An escrow account is a third-party financing mechanism where the seller gains access to the funds transferred by the buyer only after fulfilling the conditions of an escrow agreement. If the seller does not meet the agreement’s terms, the funds are returned to the buyer.
In the UAE real estate market, escrow accounts serve a specific function. Developers of various projects must open a separate escrow account for each project in accordance with the UAE’s Escrow Account Law.
Process
The government has designated specific banks that are authorized to handle real estate escrow accounts. The financing entities and off-plan buyers deposit all payments into the designated escrow accounts for each project.
Since off-plan projects involve installment payments, developers of such projects receive funds only after presenting a progress certificate.
Upon project registration, the Dubai Land Department (DLD) must approve the developer’s project, including the financial plan and architectural designs.
To ensure post-handover quality, 5% of the total escrow account value is retained for one year to cover any defects in the property.
If a developer fails to fulfill obligations, the law provides a mechanism to revoke their registration.
Benefits
Opening an escrow account provides numerous benefits, particularly for buyers and investors. The law is primarily designed to protect real estate investors.
• Developers can only access funds once they reach the promised development phase.
• Regulatory authorities, such as RERA, can closely monitor the progress and financing of each project.
• While project delays are common, controlled fund access helps streamline and accelerate development.
• Ensures funds are used effectively for construction and project completion.
When purchasing an off-plan property in the UAE, always ensure that you have all the necessary details regarding the developer’s escrow account where your payments will be deposited.
The designated bank acts as an escrow agent for both the buyer and the developer, ensuring that the funds are used exclusively and efficiently for project construction.
The UAE real estate market has witnessed massive growth, and the Escrow Account Law has significantly contributed to this expansion.