What is an Escrow Account?
An escrow account is that which acts as a third-party funding medium wherein the merchant receives access to the transferred money (by the buyer), once an escrow agreement has been fulfilled. If the agreement is not fulfilled by the merchant, the fund is then returned to the buyer.
In terms of the UAE real estate market, an escrow account serves a very specific function. The developers of the various projects have to open different escrow accounts for every project, as per the Escrow Account Law in UAE.
- The government has designated certain banks that are allowed to deal with escrow accounts for real estate.
- The financers and the off-plan buyers pay all the funds to the designated project escrow accounts.
- As the off-plan projects have payments in installments, the developers of off-plan projects get paid when they submit a progress certificate.
- After the registration of a project, the Dubai Land Department has to approve the Developer’s project. This includes budgets and architectural drawings.
- A 5% of the total value of the escrow account is withheld for 1 year to ensure coverage of defects in the property post-handover.
- In case a developer fails to perform, the law also has a mechanism to cancel the registration of the developer.
Opening an Escrow account has a lot of benefits, especially for buyers and investors. This law primarily is in the best interests of the real estate investors.
- This law ensures that the developers can only access the funds once the promised development phase has been reached.
- Concerned authorities like RERA can keep a close watch on the progress and funding of every project with the help of designated escrow accounts.
- While delays in delivering projects are quite common, having controlled access to funding helps to speed up the process.
- It also ensures all your funding is being used wisely, and to construct and deliver the said project.
When purchasing an off-plan property in the UAE, always ensure that you get all the important and required details about the escrow account of the developer to which you will be making all the payments. The designated bank acts as a trustee to you, the buyer, as well as the developer. They are responsible for ensuring that your funds are put into good use, and only for the construction of the project. UAE has witnessed a massive growth in the real estate market, and the Escrow Account Law has aided the process.
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