Dubai: 3 Real estate developers fined Dhs1.5m for escrow account violations
Three real estate developers in Dubai have been handed a hefty fine of Dhs500,000 each, for promoting and marketing real estate projects, without completing the required registration procedures for off-plan projects.
The violators were fined by the Dubai Land Department (DLD) in accordance with Law No. 8 of 2007 on Real Estate Development Escrow Accounts.
Ali Abdullah Al Ali, director of the Real Estate Control Department at RERA at DLD said, “The Real Estate Control Department continuously monitors the market in Dubai to ensure that all real estate companies comply with the laws and regulations governing real estate activities.”
The escrow account is a bank account designated for a real estate project, where the funds collected from buyers of off-plan units are deposited.
This account aims to regulate the construction process of the units sold, ensuring the protection of investor rights.
Ali added, “We urge all to adhere to these laws and regulations to avoid any legal action. By doing so, we can create a secure investment environment. Investors must verify that off-plan projects are licensed and registered with an escrow account by checking through the Dubai REST application of the Dubai Land Department, and should not make any payments outside the project’s escrow account.”
Understanding the need for an escrow account for off-plan property
What is an Escrow Account?
An escrow account is a secure account where buyers’ funds are deposited until all payments are completed. Managed by government authorities, it ensures that developers can only access funds under specific conditions until the property is handed over to the buyer.
How does an escrow account work?
When purchasing an off-plan property, an escrow account is created by real estate authorities such as RERA Dubai or TAMM Abu Dhabi.
After signing the purchase agreement, buyers deposit their payments into the escrow account according to the payment plan. Developers can only use these funds for sales, marketing, consultancy, construction, and land payments, and only as each construction phase is completed.
Why is a real estate escrow account necessary?
- Protection of Rights: Ensures that funds are securely managed by a third party, protecting the rights of both buyers and sellers.
- Secured Transaction Process: Assures developers that buyers have sufficient funds, making the transaction secure.
- Assurance of Payment: Managed by a third party, it minimises financial discrepancies and ensures that funds are safe, even in the event of a Sales and Purchase Agreement (SPA) breach.
What are the benefits of using an escrow account?
- Secured Transactions: Ensures that all payments are safely deposited and managed, providing security for both parties.
- Assurance of Payment: Guarantees that finances are protected, reducing the risk of financial issues during the transaction.
Is the process different in other emirates?
Yes, while the general principle of using escrow accounts is consistent, the specific process for setting up an escrow account may vary.
Developers should refer to the guidelines provided by the land authorities in their respective emirates.
How to set up an escrow account?
For Dubai:
- Log in to the “Oqood” portal and select “Escrow Account Link.”
- Choose the required service and submit the application.
- The account trustee reviews the application, uploads the necessary documents, and forwards it to the TAS system.
- The escrow account department verifies and either approves or rejects the application. If approved, the system updates automatically.
Developers in other Emirates should follow the process specified by their respective land authorities.