Escrow Accounts in Dubai Real Estate: How They Work and Why They Matter

What is an Escrow Account?

Before delving into further details, let us answer the question, “What is an escrow account?” 

Simply defined, escrow accounts are safekeeping accounts in which an off-plan property buyer’s money is deposited into each time they pay an installment due for the property.

These accounts are regulated by the DLD (Dubai Land Department) and RERA (Real Estate Regulatory Authority) and must be used until the project has been completed and handed over by the developer. 

Think of an escrow account as a middleman between the property buyer and the developer. The property developer can only access funds from the escrow account once they have achieved certain milestones in the construction process - ensuring both the protection of buyer's funds and that the money can only be used inline with the agreement between both parties.

The functionality of Escrow Accounts

Now that you have understood an escrow account’s meaning, it is important to understand how it functions. 

Escrow accounts are established by RERA Dubai or TAMM Abu Dhabi (if you are buying property in Abu Dhabi) when a property buyer signs an agreement with a developer, like Emaar Properties, to purchase an off-plan property. Once the contract has been registered, the buyer must deposit the mentioned amount of money in the escrow account (as per the payment plan agreed upon by both parties). 

Barring finances pertaining to sales, consultancy, construction, marketing, and land payments, the developer is strictly banned from using money from the escrow account. Bear in mind that these funds will only be provided from the escrow accounts to the developer upon the completion of different construction phases. Only upon the completion of the phase, will the amount be released to the contractor or the project consultant. 

If the developer requires finances for purposes other than the aforementioned ones, they will have to ensure that they are complying with the terms and conditions of the contract mentioned by the regulatory authority (in this case, RERA) before asking for further finances. 

Regulatory requirements and legal framework

The DLD has enforced important regulations for escrow accounts in Dubai, which include:

• Law No. 7 of 2007 Concerning Land Registration in Dubai (as amended): This is a legal framework for land registration and includes several provisions pertaining to escrow accounts. 

• Law No. 13 of 2017 Regulating the Real Estate Sector in the Emirates of Dubai (as amended): This legal framework regulates the real estate sector, which includes clauses pertaining to the mandatory use of escrow accounts for off-plan properties. 

Off-plan property developers who receive money from buyers are required to abide by escrow accounts law. Any money given by a buyer for an off-plan property will be deposited into the developer’s escrow account - but will not be accessed by the developer unless certain conditions are met.

Importance of Escrow Accounts in ensuring buyer and investor protection

Escrow accounts play an integral part in safeguarding the investments of property buyers in Dubai, as they provide an important layer of protection and transparency to each party that is involved in the transaction.

An escrow account also minimizes the possibility of fraud and scams by the developer by not releasing the funds until the agreed-upon terms and conditions of the contract have been met. In case of project delays, cancellation, or even bankruptcy filings by the developer, the buyer’s investment will not be entirely lost. 

How to set up an Escrow Account?

Many off-plan property buyers often have the question, “How to set up an escrow account?” 

Luckily, the process is relatively straightforward and can be completed in a few steps. 

Before understanding how to set up an escrow account, it is important to note that the developer must create a new escrow account for each off-plan property - and the rules may differ from Emirate to Emirate. 

In Dubai, a real estate developer can set up an escrow account through the following steps:

1. Log onto the Oqood portal and select the ‘Escrow Account Link’ option. 

2. Select the required service and submit your application. Once the application has been submitted, it will be directly transferred to the account trustee. 

3. The trustee will verify the application, upload the necessary documents, and forward it to the TAS system. 

4. The escrow account department will either verify and approve the application or reject it. Once done, the result will be automatically updated within the system. 

Bear in mind that the only document needed for processing the application is the project’s payment plan. Additionally, this process can only be followed by developers wanting to establish an escrow account in Dubai.  

Benefits and transparency in real estate transactions

There are several benefits to setting up escrow accounts in Dubai, some of them being: 

• Higher security: Real estate investments are significant, and in this case, your investment will not be misused or stolen from you because it is safeguarded under Dubai property law. 

• Higher transparency: Every escrow account’s agreement outlines detailed terms and conditions about the release of funds. Thereby, all involved parties understand their obligations and expectations, maintaining transparency. 

• Record of proceedings: Due to the implementation of the Escrow Account Law, any and all escrow-related transactions are recorded by the escrow trustees - leaving little space for defaulting payments or fraud. 

• Straightforward transactions: Escrow services have been specially designed to handle complicated transactions - which is very helpful in situations such as complex conditions or the involvement of multiple parties. 

Key considerations for investors and developers

Before investing in an off-plan property and setting up an escrow account, investors must conduct due diligence and verify factors such as:

• The developer’s reputation 

• Past projects by the developer 

• Financial records of the developer 

• Reviews and testimonials by investors/homebuyers of the developer’s previous projects 

The developer must also ensure that the investor has the appropriate funds for the property and will not default on any payments. 

Whether you want to understand further about escrow accounts in Dubai or buy an off-plan property, find the answers, processes, and solutions to all your real estate queries with Engel & Völkers Dubai at +971 4 422 3500.