Dubai issues escrow account law for property sector

[toulouse-lautrec]

trying to post the link but the software does not want me to (only after you have made 20 posts..) - maybe the admin of this board wants to rethink these constraints as i doubt they will help to make this board more pular

 

[Investor___]

Dubai issues escrow account law for property sector
By Robert Ditcham, Staff Reporter
Published: July 25, 2007, 16:44


Dubai: Payments towards ‘off plan’ property purchases in Dubai will be protected in specially managed accounts after a law was issued this week by Dubai Government.

The eagerly-awaited ‘Law No. 8 concerning Guarantee Accounts of Real Estate Development in the Emirate of Dubai’ has now come into effect after being published in the Official Gazette.

The law applies to any company or individual receiving ‘off plan’ payments for property that is not yet completed. However, at this early stage only properties that are launched from this week onwards will be subject to the law, according to Dubai Land Department.


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Developers launching new residential or commercial multi-storey buildings and compounds will now have to apply to Dubai Land Department to open a guarantee account, which are known more commonly as trust or escrow accounts.

To do this they must submit certain documents, including the title deed of the plot being developed, approved architectural designs and layouts, a letter of approval from a master developer and a trade license.

If these papers are in order, the trust account will be opened according to a written agreement between a developer and the Land Department.

Money paid by buyers or financiers towards properties will then be deposited in a special account opened under the name of the property development in an approved bank.

Dubai Islamic Bank (DIB) on Wednesday acted swiftly to launch the Al Islami Escrow Account, the first such service in the region designed specifically for real estate developers.

After setting up the account, the issue of how they are managed and when money is released becomes crucial.

The law states that developers must apply to the trust account manager to release money from the account. The developer must first produce a certificate from a consultant working on the property that an agreed stage of construction has been reached.

The trust account manager then must inform the Land Department about the sums being released to the developer.

Even when a project is complete the developer will still not be given access to all the payments. The Land Department will keep 10 per cent of the project value for one year after completion until all units are registered in the names of buyers and title deeds are issued in their names.

Fines of no less than Dh200,000 will be handed out if certain requirements within the law are not kept.

FULL TEXT OF THE LAW

LAW NO. (8)

CONCERNING GUARANTEE ACCOUNTS OF REAL ESTATE DEVELOPMENTS IN THE EMIRATE OF DUBAI

We, Mohammad Bin Rashid Al Maktoum - Ruler of Emirate of Dubai

After perusal of:

- United Arab Emirates Federal Law no. (5) of 1985, as amended concerning Civil Transactions,

- Law no. (7) of 2006 concerning Real Estate Registration in the Emirate of Dubai,

- Rule no. (3) of 2006 concerning allocation of areas where foreigners can own properties in the Emirate of Dubai,

Do hereby promulgate the following law:

Chapter 1
Definitions & General Provisions

Article (1)

This Law may be cited as (Law no. ( ) of 2006 concerning Guarantee Accounts of Real Estate Developments in the Emirate of Dubai.

Definitions

Article (2)

In implementation of the provisions of this Law, the following terms and phrases shall have the meanings appearing parallel thereto, unless otherwise provided by the context.

Emirate : Emirate of Dubai

Department: Department of Lands

President: President of the Department

Director: Director General of the Department

Register: Register prepared by the Department for registration of developers.

Guarantee Account: Guarantee account of a property development in which sums paid by buyers of units on the plan or by financiers of developments are deposited.

Concerned Authorities: concerned government or semi-government licensing authorities.

Developer: A natural or corporate person licensed to carry on property development business in the Emirate, including a main or minor developer.

Property Development: Projects involving construction of multi-storeyed buildings or compounds for residential or commercial purposes.

Property: Everything that is permanently fixed in its space and cannot be shifted without destruction or alteration in appearance.

Unit: A partitioned part of a property which a developer sells to third parties.

Article (3)

Provisions of this Law shall be applicable to a who sells units on the plan of the Emirate’s property developments that are not yet completed, whether under or in the process of construction, and who receives payments from buyers or financiers against such units before completion of the developments.

Article (4)

A special register known as (Register of Developers) shall be prepared at the Department to register names of developers licensed to carry on property development business in the Emirate. No developer may carry on such business in the Emirate unless being registered in the Register.

Article (5)

A developer shall not advertise in local or foreign media, or participate in local or foreigner exhibitions, for promotion of sale of units or properties on the plan or in the process of construction in the Emirate, until having obtained a written permit from the Department. The Director shall issue the necessary decisions to regulate the terms and conditions of advertising in media and participation in exhibitions.

