UAE. Last year saw the introduction of the much-awaited Escrow (Trust)
Account Law (Law No 8 of 2007) in Dubai, a law that ensures that money
is released only on the order of the Dubai Land Department (DLD), and
an important step towards improving both the confidence of real estate
investors in Dubai and the emirate's reputation as a reliable real
estate market.
This law was passed at the behest of HH Sheikh Mohammad Bin Rashid
Al Maktoum, Vice President and Prime Minister of the UAE and Ruler of
Dubai.
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 (RERA), 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 favourable 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 Law No 8, as they believe that it
is necessary to stabilise 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 Escrow Account Law requires that 5% 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.
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 equalled AED 175 billion, as
compared with the AED 62 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, Schön
Properties and Fakhruddin Properties, have opened escrow accounts for
the projects that they have under development.
Ziyad Alghathbar, Reional 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% within the last year, and we are confident that the
improved security and stability resulting from the implementation of
the Escrow Account Law, and its obvious beneficial value to developers
and investors alike, will see this trend increasing even more over the
coming months.”
Tanmiyat’s opening of escrow accounts for the Living Legends and
Commercial Heights projects, among others, is a perfect illustration of
this outlook, and it has resulted in the commencement of excavation for
both the Forum and the Exchange, two of the three towers that make up
the company’s Commercial Heights development, which is situated in the
heart of Dubai’s Business Bay. Construction is due to start soon on the
third tower, the Court very soon, and construction is also due to
commence within the coming days on their prestigious Living Legends
project in DubaiLand.
While real estate developers in general have responded well to the
introduction of the Escrow Account Law, and have moved to comply with
it as soon as possible, the responsibility for complying with this law
does not lie only with the developers; buyers must also do their share
to make sure that the law is adhered to. For instance, buyers should
research the development as well as the developer, to ensure that they
are comfortable with whom they are doing business and that they
understand the investment that they are making.
And once the buyer has decided to buy into a particular project,
their payments must be paid into the relevant development escrow
account, and if a development is mortgaged to obtain a loan, the loan
amount must also be paid into the relevant escrow account. In addition
to this, buyers are required to register their purchase with the DLD so
that they can enjoy the full benefits of the law.
The combined effect of the implementation of the Escrow Account Law
and the appointment of a reputable and approved Escrow Agent is a way
in which buyers can be assured of greater transparency in all property
deals undertaken with registered developers, approved projects and
licensed trust agents for making that research easier to complete and
easier to draw comparisons between projects and developers. This, in
turn, will ensure that any problems that have occurred in the UAE real
estate market will be significantly reduced, increasing the confidence
of both developers and investors, and making the already impressive
real estate market even more attractive to potential participators.
News 
