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Businesses back Dubai Escrow Accounts Law
Saudi Gazette
Published in The Saudi Gazette on 11 - 03 - 2008

The introduction in Dubai last year of the much-awaited Escrow (Trust) Account - a law that ensures that money is released only on the order of the Dubai Land Department (DLD) - is an important step toward improving both the confidence of real estate investors in Dubai and the emirate's reputation as a reliable real estate market.
The Escrow Account Law requires that five percent of the total value of each escrow account be retained by the Escrow Agent for one year after the date on which all units in the development are registered in the names of the relevant purchasers, after receipt of a certificate of completion in respect of the development. This gives buyers security and confidence that the developer will rectify any defects in construction that are discovered during that time.
Developers who register in compliance with the Escrow Account Law have to open specific bank accounts with an accredited bank for each separate real estate project that they launch. A written agreement between the escrow account and the developer, which must be registered at the DLD, forms the basis for the regulation of the account, as well as laying out the rights and obligations of both parties.
According to the new legislation, developers may no longer launch a project and collect deposits without a guarantee that the funds will be used correctly. All of the real estate problems that arise within the sector, including delays and lack of funds, that have eroded investor confidence in the market, will be closely examined by the real estate regulatory agency, a government body that falls under the DLD. Escrow accounts for each development must be managed by financial or banking institutions approved by the DLD (referred to as escrow agents).
Conditions that allow for the opening of escrow accounts by developers include the approval by DLD of both budgets and architectural drawings. The approval of the budget is to ensure that the project's expenditure has been properly worked out, and that development will not be forced to close down before the project is complete due to mismanagement of funds.
The fact that developers also have to submit architectural drawings for approval reassures investors that what they are buying is, in fact, what they have been promised and that it will not change substantially. A separate account must also be opened for each project, and these stringent conditions make for a more secure and stable market, where projects are only undertaken by reputable developers who will use the funds from purchasers only for construction of the project in question, and such a market is likely to attract more investors and confidence in the market grows.
The favorable rating of the real estate market arising from the implementation of this law has also contributed to the increase in the number and value of investments in the emirate. For this reason, most companies welcome the introduction of the law as they believe that it is necessary to stabilize the market, and will increase investor confidence. And the fact that there is a mechanism to cancel the registration of developers that fail to perform is another factor that increases investor confidence is.
The property sector has responded well to the law, and RERA has licensed over 300 real estate developers since its introduction in June last year, as developers who have not registered with the DLD or opened an escrow account are subject to large fines and imprisonment. In addition, these devlopers will not be allowed to take part in exhibitions or advertise their developments in the media. Fear of these penalties has resulted in an overwhelming response from developers.
Land transactions in Dubai in 2007 equaled AED175 billion, as compared with the AED62 billion seen the previous year, which indicates the level of confidence that the new law has resulted in. And many of the UAE's major developers, such as Tanmiyat Group, Schon Properties and Fakhruddin Properties, have opened escrow accounts for the projects that they have under development.
Ziyad Alghathbar, regional manager of Tanmiyat said “We see the introduction of the compulsory opening of escrow accounts , in accordance with the new UAE property laws, as a major step forward in the market, as we believe that such a step will protect the interests of both developers and investors. Property transactions have increased by over 170 percent within the last year. __


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