Two billion dirhams ($545m) have gone from the escrow or trust accounts into which investors in Dubai’s real estate sector place their deposits, CEO of RERA, Dubai’s real estate watchdog, Marwan bin Ghalaita has said.
Speaking exclusively to Arabian Business, bin Ghalaita said: “When we started the escrow account [at the end of 2007], in the first few months I used to have AED7 billion in my escrow accounts. AED7 billion. Imagine how much I will have if it had started from the beginning [of the real estate boom]. I will be the wealthiest agency in the world, I think.”
He said that figure had now diminished to AED5 billion: “I have about five billion in the escrow accounts. Five billion…. Yes. And how this two billion has gone? For construction.”
Bin Ghalaita said that in Dubai until recently, developers had been able to tap escrow account funds to pay for costs related to construction.
“So you [the developer] open the escrow account, and you start launching the project. Once you launch the project, you take five percent as an initial deposit. All these five percents will go to the escrow account. So all peoples’ money will go to the escrow account. In the beginning, the rule was that it is ok to pay from this five percent [for] the remaining land payment. And to pay up to five percent for management, and marketing, and real estate agent and whatever.
“But since the crisis happened, we stopped all the payment except for contractor. So that is why you will see in Dubai a lot of developments are moving, because of the trust account money. But [now] we don’t give a developer [escrow account money for] a land payment, we don’t give him [escrow account money for] advertisement, we don’t give him [escrow account money] for agents, or admin fees, or marketing. Nothing. Only [for] contractors’ payments.”
An escrow account is generally accepted to be an account whereby an independent trusted third party receives and disburses money between two parties upon completion of a contractually agreed upon task. They were made mandatory for investors and developers in Dubai real estate at the end of 2007.