Dubai’s real estate market has been performing exceptionally well in recent years, not only becoming a trend within the UAE but also gaining global attention. The city’s growing popularity is driven by several factors, including investor- and homebuyer-friendly government policies, high living standards, diverse business opportunities, strong infrastructure, and much more.

The real estate authorities have implemented a decision to support investors and buyers in off-plan property transactions by introducing escrow accounts, a tool designed to build transparency and trust.

An Introduction to Escrow Accounts

The escrow account is used to hold the deposit for off-plan properties until the payment is due. These accounts are managed by Dubai’s government, specifically the Dubai Land Department (DLD) and the Real Estate Regulatory Agency (RERA). The funds in the escrow account remain there until the property is handed over by the developer.

The escrow account acts as an intermediary between the buyer and the developer. If the developer performs construction work on the property, they can withdraw funds from the escrow account. The money in the escrow account remains secure, ensuring that the buyer’s funds are protected and used only for the purposes outlined in the agreement between both parties.

The Role of Escrow Accounts

After understanding the concept of an escrow account, the next step is to learn how it operates.

If you are purchasing property in Dubai (RERA) from a developer such as Emaar or Sobha under an off-plan agreement, you will need to sign certain documents. Once the contract is finalized, the buyer must deposit the agreed amount of money into the escrow account, as per the terms agreed upon by both parties.

The developer can only access funds from the escrow account for specific purposes, including sales, consultancy, construction, marketing, and land payments, with all other uses strictly prohibited. However, it’s important to note that the developer can only withdraw money from the escrow account once certain construction milestones have been completed. The funds are released to the contractor and project consultant only when the project is fully completed.

Before requesting additional funds for any other purpose, the developer must ensure that the request complies with the terms and conditions established by the Real Estate Regulatory Authority (RERA).

Legal Requirements and Regulatory Framework

Some rules are made by DLD for escrow accounts. What are mandatory?
Law No. 7 of 2007 on Land Registration in Dubai (as amended) sets out the legal framework for land registration in the emirate and includes several provisions concerning escrow accounts.

These regulations aim to establish a structured and transparent process for property transactions, ensuring that funds held in escrow accounts are used appropriately and in line with the agreed terms.

Law No. 13 of 2017 on Regulating the Real Estate Sector in Dubai (as amended) governs the real estate industry in Dubai and includes specific provisions on the use of escrow accounts for off-plan properties. The law requires that funds for these properties be securely held in escrow, ensuring they are used solely for the construction and completion of the projects as stated in the agreement. This legal framework plays a vital role in maintaining financial transparency and reinforcing buyer confidence in the real estate market.

In off-plan property transactions, developers are required to strictly follow the rules of the escrow account. When the buyer deposits money into the developer’s escrow account, the developer cannot withdraw the funds until specific milestones, as outlined in the escrow regulations, are completed.

Escrow accounts ensure secure transactions, protecting both buyers and investors

The escrow account plays a vital role in the relationship between the buyer and the developer by providing transparency and building mutual trust. It ensures fairness and protects the interests of both parties throughout the transaction process.

With an escrow account, buyers are protected from potential fraud or misuse of funds by the developer, as the money is only released once specific construction milestones are met. In cases where a project is delayed, cancelled, or the developer declares bankruptcy, the buyer’s investment remains secure. This system provides a reliable safeguard, allowing buyers to recover their funds even in the event of unexpected challenges or financial issues faced by the developer.

What are the steps to establish an escrow account?

A common question among off-plan property buyers is, “What is the process for setting up an escrow account?”

The process of establishing an escrow account is relatively simple and can be completed in just a few steps.

Before learning how to set up an escrow account in Dubai for an off-plan property, it’s important to understand that developers must create a separate escrow account for each project. Additionally, the rules and regulations may vary between different emirates.

In Dubai, the process of setting up an escrow account as a real estate developer follows a structured and streamlined digital procedure:

• Start by logging into the Oqood portal and selecting the ‘Escrow Account Link’ option from the list of available services.
• Select the appropriate service type and fill out the application form. Once submitted, the application will be automatically sent to the designated account trustee for review.
• The trustee will review the application, upload all required documents, and then submit it to the TAS (Trust Account Services) system.
• The Escrow Account Department will then evaluate the application. After their review, the application will either be approved or rejected. The result is immediately updated in the system for the developer to view.
• This streamlined process guarantees transparency and ensures compliance with regulations throughout the account setup.
• Remember, the application can be processed with just one essential document — the payment plan for the project. This process is only applicable to developers who wish to open an escrow account in Dubai.

Enhancing trust and benefits in real estate dealings

Establishing escrow accounts in Dubai provides several benefits, including.

• Property documentation: In the escrow process, all documentation and transactions are handled by the escrow authority, ensuring there is no possibility of fraud or deceit from any party.
• Clearer reporting: In every escrow process, the rules and regulations regarding the release of funds are clearly defined. This ensures that all parties involved understand their roles and responsibilities, fostering trust and transparency between the buyer and the developer.
• Hassle-free transactions: Escrow services are designed to handle complex transactions, providing significant benefits in situations with complicated conditions or multiple parties involved.
• Improved security measures: Dubai’s real estate market is trustworthy, and there is no risk of your funds being misused or stolen, as they are protected under Dubai’s real estate laws.

Important factors for investors and developers to consider

Before investing in an off-plan property and setting up an escrow account, investors should conduct thorough due diligence and evaluate factors such as

• The reputation of the developer
• Previous projects completed by the developer
• The financial stability of the developer
• Feedback from investors and homebuyers on the developer’s past projects

Furthermore, the developer must ensure that the investor has the required funds for the property and can fulfil payment obligations.

For more information on escrow accounts in Dubai or to explore off-plan property opportunities, Real Estate Auxilium Dubai provides expert advice, guidance, and solutions for all your real estate inquiries.