Escrow Account explained by consultant from Vispiron Properties
Escrow or Trust Accounts are Bank Accounts set up in the name of the project, a client purchases a unit, the bank receives and manages clients’ money and only pays out to the individual contractors during construction progress.
Under the Escrow Account Law, the developer must obtain approval from the Land Department to open an escrow account in connection with any off- plan sales for a project. A separate escrow account is required for each project.
Escrow accounts for each project must be managed by financial or banking institutions approved by the Land Department.
Payments from purchasers must be paid into the relevant project escrow account.
The Escrow Account Law requires that 5% of the total value of the relevant escrow account be retained by the Bank after receipt of a certificate of completion in respect of the project. The retained amount must be held by the bank for one year after the date on which all units in the project are registered in the names of the relevant purchasers. The retention amount gives purchasers security for the developer’s obligation to rectify any defects in construction that are discovered during that period.
The misuse of escrow account funds or other failure to comply with the Escrow Account Law is punishable by substantial fines.
The Escrow Account Law is a positive step toward increasing consumer confidence as purchasers are now safeguarded against any potential misuse by developers of funds paid to them prior to and for a period after handover of the completed unit.
