Law reduces risk in realty investment

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 the Dubai Land Department.

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

Documents

To do this, they need to 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 licence.

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) yesterday acted swiftly to launch the Al Islami Escrow Account. 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.

Foolproof

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.

Defaulters faces fines of up to Dh200,000.