Chapter 2
Establishing A Guarantee Account

Article (6)

Without prejudice to provisions of Article (3) of this Law, a developer wishing to sell units on the plan shall apply to the Department in order to open a guarantee account and shall enclose the following documents:

1- Trade license and certificate of registration of membership in Dubai Chamber of Commerce & Industry.
2 - Title deed of the plot intended for development.
3 - Letter of approval in relation to the development and issued by the main developer.
4 - Architectural designs and layouts approved by concerned authorities and the main developer.

5 - A balance sheet approved by the development’s consultant about sums payable to creditors of the development.
6 - Building permit issued by concerned authorities
7 - Copy of a sale contract between the developer and the buyer.

Article (7)

A guarantee account shall be established according to a written agreement between a developer and the Department through which sums paid by buyers of units on the plan, or paid by financiers, shall be deposited in a special account opened under the name of the property development in an approved bank in the Emirate.

The agreement shall determine the conditions of account management, the rights and obligations of contractual parties and other terms and obligations.

Chapter 3
Management of a Guarantee Account

Article (8)

The Department shall enter into a contract with an approved, experienced and qualified auditor to manage a guarantee account under its supervision. Spending from deposited sums shall be according to the conditions of contract and the provisions of this Law, and the guarantee account shall be governed by criteria of financial and accounting control that are in force in this regard.

Article (9)

Depositors or their representatives may examine their own accounting records and request copies thereof. The representative of official authorities may also examine the records as well as obtain copies thereof.

Article (10)

In the event that a developer mortgages a development to obtain a loan from financing establishments or companies he shall have to deposit the mortgage sum in the guarantee account. Disposal of a mortgage sum shall be according to provisions of this Law.

Article (11)

A developer may apply to the auditor for spending from a guarantee account after submitting a certificate issued by the consultant of a development describing completed stage and the requirement of a subsequent stage. The auditor shall have to inform the Department in writing about sums paid to the developer.

Article (12)

Without prejudice to Article (11),an auditor shall disburse payments due to a developer within 7 working days from the date of request for payment or the date of completion of required documents.

Article (13)

The Department shall keep 10% of the value of a development in the guarantee account for a period of one year after a developer has obtained a certificate of completion. The held sums shall not be spent until the units are registered in names of buyers and title deeds are issued under their names.


Chapter 4
Penalties

Article (14)

Without prejudice to any penalties provided for in any other law, a penalty of incarceration and payment of a fine not less than 200,000 Dirhams, or either one of them, shall be imposed on anyone who:

1 - Carries on property development business in the Emirate without a license.

2 - Submits false documents or misstatements to concerned authorities in order to obtain a license for carrying on property development business.

3 - Offers to knowingly sell units in bogus property developments.

4 - Embezzles, uses or squanders payments delivered to him for the purposes of construction of property developments, and misappropriates such payments.

5 - Any auditor who deliberately prepares a false report about the result of an audit he conducts on a developer’s financial position, or conceals significant facts from his report.

6 - Any consultant who knowingly approves false documents about a property development.

Article (15)

If proved that a developer is unable to execute a development, the Department shall take necessary legal actions to protect rights of third parties.

Article (16)

1 - A developer shall be cancelled from the Register in any of the following events:

1 - If he declares his bankruptcy.
2 - If he cancels his license.
3 - If carries on prohibited business in the Emirate.
4 - If he repetitively violates provisions of Article (5) of this Law.

Chapter 5
Final Provisions

Article (17)

Existing developers at the time when provisions of this Law are applicable shall adjust their status in accordance with the provisions herein.

Article (18)

The Department may collect management fees against services offered in accordance with this Law.

Article (20)

This Law shall be published in the Official Gazette and shall be effective from the date of publication.


Mohammad Bin Rashid Al Maktoum
Ruler of Emirate of Dubai

Promulgated in Dubai on Tuesday 10th of October 2006, corresponding to 18th of Ramadan 1427 AH.

- The above stated amendments on the draft law was made on 12/12/2000.

 

[wayneis]

This is Good News for future Investors. Thanks for the posting I will make it a sticky for a few weeks so others can read the information and the link to the Gulf news paper article is here

 

[Di2007]

That's is good news.. but am I right in thinking it's a little late for me as i've just purchase mine.. Although, hopefully all will be well and I won't need protection!

Di2007

 

[toulouse-lautrec]

That's is good news.. but am I right in thinking it's a little late for me as i've just purchase mine.. Although, hopefully all will be well and I won't need protection!

