All You Need to Know about Escrow Accounts in Dubai

Over the past several decades, Dubai has established itself as the ultimate real estate destination of the world. With luxurious properties of varying units built by top-rated property developers, people from around the globe eye this magnificent city for real estate excellence.

So naturally, high-value transactions by investors are abundant in this city. Despite this, Dubai witnesses smooth and secured sales and purchases of real estate units daily. A major key to this is the presence of escrow accounts that have played a prime role in strengthening the financial infrastructure of the city.

But what exactly is an escrow account and how does it help concerned parties to fulfill their transactional obligations? How does it work? What are the benefits of having an escrow account? How can you set up an escrow account? If you are looking for the answers to all these, you have landed at the right place.

What is an Escrow Account in Dubai?

An escrow account is essentially a safekeeping account in which the money is deposited and is released only when a buyer and the other party (a seller) agree on the fulfillment of a specific condition. For instance, it can be released at the completion of a property project.

In the real estate market of Dubai, an escrow account functions as a safe middleman. A buyer deposits their down payment into a bank account. But, to ensure the investment is safe and secure and that there is no faulty transaction or fraudulent activity, the seller (the real estate company) only receives the payment after the completion of the agreed phase of the project or hands over it to the buyer.

The conditions for an escrow account are outlined beforehand and the operational conditions of these accounts are scrutinized by the regulatory authorities of each Emirate of the UAE.

How Does an Escrow Account Work?

Recognized real estate authorities such as the Real Estate Regulatory Authority (RERA) help in establishing escrow accounts whenever a buyer signs an agreement to purchase an off-plan property.

Once the sales contract is registered, the buyer has to deposit the remaining amount in the escrow account as per the payment plan set earlier. The deposited fund can only be used by the developer for the completion and development of the property. This can include construction, marketing, sales, consultancy, and any land payments, among others.

The funds are only provided at the completion of a specified phase of construction. However, based on the terms and conditions set by the regulatory authority, a developer can request funds for other purposes as well.

Why is an Escrow Account Required for Real Estate?

The potential of Dubai is evergreen. Whether you want to invest in residential properties to live the ultimate luxurious urban life or want to rent it out owing to the high rental yields of the city, investing in Dubai properties is a wise move. The same is true for commercial properties as well in the city.

But, when you are dealing with transactions of high-end value, you want every possible layer of security around it. After all, this is not a trip to a grocery store where you can afford to lose out on what you purchase. You don’t invest in real estate every day. So, securing it with the tightest blanket of safety is paramount. This is where escrow accounts come to your aid.

A closer look into the many benefits of an escrow account will help you understand its role further. Here are some of the most prominent advantages of having an escrow account in Dubai.

Improved Security of Transactions

Off-plan properties are smart investments because of their high potential for capital appreciation and options for personalization. However, it can be daunting to invest in properties that are yet not completely ready. An escrow account takes care of this problem by creating a two-way street of security.

By gathering funds in a safekeeping account, it shows sellers that the buyer has enough finance to make full payment at the end of the project. On the other hand, it assures the buyer that the project will be completed since the seller gets the payment after the completion of the project.

Legal Track Record

With the help of an escrow account, one can maintain a legal record of the installments paid by a buyer. As such, there is valid and official proof of exchange of finance.

This means both buyers and sellers are protected from fraudulent activities and none of them are cheated. The transactional records act as safety measures.

Full Payment Assurance

Because an escrow account is managed by a third party, both the buyer and the seller can rest assured that their investment/fund is safe and secure. This eliminates any chances of financial discrepancies.

As the finance is secured, both parties are assured of the safety of their money. In case of a breach of a contract of the Sales and Purchase Agreement (SPA), both parties can be reverted.

Complete Transparency

Since an escrow account defines all the conditions for the release of funds, both the seller and buyer can have clarity of the obligations and expectations involved, thereby fostering a climate of transparency between the two.

An escrow account helps in strengthening the trust between the parties involved. As neither party holds the funds, the transaction process is at an even field.

Streamlined Transactions

By managing fund disbursement, escrow accounts help in taking care of transactions of a highly complex nature. In the process, an immense amount of time, energy, and effort is saved.

This comes in handy when there are multiple parties involved. By streamlining transactions, escrow accounts have become the benchmark of smooth operations in the real estate market of Dubai.

How to Setup an Escrow Account?

Setting up an escrow account in Dubai is a hassle-free task. To activate an escrow account for an off-plan property, the real estate developer needs to contact the registered authority. One needs to go through the following steps to set up an escrow account.

• Start by logging into the Oqood portal and choosing the link to the escrow account.
• Proceed to select the required service and submit your application.
• After this, the application will be transferred to the trustee account which will verify its capability.
• The trustee account will then upload and send documents of findings through the account system of escrow.
• The department of escrow account will then audit the capability and based on their study, will either approve or reject the application.
• If the application is approved, it will automatically get updated in the system.

The real estate developer has to open a separate account for each of its off-plan projects. Furthermore, the only document that is required during the process is the payment plan for the property in question.

To Conclude

Off-plan properties are highly favored in a city like Dubai, which has a plethora of luxury and high-end real estate gems. The scope of profitability and affordability of such properties attract people to invest in them. But, it is quite understandable if someone is skeptical about investing in a property that is yet to be completed.

Thankfully, with the presence of an escrow account, you can rest assured that your investment is secured and safe. This is because once you deposit your money in an escrow account, the sellers will only receive it when they complete the project as per the agreement or hand it over to you.

Escrow accounts have played a massive role in enhancing the confidence of investors as they layer their investment with water-tight security, ensuring fair play on the part of all the parties involved.