In recent years, the UAE has emerged as an ideal country for real estate investment. The popularity is backed by multiple reasons including governmental initiatives and law and order situations. Whether buyers opt for a villa or an off-plan project, the authorities took measures to safeguard the interest of both buyers and developers. One such initiative is the usage of escrow accounts for off-plan transactions. Buyers and developers are obligated to use an escrow account until all the instalments are paid and the property is handed over to the owner.
Here we have provided complete details on escrow accounts, how it works and what are its benefits.
Definition of an Escrow Account
An escrow account refers to a safekeeping account in which buyers’ finances are deposited until the instalments are paid. These accounts are managed by the government authorities until the project is handed over. Developers can only ask for a certain amount of finances from the escrow account depending on the conditions of escrow account management authorities.
How Escrow Account Works
An escrow account is established by real estate authorities like RERA Dubai and TAMM Abu Dhabi when a buyer signs an agreement to purchase an off-plan property. After registering the contract, the buyers are required to deposit the remaining amount in the escrow account as per the payment plan.
The developers are not permitted to use any amount from the account excluding finances required for sales, marketing, consultancy, construction and land payments. However, these funds are only provided on the completion of each construction phase and the payment is released to the project consultant and contractor.
Apart from these conditions, the developer can ask for the finances from the account as per the terms and conditions mentioned by the regulatory authority.
How to Set up an Escrow Account
The developer requested the concerned authority to activate an escrow account for an off-plan project. The process of opening an account is different in every Emirate.
To elaborate on the process, here we have mentioned the steps to open an escrow account in Dubai.
- Log in to the “Oqood” portal and select “Escrow Account Link”.
- Choose the required service and submit the application. Once the application is submitted, it will be directly transferred to the account trustee.
- The trustee will scrutinise the application, upload the documents and forward it to the TAS system.
- The escrow account department will verify and either reject or approve the application. In case of approval, the system will be updated automatically.
The only document required to process the application is the project’s payment plan. However, prior to submitting an application, developers are required to fulfil the criteria mentioned by DLD Dubai.
Remember that this process is only valid for developers in Dubai, the developers in other Emirates should cater to the process mentioned on the website of land authorities.
Why Real Estate Escrow Account is Necessary
There are multiple checklist for purchasing an off-plan property in Dubai and other Emirates, but worrying about transactions is not on the list. For this purpose, a secured escrow account is present.
Here are some other benefits of using an escrow account when purchasing an off-plan property in the UAE.
Protection of Rights
Escrow serves as a third-party secured account which manages and withholds funds until the transaction is completed. That said, with an escrow account no one holds funds and protects the rights of both parties, making the transaction process smooth.
Secured Transaction Process
When buying an off-plan property, buyers are required to deposit a down payment and monthly instalments to confirm the sale. Depositing these funds in an escrow account assures the developer that the buyer has enough finances to pay the total amount making the transaction secure for both.
Assurance of Payment
Since the escrow account is managed by a third party, the chances of any financial discrepancies are excluded. Moreover, both parties are assured that their finances are secured and can be reverted in case of a Sales and Purchase Agreement (SPA) breach.
Legal Track Record
The escrow account is obligated by law to provide a legal record of instalments paid by the buyer. That said, this legal record can be later used in legal matters as proof of finances.
This was all about the escrow account. The governmental initiative of escrow accounts in the UAE is to secure the off-plan property purchase. This adds another reason to invest in the country’s real estate. If you are also interested in availing the benefits of real estate investment in the UAE, browse through these properties for sale in the UAE and find an appropriate unit to invest in.
Stay tuned to dubizzle’s property blog for more information on escrow account interest rates.
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