working capital for a mid-sized developer: what are the realistic options?

Lakshita Sanwal· Founder, Propah Realty, Bengaluru· Last reviewed: 7 September 2026· 12 min read

The squeeze is structural, not a failure of management. Under section 4(2)(l)(D), 70% of every allottee receipt goes into a project-specific account usable only for that project’s land and construction cost — and it can only be drawn in proportion to physical completion. Everything else runs on the remaining 30%. The cheapest working capital most developers have available is selling faster, and it is the one they treat as a separate problem.

Why the constraint bites the way it does

The 70% rule, precisely

At least 70% of every allottee receipt must go into a project-specific designated account with a scheduled bank.
That money may be used only for the land cost and construction cost of the same project. It cannot cross-subsidise another tower, another phase, or a group entity.
The remaining 30% funds marketing, administration, finance cost and margin.
Withdrawals require three certificates: the architect on percentage of physical completion, the engineer on actual cost incurred on work done, and the chartered accountant on the proportionate amount withdrawable.
Withdrawal is capped by progress. At 40% complete you may have drawn 40% cumulatively, whatever your collections.

Two consequences follow, and together they describe the mid-sized developer’s year. A slow-selling project starves the 30% that pays your overheads and interest. A slow-building project traps the 70% you have already collected. Most stressed projects are doing both at once, which is why the money looks present in the bank statement and absent from the business.

Cross-subsidy between projects was the traditional survival mechanism for mid-sized Indian developers. It is exactly what the Act closed. Everything since is an adaptation to that.

The realistic options, roughly cheapest first

1. Velocity

The only source of working capital that costs nothing. Every booking releases 30% immediately and improves the progress-linked drawdown on the rest. A developer paying private credit rates to fund overheads while carrying aged inventory is financing a sales problem at 12–21%. Fix the cheaper thing first — and it is usually not the price.

2. Promoter contribution

Expensive in a different currency — it is your own capital and your own risk — but it carries no covenant, no charge and no timetable. For a mid-sized developer it is often the only capital available at a genuinely critical moment, and the honest planning question is how much of it you are willing to commit before you find out.

3. Bank construction finance

The cheapest external money and the hardest to get. It wants approvals complete, title clean, a completion track record and a sales case that survives review. It has also largely withdrawn from mid-stage residential — an estimated USD 15–20 billion shortfall in Indian mid-stage construction finance was reported in late 2025, and it is described as structural rather than cyclical.

4. NBFC and private credit

What has filled that gap, at a price. Private credit into Indian real estate targets roughly 12–21% IRR, through mezzanine debt, bridge loans and preferred equity. The flexibility is real: a fund will structure into whatever position your existing charges leave open. So is the cost. Use it for a defined, dated purpose with a repayment source you can name — and expect the diligence to start with your downside case.

5. Contractor and supplier credit

The most-used and least-discussed working capital in Indian development. It is genuinely useful and genuinely dangerous, because it is uncommitted, undocumented and withdrawn precisely when conditions worsen. Treat it as what it is — short-term, unsecured, callable — rather than as a line of credit.

6. Lease rental discounting

If the project or the group holds leased commercial assets, LRD borrows against contracted rental streams rather than against project cash flow. It is a different credit assessment entirely, and for a developer with a commercial component it is often the most sensible money on the table.

7. Selling a parcel, a tower or a stake

Bringing in a co-developer, selling a land parcel from the bank, or selling a tower wholesale. Dilutive and often reflexively resisted — but a completed project at a smaller share is worth more than a stalled one at a full share, and this decision is usually taken two quarters later than it should have been.

8. SWAMIH, where it applies

Last-mile funding for stalled housing, and narrowly scoped: RERA-registered, stressed or brownfield, affordable and mid-income segments. SWAMIH I had committed to 148 projects and delivered 63,200 homes of a 1,01,443-home portfolio with ₹15,530 crore secured as at 31 January 2026. SWAMIH II was allocated ₹15,000 crore in the Union Budget 2026–27 and was described as in the process of formal launch as at March 2026 — verify its status before planning around it. It is not growth capital.

What to do before you need it

Model the 30% separately. Build a cash flow for the free portion alone, month by month, against overheads, interest and marketing. Most developers model project cash and discover the working capital gap when it arrives.
Keep the certification cycle tight. Architect, engineer and CA certificates are your only route to the 70%. A slow certification cycle is a self-inflicted liquidity problem, and it is entirely within your control.
Never plan on cross-subsidy. It is not permitted, it is exactly what a state authority acts on, and a plan that quietly assumes it is a plan with a hole in it.
Raise before you are visibly stressed. Terms are set by how much time you appear to have. A developer with six months of runway and a raise underway is a different counterparty from the same developer with six weeks.
Match the instrument to the need. Bridge finance for a dated gap. Structured capital for a genuine equity requirement. Contractor credit for nothing longer than a quarter.
Price velocity against finance. If a sales intervention costing ₹1 crore brings forward ₹15 crore of collections by two quarters, compare that honestly against borrowing the same money at 18%. It usually wins, and it is rarely the option on the table.

