What Is An Escrow Account?

An escrow account acts like a secure safe in a bank, but is created for one specific building project. If you buy a property before construction, known as an off-plan purchase, your money is transferred into this account rather than going to the developer’s overall funds. This setup guarantees that your payment is reserved to construct the property you purchased.

Dubai's law leaves no room for doubt. Builders have to set up one of these escrow accounts and get it registered with the Dubai Land Department (DLD) before they start promoting or selling any off-plan properties. This isn't something they can skip. It's a requirement.

How the Real Estate Regulatory Agency Works

RERA, short for the Real Estate Regulatory Agency, works under the Dubai Land Department. It ensures developers stick to rules related to escrow accounts. If developers break these rules, RERA intervenes, takes action, and can issue large fines to uphold the rules and safeguard investors.

Not long ago, some developers tried to promote their off-plan projects without setting up a registered escrow account. This turned out to be a costly error. These rule-breakers now face fines starting at AED 500,000. If another mistake is made within a year, the fine can go up to AED 1,000,000. This harsh punishment aims to stop developers from cutting corners.

Besides fines, developers could also run into:

• A suspension or cancellation of their licenses.
• Limits on launching new projects.
• Getting blacklisted

Importance of Strict Standards

You might ask why escrow accounts are such a big deal. Here's the crux of the issue:

• Safety: Your money is safe. It's kept separate from the developer's other cash and isn't used for things unrelated to your project.
• Transparency: Every payment linked to your project is recorded and checked.
• Safeguard against Holdups or Flops: If your project hits a snag, the powers that be can give you back the money held in escrow, cutting down on your financial gamble.

Rules for Project Promotion and Marketing

Developers must complete all DLD and RERA registrations, including setting up and registering an escrow account, before they can advertise their projects online or on social media. Advertising without this step can result in fines, as mentioned earlier. So when you see a project being promoted without clear escrow registration, it should be a warning sign.

Advice for Buyers

If you consider buying an off-plan property in Dubai, do your research as much as possible and keep your eyes open! Things you should be aware of include the following:

• Ask the developer to confirm that their escrow account has been properly registered. Legitimate developers will have no qualms about providing you with this information.
• You can also double-check using the Dubai REST app or check the Dubai Land Department's website to see that the project has escrow account registration.
• Payments outside of Escrow: If a developer tells you to transfer money into any account other than an escrow account or to a personal account, do not comply.
• Go over the contracts: Ensure that your sales and purchase agreement states that all payments go into the escrow account. In the same manner, it needs to state how the money will be allocated.

Advice for Developers to Remain Compliant

Developers looking to market or sell an off-plan property need to ensure that they adhere to the following:

• Create Escrow accounts: Each project requires a separate escrow account, which must be registered prior to marketing or sales of the property.
• Payments to escrow: All payments from purchasers may only be paid into the escrow account and not the developer's company account. Payments may only be used on project costs.
• Communicate regularly: Information about your project and financial reports regarding escrow transactions must be communicated to RERA and DLD.
• Train Your Team: Educate your sales and marketing professionals about escrow accounts to avoid errors and to time promotions.

Source: Dubai Land Department