Dubai is highly popular when it comes to real estate investments. Ever wondered how the real estate transactions channel so smoothly in a metropolitan city? Launched by the Dubai Land Department, the Escrow Account is the key to safe financial transactions in the realm of Dubai Real Estate.
Here is the complete guide to what an escrow is, how to set up an Escrow account in Dubai, its uses, benefits and associated risks.
- What does an Escrow Account Mean?
- A Brief on How the Account Works
- Steps To Create an Escrow Account in Dubai For Off-Plan Projects
- Benefits of Escrow Account in Dubai
- Ways to Prevent Escrow Fraud
- FAQs
What does an Escrow Account Mean?
The general escrow meaning is a deed or bond in the care of a neutral third party. An escrow bank account holds a buyer’s or renter’s money during property transactions.
Escrow accounts in Dubai are mostly established for off-plan projects between the real estate developer and the buyer. Besides, the escrow account is also used for rental transactions and purchasing villas.
A Brief on How the Account Works
Let’s see how the escrow bank account works:
- The escrow account is managed by a third party. The Real Estate Regulatory Authority, a department of the Dubai Land Department (DLD) manages the activation of escrow accounts.
- The bank operates as an escrow agent and keeps a check on the buyer and property developer.
- The escrow agreement highlights the clauses of payments, withdrawals and actions in case of a breach of contract.
- Once the request has been approved by the DLD, the buyer submits the down payment.
- Instalments are directly deposited in the escrow bank account as per the payment plan.
- The seller or developer is not allowed to withdraw money from an escrow account before the project is delivered.
- However, small sums of money, as highlighted in the agreement, can be withdrawn for necessary purposes. For instance, a developer can request money for construction material payments and marketing campaigns after the construction phases have been completed.
Steps To Create an Escrow Account in Dubai For Off-Plan Projects
A real estate developer has to send an escrow account opening request to RERA Dubai once the buyer signs the contract. Let’s have a brief overview of the step-by-step process of requesting an escrow account in Dubai for off-plan projects:
Step 1: Head on to the Oqood Portal Service of the Dubai Land Department and choose the ‘provisional procedures service’.
Step 2: Choose a property, fill out the form, and attach the required documents. The only document required is the project payment plan.
Step 3: Choose a suitable payment procedure.
Step 4: Click on the submit button.
Step 5: The request will be reviewed in detail by the account trustee. It will then be forwarded to the Escrow Account Department.
Step 6: The Escrow Authority would update the request as approved or disapproved depending on the fulfilment of service terms.Step 7: Upon mutual agreement, the buyer has to submit a pre-decided amount as a down payment.
Benefits of Escrow Account in Dubai
An escrow account in Dubai offers numerous benefits for both buyers and sellers. Here’s how:
Stress-Free Transactions
With the Escrow account, both the real estate developer and the buyer can have stress-free transactions. An escrow bank account acts as an intermediary that collects the payments from buyers and safely holds them until the completion of the project. The agent only disburses small amounts for necessary purposes to developers, as mentioned in the agreement.
Safe and Secure
The buyer is required to submit a down payment and then the necessary instalments as per the project plan. This helps to ensure adequate funds in the account to safely carry out the property development process.
Escrow Account Laws
RERA Dubai makes sure to modify and implement laws to safeguard property rights. Escrow accounts abide by Dubai Laws. It provides regular proof of payments to the buyer. In case of any legal issue, one can easily use the proof of payment.
Payment Guarantee
The escrow agreement guarantees financial transactions. Moreover, there is no need to worry about the funds being misused as the bank safeguards your funds.
Easy Transactions
Handling transactions involving multiple stakeholders can be a worrisome practice. Escrow simplifies this process by providing an all-in-one solution to manage complex transactions.
Associated Risks
Although escrow accounts provide a secure transactional environment, they are open to potential challenges and pitfalls. Acting as intermediaries, they safeguard funds or assets until specific conditions are fulfilled, exposing them to inherent risks and possible fraudulent activities.
Potential Hazards
One significant risk associated with escrow accounts is the potential misuse of funds. For example, insurance brokers are mandated to establish dedicated escrow accounts to safeguard client assets and funds.
These accounts are structured to ensure transparency of insurance funds and protect homeowners’ insurance policyholders. However, improper management of these accounts can lead to exploitation for illicit activities such as money laundering.
Regulatory frameworks mandate that escrow accounts be solely utilised to deposit premiums and disburse payments to third parties to mitigate these risks. Strict adherence to these regulations is essential in preventing the misuse of escrow accounts.
Potential Fraudulent Practices
Despite stringent security protocols, escrow services remain susceptible to fraudulent activities. Scammers frequently impersonate legitimate escrow agents and services, utilising the names of reputable firms to deceive individuals. They advertise enticing offers on popular online platforms and manipulate narratives to exploit emotions.
Additionally, these fraudsters craft counterfeit websites mirroring authentic ones. Their objective is to persuade victims of the seller’s credibility, ultimately resulting in financial losses for unsuspecting individuals.
Ways to Prevent Escrow Fraud
To safeguard against escrow fraud, stay vigilant and familiarise yourself with how escrow services operate. Conduct thorough research on both parties involved and suggest alternative options or reputable escrow services.
In Dubai, the Dubai Financial Services Authority (DFSA) offers directions on scam prevention. They advise verifying a person’s regulatory status and location before engaging in transactions and conducting business with trusted entities. It’s important to exercise caution with unsolicited communications and seek independent professional advice before committing to any investment or transaction.
Furthermore, the DFSA cautions against false claims made by fraudulent escrow services, such as Hershel Escrow, which falsely asserted DIFC location and demanded all escrows were deposited in a “DFSA-insured bank.”
FAQs
– Submit a request on the Oqood portal.
– Attach the project payment plan.
– Pay the necessary fees.
– Wait for approval from the Escrow Account Department.
– Submit the down payment.
– Pay instalments as per the project plan.
Money can only be withdrawn by the real estate developer for necessary purposes such as land payments, construction material payments, and sales or marketing-related payments.
A bank holds escrow payments until the property is constructed completely and safely handed over to the buyer.
It is a third-party account managed by banks in Dubai. The escrow agent acts as an intermediary to safeguard funds and ensure stress-free transactions.
Dubai Land Department is committed to providing the best services to the residents of Dubai. Among those, one such service is the activation and management of an escrow account. An escrow account offers guaranteed and safe transactions.
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