Homefront: ‘What happens to the money placed in escrow of stalled property projects?’
Any funds paid into an escrow account remain ring-fenced and protected by law
I purchased an off-plan unit from a developer in a project in the heart of Dubai in 2014. Although some construction took place, it was shelved because the developer ran out of funds and absconded. Thankfully, the funds we paid were placed in an escrow account.
After several years of waiting, another developer has taken over the project and has offered to restart construction. What happens to the instalments we paid to the earlier developer? Will those be adjusted and taken into account by the new developer? What happens to the money placed in escrow?
The new developer has also offered us an option to transfer to another ready project, but in a far-flung area. Is this a good option considering we initially wanted to buy property in a prime location? BR, Dubai
Any monies paid into an escrow account remain ring-fenced and protected. There are laws in place to ensure the developer can withdraw only certain funds from an escrow account. If you have made instalments towards the project, these monies should still be there and will stand towards payment of the chosen unit.
If a new developer has taken over the project, the specific details or terms and conditions may have changed, so I suggest you double check with them for the exact answer you seek.
We buy real estate for a number of reasons, but there is an age-old adage that states “location, location, location”. Obviously, there are advantages if the new developer has offered a ready unit but the question to ask is: “Will this meet your criteria of why you wanted to buy in the first place?”
Depending on where the ready unit is located, I would probably hold out for the better-placed unit. This is, however, dependent on the final delivery date.
If you have made instalments towards the project, these monies should still be there and will stand towards payment of the chosen unit
Ultimately it’s down to you to do your homework to come to a correct decision.
I am thinking of buying an apartment in Dubai for the purpose of investment. I know it’s a buyer’s market now and am in talks with developers and real estate agents, who are offering me attractive incentives to purchase property. While some incentives are reasonable and include attractive payment plans and a waiver of Dubai Land Department fees, others are promising guaranteed net rental yields of 8 to 10 per cent.
How credible are these offers? These are for units located in up-and-coming peripheral areas, where infrastructure is still a work in progress. What should I do? LQ, Dubai
The first thing I would like to point out is that Dubai may still be a buyer’s market, but only in certain parts of the emirate. Villa and townhouse communities and popular areas such as Dubai Marina, Palm Jumeirah, Bluewaters Island, Dubai Hills Estate, Mohammed Bin Rashed City, Emirates Living and Downtown Dubai, are definitely not.
These locations are mostly in a seller’s market, so the attractive deals that developers are offering will dry up sooner or later. In fact, a lot of the larger developers have already withdrawn their previous offers, replacing those with more modest deals but potentially higher prices.
Developers need to shift their inventory and I can confirm they are orchestrating better offers only for certain types of units. Popular properties and sizes are not receiving the same offers as larger units or less sought-after units, for example.
When it comes to guaranteed rental returns, it is important to do your homework on the developer. Many have offered this type of deal in the past and then struggle to maintain the promised return on investment. That is not to say these deals are non-starters.
There are credible developers still offering these deals who will fulfil what is mentioned in the sales and purchase agreements. This is why I suggest you research who is offering what and who offered them in the past and continue to do so successfully. It is these developers who will fulfil the offer and you will be safe to invest with them.
The only other point to make is that there is no such thing as a “free lunch”. Be aware that the sale price offered from these specific deals could be inflated compared with similar offerings without the guarantee.
Mario Volpi is the sales and leasing manager at Engel & Volkers. He has worked in the property sector for more than 35 years in London and Dubai. The opinions expressed do not constitute legal advice and are provided for information only. Please send any questions to firstname.lastname@example.org
Published: May 20, 2021 07:30 AM