I am looking at buying property and have heard I should use an escrow account. I am a bit confused, should I use one?
Escrow is a safer place for your money
Q) I am looking at buying property and have heard I should use an escrow account. I'm a first-time buyer, and am a bit confused about the term. What are they for? Should I use one? a) Since Law No 8 was issued in Dubai last year, an escrow account has to be opened by developers for each off-plan development they have. Two other emirates, Ajman and Ras al Khaimah, have also recently introduced similar compulsory rules, although it is still too early to know how well and to what extent these have been enforced.
The idea is simple. Instead of going directly to the developer's pocket, the money you are paying is deposited in a specially managed account, opened under the name of the property development in an approved bank. This is to prevent developers from collecting money at the launch of a project and then using it to buy another plot or investing it anywhere else, instead of actually building the project.
The cheques you will write will be in the name of the escrow account. In the past, property buyers had to police the land developer on their own to ensure that their money was being well used, which was very complicated, and even more so for those based outside Dubai. It's the developer's responsibility to open the escrow account, not the buyer's. They will need to do so with an approved bank, but before this can happen, a developer must provide all the project's details to the Dubai Land Department, such as the title deed of the land plot, the designs and layout, the budget, a letter of approval from a master developer and a trade license.
The money deposited in escrow cannot be drawn by the developer, except for three reasons: marketing and advertising (up to 5 per cent of a project's value), construction and payment for the land plot (about 20 per cent). Once the account has been opened, construction has to start within six months. If it does not, Dubai's Regulatory Agency for Real Estate (RERA) is theoretically entitled to cancel the developer's registration.
When a project is completed, the Land Department will still keep five per cent of its total value in escrow for one year in order to ensure that the developer will rectify any defects in construction and that all title deeds are issued in the names of buyers. As long as your money is in the account it is safe - if the developer cancels the project you will get back at least what has not yet been spent. There is no such guarantee when a developer uses his own account, particularly in current times when the market is suffering.
According to clause 7.3.1, you can contact the approved bank and ask them to give you a report of your transfers. If they have not received it, you can speak to the escrow manager and inform him about the irregularity. You can also inform RERA, which is a government body that falls under the Dubai Land Department, that the developer is not complying with escrow rules. In Dubai, paying money to any account other than an escrow is considered illegal. email@example.com Have a question or concern for our experts? Email us at firstname.lastname@example.org