Escrow Accounts and Off-Plan Property in Dubai: Where the Money Goes

On the payment schedule for a new off-plan apartment in Dubai, the account to be paid is not, as a rule, the developer’s own. It bears the name of the project, and it is held by a bank. Most buyers transfer the first instalment without giving the detail much thought. That single line on the invoice, however, is the work of a law now nearly twenty years old, and it goes a long way towards explaining how a market can ask buyers to commit to homes that do not yet exist.

 

Why Dubai Wrote the Rule

The city’s first great property boom began in the early 2000s, and for several years developers were largely free to spend buyers’ deposits as they saw fit. Reviewing the period in 2010, the Dubai law firm Hadef & Partners described those years as “essentially unregulated” where purchasers’ money was concerned. Some projects ran short of funds because payments had gone towards costs that had little to do with the building in question.

Law No. 8 of 2007, issued by His Highness Sheikh Mohammed bin Rashid Al Maktoum, set out to close that gap. A year later came a companion law creating the Interim Real Property Register, better known by the name of its online system, Oqood. Together, the two still form the backbone of off-plan buying in Dubai.

 

The Conditions of Sale

The protection starts well ahead of the first payment. To open an escrow account, a developer must produce the title deed for the land, approved designs, a costed financial statement and an undertaking to begin construction. Advertising needs the Dubai Land Department’s written approval. A company that fails, without good reason, to start work within six months of being permitted to sell may be struck off the official register of developers altogether.

The 2008 law adds a second safeguard. Every off-plan sale must be entered in the interim register, and one that is not is void. So, too, is any contract signed before the land has been taken into possession and the necessary approvals obtained. Oqood is therefore far from a formality: until the title deed is issued at handover, it is the legal record of the buyer’s interest.

 

How the Account Works

Each project sold off-plan must have an escrow account of its own, held in the project’s name and, in the words of the law, “dedicated exclusively” to building it. It is managed by a trustee, which must be a bank or financial institution licensed by the Central Bank of the UAE and approved by the Real Estate Regulatory Agency. Buyers’ instalments are paid into it, and so is any construction loan raised against the project.

Money leaves only as the work advances. The trustee’s engineer checks the stage reached on site, and payments go to contractors and consultants rather than to the company at large. Marketing is tightly capped: according to the Dubai Land Department, no more than 5 per cent of total sales may be spent on it from the account.

Nor is the trustee left to police itself. It must send the Department regular statements of what has come in and gone out, and the Department may appoint its own auditors to examine them at any time. Buyers, for their part, are entitled to see and copy the records of their own payments, a right worth knowing about should questions ever arise.

The developer’s own creditors cannot touch these funds, which belong to the project rather than to the business that is building it. And once the building is finished, the trustee holds back 5 per cent of the account’s total value, releasing it only a year after the homes have passed into their buyers’ names. That retention gives the developer good reason to put right whatever defects the first year brings to light.

 

When Things Go Wrong

The law was written with failure in mind. Should a project stall, the trustee, after consulting the Dubai Land Department, must act to protect depositors, either by seeing the building through or by returning their money. If the regulator formally cancels a project, buyers are to be repaid within 60 days of the decision. Failing that, the matter passes to the Department’s liquidation section, and from there to the courts. A buyer who simply wishes to withdraw, by contrast, cannot ask the Department to end the contract; that is a matter for the real estate courts, with the Department’s role confined to mediation.

The penalties are not trivial. Anyone found to have misappropriated project funds, or knowingly to have sold units in a fraudulent scheme, faces imprisonment, a fine of at least AED 100,000, or both.

Protection, however, runs in both directions. Since an amendment in 2017, a developer whose buyer stops paying may, after a 30-day notice served through the Department, terminate the contract and keep part of what has been paid. The share depends on progress: above 60 per cent completion, up to 40 per cent of the unit’s value. Below that threshold, provided work has begun on site, the figure falls to 25 per cent. Once a building passes 80 per cent, the developer may instead hold the buyer to the contract and pursue the balance, or ask the Department to sell the unit at auction. Where work never began, through no fault of the developer, up to 30 per cent of the sums paid may be kept. A buyer who expects to rely on a sale or a refinancing to meet a later instalment would do well to read those clauses closely.

 

What a Careful Buyer Checks

Most of the necessary checks can be made from  your phone. The Dubai Land Department’s Dubai REST app shows, for each registered off-plan project, the escrow account number, the completion percentage and photographs from site. Because instalments are tied to progress, a buyer may also ask the Department for the current completion figure ahead of any payment, and may commission an independent audit report on the unit for AED 15,000.

Above all, money should go only into the escrow account named in the registered contract, and any request to pay elsewhere deserves suspicion. For those who handle such matters through a family office or adviser, the essential papers are few: the registration certificate, the escrow details, the payment schedule and the termination clauses. Our guide to the full process of buying off-plan in Dubai sets out the fees and paperwork in more detail, and anyone who may later wish to sell before completion should understand the assignment terms from the outset.

 

The Long View

Escrow matters most on the longest timelines. At Four Seasons Private Residences DIFC, for instance, handover is scheduled for the final quarter of 2028. For several years, then, a buyer’s commitment rests on a building that exists chiefly in drawings, and on the account that pays for it. The escrow account cannot turn a poor project into a good one; that judgement still rests on the design, the location and the developer’s record. What it can do is ensure that money paid for a particular building goes into that building, and no other.