What this does not cover

The 70% obligation is under section 4(2)(l)(D) of the Real Estate (Regulation and Development) Act, 2016; operating mechanics, forms and certification requirements are set by state rules and vary. Confirm the Karnataka position.
The 12–21% IRR range is a published market observation for Indian real estate private credit, not a rate you will be offered.
The mid-stage construction finance shortfall is a market estimate reported in late 2025, not a measured total.
SWAMIH II status is as reported in March 2026 and may have changed.
No ticket sizes, security norms or covenant standards are given because no verifiable published source was found.
This is general commentary, not financial, tax or fundraising advice.

What is the RERA 70% rule and how does it affect working capital?

Section 4(2)(l)(D) requires at least 70% of every allottee receipt to go into a project-specific designated account with a scheduled bank, usable only for that project's land and construction cost — no cross-subsidy to another tower, phase or group entity. The remaining 30% funds marketing, administration, finance cost and margin. Withdrawals from the 70% are capped in proportion to physical completion, so a project that is 40% built can only have drawn 40% cumulatively, regardless of what it has collected.

Who certifies withdrawals from a RERA designated account?

Three professionals, jointly. The architect certifies the percentage of physical completion of the project. The engineer certifies the actual cost incurred on the work done. The chartered accountant certifies the proportionate cost and the amount that may be withdrawn. Only then does the bank release funds against land or construction cost. A slow certification cycle is therefore a self-inflicted liquidity problem, and one entirely within a developer's control.

Why do mid-sized developers run out of working capital?

Because two constraints bite at once. A slow-selling project starves the 30% of collections that funds overheads, marketing and interest. A slow-building project traps the 70% already collected, since withdrawals are capped by physical completion. Most stressed projects are doing both, which is why the money appears present in the bank statement and absent from the business. Cross-subsidy between projects, the traditional survival mechanism, is precisely what the Act closed.

What are the working capital options for a developer in India?

Roughly cheapest first: faster sales, which cost nothing and release 30% immediately; promoter contribution, which carries no covenant but is your own risk; bank construction finance, cheapest externally and hardest to obtain; NBFC and private credit at roughly 12–21% IRR through mezzanine, bridge or preferred equity; contractor and supplier credit, useful but callable; lease rental discounting where leased commercial assets exist; selling a parcel, tower or stake to a co-developer; and SWAMIH where a project is stalled, RERA-registered and in the affordable or mid-income segment.

Can a developer use money from one project for another?

Not from the designated account. The 70% deposited under section 4(2)(l)(D) may be used only for the land cost and construction cost of that same project, and cannot cross-subsidise another tower, another phase, or a group entity. Diversion is exactly the kind of thing a state authority acts on. Any business plan that quietly assumes cross-subsidy has a structural hole in it, and the hole appears at the worst possible moment — when both projects need money simultaneously.

Is it cheaper to borrow or to sell faster?

Almost always to sell faster, and it is rarely the option on the table. Every booking releases 30% of the receipt immediately and improves the progress-linked drawdown on the rest, at no financing cost. Run the comparison explicitly: if a sales intervention costing ₹1 crore brings forward ₹15 crore of collections by two quarters, weigh that against borrowing the same amount at private credit rates. A developer paying 18% to fund overheads while holding aged inventory is financing a sales problem at debt prices.

When should a developer raise capital?

Before the stress is visible, because terms are set by how much time you appear to have. A developer with six months of runway and a process underway is a different counterparty from the same developer with six weeks, and the pricing difference is substantial. Match the instrument to the need as well: bridge finance for a dated gap with a named repayment source, structured capital for a genuine equity requirement, and contractor credit for nothing longer than a quarter.

What is lease rental discounting for a developer?

Borrowing against contracted rental streams from leased commercial assets rather than against project cash flow. It is assessed on the strength and tenor of the leases and the quality of the tenants, which is a completely different credit question from a residential project's sales risk. For a developer whose group holds leased commercial space, it is frequently the most sensible money available — cheaper than project-level private credit and not dependent on residential absorption assumptions.

The 70% designated-account obligation under section 4(2)(l)(D) of the Real Estate (Regulation and Development) Act, 2016, permitted uses of the 70% and 30% portions, the architect, engineer and chartered accountant certification requirements and the proportion-to-completion withdrawal cap checked against published guidance in September 2026; operating mechanics are set by state rules and vary. Private credit IRR range from Knight Frank’s analysis of Indian real estate private credit. Mid-stage construction finance shortfall attributed to Sundaram Alternates, late 2025. SWAMIH figures as at 31 January 2026 and March 2026 respectively. This is general commentary, not financial or fundraising advice.

Still deciding, or want this applied to your own situation?

Tell us where you are and we will come back to you. The first conversation is free, and we will tell you plainly if we are not the right people for it.

Model the 30% on its own.

Project cash flow hides the working capital gap. The free portion, month by month against overheads and interest, does not.

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