What is an Escrow Account in Dubai?

What is an Escrow Account in Dubai?

In recent years, the UAE has emerged as a prime location for real estate investment. The popularity is fueled by a variety of factors, including government initiatives and law enforcement circumstances. Whether purchasers choose a villa or an off-plan project, the authorities have taken steps to protect the interests of both buyers and developers.

One such initiative is the use of escrow accounts for off-plan purchases. Buyers and developers must use an escrow account until all instalments are paid and the property is turned over to the owner.

Definition of an Escrow Account

An escrow account is a safekeeping account in which buyers' funds are deposited until the installments are paid. These accounts are controlled by government officials until the project is handed over. Developers can only request a specific amount of funds from the escrow account, based on the terms of the escrow account management authority.

In Dubai, an escrow account acts as a secure middle ground for financial transactions, particularly in real estate. It's a legal arrangement where a neutral third party, typically a government entity like the Real Estate Regulatory Authority (RERA), holds onto funds until specific conditions are met.

Here's a breakdown of how escrow accounts function in Dubai:

• Safeguarding Transactions: Escrow accounts protect both buyers and sellers in property deals. The buyer deposits their funds into the account, and the seller doesn't receive the money until they fulfill their obligations, such as completing construction for an off-plan property.
• Regulated Process: The terms for using escrow accounts are dictated by the regulations set forth by RERA. This ensures transparency and minimizes the risk of fraud or disputes.
• Controlled Disbursement: Funds in the escrow account are only released upon meeting predetermined milestones. For instance, in an off-plan property purchase, the developer might receive installments based on construction progress.

Escrow accounts offer several benefits in Dubai's real estate market:

• Enhanced Security: Both parties have peace of mind knowing the funds are held securely by a neutral entity.
• Reduced Risk: The controlled disbursement process lowers the risk of a party failing to fulfill their obligations.
• Transparency: Clear guidelines and regulations ensure a fair and transparent transaction process.

If you're considering a real estate transaction in Dubai, understanding escrow accounts is crucial. It's a safeguard that benefits both buyers and sellers.

How Escrow Works?

When a buyer signs a purchase agreement for an off-plan property, real estate regulators such as RERA Dubai and TAMM Abu Dhabi open an escrow account. After registering the contract, the buyers must deposit the remaining sum in the escrow account according to the payment plan.

The developers are not permitted to use any funds from the account other than those required for sales, marketing, consulting, construction, and land payments. However, these monies are only granted when each construction phase is completed and the payment is delivered to the project consultant and contractor.

Aside from these conditions, the developer might request funds from the account in accordance with the terms and conditions specified by the regulatory authority.

How to set up an Escrow Account?

The developer asked the appropriate authorities to open an escrow account for an off-plan project. The process of opening an account varies by emirate.

To elaborate on the process, we have listed the stages for opening an escrow account in Dubai.

1. Log in to the "Oqood" portal and click "Escrow Account Link".
2. Select the required service and submit your application. Once filed, the application will be directly transferred to the account trustee.
3. The trustee will review the application, upload the required documentation, and submit it to the TAS system.
4. The escrow account department will review the application and either reject or approve it. In the event of approval, the system will be automatically updated.
5. The sole document needed to process the application is the project's payment plan. However, before submitting an application, developers must meet the standards specified by DLD Dubai.

Remember that this approach is only relevant for developers in Dubai; developers in other Emirates should follow the process outlined on the land authorities' website.

Like

Share

Comments

Submit