All You Need to Know about Escrow Accounts in Dubai

Over the past several decades, Dubai has established itself as the ultimate real estate destination in the world. With luxurious properties of varying units built by top-rated property developers, people from around the globe eye this magnificent city for real estate excellence.

So naturally, high-value transactions by investors are abundant in this city. Despite this, Dubai witnesses smooth and secure sales and purchases of real estate units daily. A major key to this is the presence of escrow accounts that have played a prime role in strengthening the financial infrastructure of the city.

But what exactly is an escrow account, and how does it help concerned parties to fulfil their transactional obligations? How does it work? What are the benefits of having an escrow account? How can you set up an escrow account? If you are looking for the answers to all these, you have landed at the right place.

What is an Escrow Account in Dubai?

An escrow account is essentially a safekeeping account in which the money is deposited and is released only when a buyer and the other party (a seller) agree on the fulfilment of a specific condition. For instance, it can be released at the completion of a property project.

In the real estate market of Dubai, an escrow account functions as a safe middleman. A buyer deposits their down payment into a bank account. But, to ensure the investment is safe and secure and that there is no faulty transaction or fraudulent activity, the seller (the real estate company) only receives the payment after the completion of the agreed phase of the project or hands over it to the buyer.

The conditions for an escrow account are outlined beforehand, and the operational conditions of these accounts are scrutinised by the regulatory authorities of each emirate of the UAE.

How Does an Escrow Account Work? 

Recognised real estate authorities, such as the Real Estate Regulatory Authority (RERA), help in establishing escrow accounts whenever a buyer signs an agreement to purchase an off-plan property.

Once the sales contract is registered, the buyer has to deposit the remaining amount in the escrow account as per the payment plan set earlier. The deposited fund can only be used by the developer for the completion and development of the property. This can include construction, marketing, sales, consultancy, and any land payments, among others.

The funds are only provided at the completion of a specified phase of construction. However, based on the terms and conditions set by the regulatory authority, a developer can request funds for other purposes as well.

Why is an Escrow Account Required for Real Estate?

The potential of Dubai is evergreen. Whether you want to invest in luxury residential properties to live the ultimate urban life or want to rent them out owing to the high rental yields of the city, investing in Dubai properties is a wise move. The same is true for commercial properties as well in the city.

But when you are dealing with transactions of high-end value, you want every possible layer of security around it. After all, this is not a trip to a grocery store where you can afford to lose out on what you purchase. You don’t invest in real estate every day. So, securing it with the tightest blanket of safety is paramount. This is where escrow accounts come to your aid.

A closer look at the many benefits of an escrow account will help you understand its role further. Here are some of the most prominent advantages of having an escrow account in Dubai.

Improved Security of Transactions

Off-plan properties are smart investments because of their high potential for capital appreciation and options for personalisation. However, it can be daunting to invest in properties that are not yet completely ready. An escrow account takes care of this problem by creating a two-way street of security.

By gathering funds in a safekeeping account, it shows sellers that the buyer has enough finances to make a full payment at the end of the project. On the other hand, it assures the buyer that the project will be completed since the seller gets the payment after the completion of the project.

Legal Track Record

With the help of an escrow account, one can maintain a legal record of the instalments paid by a buyer. As such, there is valid and official proof of exchange of finance.

This means both buyers and sellers are protected from fraudulent activities, and neither of them is cheated. The transactional records act as safety measures.

Full Payment Assurance

Because an escrow account is managed by a third party, both the buyer and the seller can rest assured that their investment/fund is safe and secure. This eliminates any chances of financial discrepancies.

As the finance is secured, both parties are assured of the safety of their money. In case of a breach of the contract of the Sales and Purchase Agreement (SPA), both parties can be reverted.

Complete Transparency

Since an escrow account defines all the conditions for the release of funds, both the seller and buyer can have clarity of the obligations and expectations involved, thereby fostering a climate of transparency between the two.

An escrow account helps in strengthening the trust between the parties involved. As neither party holds the funds, the transaction process is on even ground.

Streamlined Transactions

By managing fund disbursement, escrow accounts help in taking care of transactions of a highly complex nature. In the process, an immense amount of time, energy, and effort is saved.

This comes in handy when there are multiple parties involved. By streamlining transactions, escrow accounts have become the benchmark of smooth operations in the real estate market of Dubai.

How to Set Up an Escrow Account?

Setting up an escrow account in Dubai is a hassle-free task. To activate an escrow account for an off-plan property, the real estate developer needs to contact the registered authority. One needs to go through the following steps to set up an escrow account.

• Start by logging into the Oqood portal and choosing the link to the escrow account.
• Proceed to select the required service and submit your application.
• After this, the application will be transferred to the trustee account, which will verify its capability.
• The trustee account will then upload and send documents of findings through the escrow account system.
• The department of escrow accounts will then audit the capability and, based on their study, will either approve or reject the application.
• If the application is approved, it will automatically get updated in the system.

The real estate developer has to open a separate account for each of its off-plan projects. Furthermore, the only document that is required during the process is the payment plan for the property in question.

To Conclude

Off-plan properties are highly favoured in a city like Dubai, which has a plethora of luxury and high-end real estate gems. The scope of profitability and affordability of such properties attracts people to invest in them. But it is quite understandable if someone is sceptical about investing in a property that is yet to be completed.

Thankfully, with the presence of an escrow account, you can rest assured that your investment is secured and safe. This is because once you deposit your money in an escrow account, the sellers will only receive it when they complete the project as per the agreement or hand it over to you.

Escrow accounts have played a massive role in enhancing the confidence of investors as they layer their investment with water-tight security, ensuring fair play on the part of all the parties involved.

FAQs

Are all developers in Dubai required to use escrow accounts?

No, not all developers in Dubai are required to use escrow accounts. These are needed by only those who are developing off-plan projects, as they are legally mandated to do so.

How do I know if my project has an escrow account?

To confirm if a project has an escrow account or not, you can check the Dubai Land Department's (DLD) REST app or contact the RERA. These tools and official bodies allow you to verify the registration of a project and make sure that the funds are being protected in a dedicated escrow account. This is done to protect the buyers' money. 

Can I get a refund from the escrow account if I cancel the purchase?

Yes, you can get a refund from an escrow account in the event you cancel a purchase in Dubai. However, the amount and process will depend on the specific circumstances and the reason for cancellation. 

If the project is cancelled or the developer defaults, the RERA will make sure a refund is made from the escrow account. But if you cancel without giving a valid reason, then you may forfeit a portion of your payment, as stated in the sales agreement. 

Who controls and audits escrow accounts in Dubai?

In Dubai, escrow accounts for off-plan projects are controlled and audited by the RERA. The accounts are opened with banks, which are approved by RERA, and the funds are released to developers only after the completion of construction milestones, which are verified by a RERA-approved consultant. 

Is an escrow account required for ready properties?

No, an escrow account is not necessarily required for ready properties, as they are mandatory only for off-plan projects. But an escrow account may be needed by a lender to help manage payments for property taxes or homeowner's insurance, irrespective of whether the property is off-plan or readymade. 

How does BNW Developments assist buyers with escrow account details?

At BNW Developments, our consultants work closely with the buyers and guide them in understanding the working mechanism of escrow accounts. We maintain transparency to give our buyers a clear picture of the funds they are investing in our projects.