Di2007

i've also already purchased but an escrow was offered as part of the purchase agreement

 

[savais]

shame the law did not come out earlier. Do you think that the law is for new projects at the moment, but could be applied to current offplan projects in the future?

 

[toulouse-lautrec]

That's is good news.. but am I right in thinking it's a little late for me as i've just purchase mine.. Although, hopefully all will be well and I won't need protection!

Di2007

shame the law did not come out earlier. Do you think that the law is for new projects at the moment, but could be applied to current offplan projects in the future?

From the announcement:

The law applies to any company or individual receiving ‘off plan’ payments for property that is not yet completed. However, at this early stage only properties that are launched from this week onwards will be subject to the law, according to Dubai Land Department.

It appears everything you can buy already is not affected, only new offers.

 

[wayneis]

From the news article

However, at this early stage only properties that are launched from this week onwards will be subject to the law, according to Dubai Land Department.

Lets see what the Legal Guys make of the following
Does Article (17) apply only to Chapter 5 or the whole document ?

Chapter 5
Final Provisions

Article (17)

Existing developers at the time when provisions of this Law are applicable shall adjust their status in accordance with the provisions herein.

Article (18)

The Department may collect management fees against services offered in accordance with this Law.

Article (20)

This Law shall be published in the Official Gazette and shall be effective from the date of publication.

 

[wayneis]

New property law could lead to more investments

Article Gulf Newspaper July 26, 2007

Real Estate Property
New property law could lead to more investments

By Robert Ditcham, Staff Reporter
Published: July 26, 2007, 22:52

Dubai: Greater institutional investment in Dubai real estate could be on the cards after the government issued a law safeguarding property buyers' payments, say developers and analysts.

Under Law Number (8),which was published in the Official Gazette this week, installment payments for off plan property will be paid into guarantee accounts (also known as trust or escrow accounts) that are authorised by Dubai Land Department with an approved bank. The capital in the account will only be released to the developer once certain construction milestones are met.

Before the law, developers' use of buyers's money was unregulated.

As a result, institutional investors such as banks, fund managers and insurance companies will be more inclined to invest big sums into Dubai's real estate, said Tom O'Grady, real estate partner at the Dubai office of global legal services organisation DLA Piper.

"We've already seen an increase in the number of institutions entering the market, which indicates that confidence is growing. For Dubai this is another step in the right direction," he said.

The law could potentially alter the overall profile of investors in Dubai real estate, added Mehdi Amjad, president and CEO of Omniyat Holdings and property developer Omniyat Properties, which is working with HSBC to set up trust accounts for its developments.

"The real estate sector will see a new wave of overseas investors who have a completely different demographic profile than those who have been investing since Dubai opened up the property market to foreigners," he said.

Amjad said institutional investors were reluctant to invest in off-plan developments because of the lack of measures to protect their investments.

"The new law gives them the security they have always required," he said.

Despite the fact that trust accounts will restrict developers' access to off play payments, leading to potential cash flow problems, most have spoken in favour of the law.

"Such legislation is needed to protect both the consumer and legitimate developers.

"It can only help the real estate industry and will have a positive impact on the economy of Dubai," said Sanjeet Joher, group chief operating officer of KM Holding, parent company of KM Properties.

A key article in the law says a percentage of the project value must be retained in the guarantee account for one year after all units are registered. This will also boost investor confidence, said O'Grady.

"This ensures that end users can be confident in the quality of their property or their ability to make the developer rectify any structural problems," he said.

With trust accounts now established, analysts say a Strata (Condominium) Law, which clarifies owner/occupier responsibility for commonhold land, must be passed. The Land Department said the law is awaiting approval by Dubai Government.

 

[wayneis]

DIB unveils region's first escrow trust account service

Link to Full News Article here

DIB unveils region's first escrow trust account service

Staff Report
Published: July 25, 2007, 22:58

Dubai: Dubai Islamic Bank (DIB) yesterday announced the launch of the Al Islami Escrow Account, the first escrow 'trust' account service in the region designed specifically for real estate developers.

The new service will contribute to further protecting investors and enhancing confidence in the UAE's real estate sector.

The announcement was made during a ceremony where DIB and the Dubai Lands Department signed an agreement governing the general trust account conditions for real estate developments.

 

[Wannaberich]

Great law but a little too late from what I see.I would imagine that the majority of developments which are to be built in dubai have already been launched?
On the other hand perhaps it will have an effect on existing projects in terms of their price going up as I assume there could be a lot less developers wishing to proceed in dubai halting this relentless flow of new properties?
Also,surely far more foreign investors will be attracted to dubai thus again pushing prices up?

