What is an Escrow Account? Understanding its Role in Dubai Real Estate

Dubai has emerged as an ideal destination for real estate investment due to the attractive perks of investing in its real estate. One component that makes real estate investment in Dubai more attractive is the payment through escrow accounts. They ensure that all the parties involved in the financial transaction fulfil their obligations and provide a secure gateway to each party. But what exactly is an escrow account, and what role does it play in Dubai's real estate? Let's explore.

What is an Escrow Account?

An escrow account acts as a middle-man that holds the money safely until the specific conditions are met. In this arrangement, the buyer deposits the payment into a bank account. The seller receives the money only when the property is handed over to the buyer. Dubai Land Department and RERA manage these accounts and ensure fair play.

Escrow Account Rules

Real estate developers in Dubai dealing in off-plan properties must obey these escrow account laws.

Law No. 8 of 2007 on Land Registration in Dubai sets the rules for registering land in Dubai, including guidelines for using escrow accounts to protect buyers' payments.

Law No. 13 of 2017, which regulates Dubai's real estate sector, requires the use of escrow accounts when selling off-plan properties. It also offers buyers protection by securely holding their payments.

All real estate developers must activate an escrow account before selling off-plan properties. Money deposited by the buyer must be transferred to the developer's escrow account.

How to Set Up an Escrow Account

The developers selling off-plan properties must contact the registered authority to activate escrow accounts. Each off-plan project requires a separate escrow account. However, setting up an escrow account is super easy. Just follow these steps:

• Open the Oqood portal and click the escrow account link.
• Choose the required service and apply.
• The application will be sent to the Trustee Account for review.
• The trustee will upload their report and send it through the escrow account system.
• The escrow account department will approve or reject the application after the audit.
• In case of approval, the system will be updated automatically.

How to Check Approved Escrow Account Trustee

Visit the DLD website to check whether the escrow account has been approved. Follow these steps:

• Visit DLD's official website
• On the main page, select 'All Services' from the 'Service' tab
• Click on the 'Information Services' tab
• Click ‘Approved escrow account trustees’
• Press the 'Access this service' button
• A list of registered Escrow Account trustees will open.

Documents Required to Open an Escrow Account

Following is the list of documents required to open an escrow account in Dubai:

• Approval from RERA
• Signed escrow account agreement
• Account opening forms
• Title deed/sales & purchase agreement in the developer's name
• Commercial Registration & Chamber of Commerce Certificate, Trade License, or Offshore company documents
• Passport copies of authorised signatories
• Audited statements of the project
• Technical documents for construction and consultancy contracts after account opening

Role of Real Estate Escrow Account in Dubai

The escrow system is mandated by Dubai's real estate laws to prevent fraud and maintain trust in the property market. It is responsible for ensuring buyers and developers fulfil their obligations. When buyers pay for an off-plan property, their money is held in an escrow account managed by a third-party trustee. The developer can only access the funds after completing certain project stages, ensuring the buyer's money is safe until the property is delivered. Developers cannot withdraw money from the escrow account freely. They need to meet specific construction milestones before funds are released, which helps ensure that the project progresses as promised. Hence, the escrow account system increases transparency by monitoring the money flow between buyers and developers and reduces the risk of project delays or financial mismanagement.

If a real estate project is not registered with RERA or development work is done without a license, the developer can face a fine of AED 100,000 or even criminal penalties, including prison. This is in line with the Escrow Law (Law No. 8 of 2007), which governs escrow accounts for real estate projects in Dubai.

Conclusion

Escrow accounts ensure transparency and safeguard the real estate purchase process in Dubai. They help build trust and confidence in the real estate market and play a key role in supporting Dubai's financial system. Escrow accounts help developers follow real estate transaction rules and ensure the money is only used for its intended purpose.

Frequently Asked Questions

Q: Who has the ownership of funds in an escrow account?

A: The depositor holds the legal ownership of funds in an escrow account. However, once the funds are deposited into the escrow account, the control is transferred to the agent.

Q: Who can legally manage the escrow account?

A: Any bank or financial institution with a license from the Central Bank of the UAE to receive third-party deposits can manage the escrow account. The Real Estate Regulatory Agency must approve these institutions.

Q: What happens when an investor cancels their contract with the developer?

A: In such a case, an investor should go to the real estate court under that jurisdiction because the Dubai Land Department does not have the authority to cancel the contract.

Q: How can I contact the Real Estate Escrow Account Department?

A: You can email the Real Estate Escrow Account Department at trust.care@rera.gov.ae or visit http://www.dubailand.gov.ae/Default.aspx.