 

[wayneis]

Further explanation on Law 8 follow the link

wannabe Good write up of the Law number 8 here may explain things a little more clearly for you.

The Land Department has confirmed that the new law applies to all developments currently under construction and to all future developments where monies are to be collected for off-plan sales. It therefore applies to existing developments to the extent that construction is not yet completed and payments are still being collected. For these projects, an escrow account will need to be set up for the payments due after 28 June 2007, and developers have six (6) months (i.e to 28 December 2007) to comply with the new regulations (subject to the Land Department extending this deadline). For those projects with just one payment left to be made, a developer still needs to apply to RERA, although RERA will consider each application on a case by case basis and decide if a special arrangement can be made where developments are close to completion. Consideration will also be given to developers who have paid a bank guarantee to a master developer to protect third party funds and, again, a special arrangement may apply in these cases.

 

[IndustryRE]

From the announcement:



It appears everything you can buy already is not affected, only new offers.

If I have already purchased property then does this mean at some point before completion then my funds will be transferred into an Escrow account?

 

[aaron.cook]

long over due, consumers generally need a lot more protection in Dubai. Eventually they will get there, but it will take some time.

 

[Goshy]

RERA Document /Escrow law no. 8

Hello everybody.

I received the escrow information from Dubai Select, with an attachment document related to the law no. 8


Thanks to your links, I have a full picture of the law no. 8

But anyone can help me to find out what exactly the lines on the document sent from Dubai Select say? (As the document is written entirely in Arabic).

Regards

Goshy

 

[Goshy]

Escrow law no. 8

Hello everybody.

I received the escrow information from Dubai Select, with an attachment document related to the law no. 8


Thanks to your links, I have a full picture of the law no. 8

But anyone can help me to find out what exactly the lines on the document sent from Dubai Select say? (As the document is written entirely in Arabic).

Regards

Goshy

Hello

Is anybody able to answer me please?

 

[iloilo]

I purchased a unit in Nov-2007 (after the Escrow Account Law was passed) and have already made 2 payments to date. I did not receive any letter/intimation from neither the Escrow Bank nor their solicitors confirming that my money is lying in their safe custody. The only place in the full property Agreement where there is mention about the Escrow Account is under the "Sellers Covenants and Warranties" clause where it says in one plain sentence: "The Seller undertakes to deposit the monies received from the Buyer in the Guarantee Bank Account". What are we supposed to infer from this statement and what is happening in reality - no one knows! Who can throw some light on this in relation to the Dubai Property Market?

 

[iloilo]

wannabe Good write up of the Law number 8 here may explain things a little more clearly for you.

Hello Mr. Wayneis,

I have not heard from you regarding the query I posted on 7th April. I had purchased a residential unit in Canada 3 years back & every time I issued the cheque to the developers towards the payment instalments, I used to get a letter from their solicitors confirming that they had received my cheque no.??? dated??? towards unit no.??? in such & such project alongwith the details of the building???? and it is being held in escrow a/c no.???? So I presume that escrow law in Dubai should also work along the same lines vis a vis the Canadian Propery Law. Do you have any knowledge of how the escrow account in Dubai works?

 

[abey]

Dear Escrow Officer

The highlighted portion in the following text has been altered in the RERA website. Why?

What are the penalties for violators of the escrow law?

A fine of not less than 100,000 AED and imprisonment for an undefined period will
be imposed on anyone who engages in any of the following activities:


• Developing property without a license;
• Submitting false documents/statements to the authorities in order to obtain a
license;
• Advertising units from a bogus property development knowingly;
• Misappropriating funds paid to the developer for the development of the property;
• Being an auditor, preparing false reports or concealing facts;
• Being a consultant, approving false documents; and
• Being a developer, dealing with an agent who has not been registered with the
Dubai Land Department.

The registration of a property developer will stand cancelled if s/he:


• Declares bankruptcy;
• Violates any laws connected with real estate development;
• Cancels his/her license; and
• Doesn’t start construction within six months after getting hold of approval from Dubai Land Department for selling property off-plan.




Can there be any further rules and regulations on the escrow law?

The Dubai Land Department will issue rules and regulations concerning the advertisement of property developments. The Department has also made it clear that it will issue further rules for escrow accounts through the recently established Real Estate Regulatory Authority (RERA).

 

[pussianny]

relax warning how to subject to during crisis

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