Law No. (8) of 2007
Concerning Guarantee Accounts of Real Estate Developments in the Emirate of Dubai.
Mortgage Financing - Dubai
Current Market Standard
- Housing finance is based on MoUs between Banks and Developers.
- Developers undertake to register title and mortgage when land registry is functional.
- MoUs only provide for a contractual relief in relation to the Developer’s default.
- Conditional Assignments over SPA is the only security in the absence of a mortgage under the MoU.
Selling Off Plan - Risks
- Risk of Developers not having clear title to the Project or Development Land.
- Currently Master Developer(s) seek ‘construction bank guarantee’ from Private Developer(s) or a private Escrow arrangement.
- Inadequate Record Keeping or lack of an Internal Registry.
- Mortgage over Land to Project Financiers and risk of encumbered sale of such Units by Developers.
- Uncertainty and risk of non completion of Project.
- End user financing for such Project being utilized for other Project(s) of the Developer.
Legal Issues
Guarantee Account
- The Guarantee Account is opened in the name of the Bank (“Account Trustee”) for each distinctive Real Estate Development of the relevant Developer.
- Project finance (excluding corporate finance) and each unit finance (representing the purchase price) shall be deposited in the Guarantee Account.
- Payments are released to Contractors / Suppliers (directly) in accordance with the approved Guarantee Account Agreement between the Bank and Developer.
- Priority given to depositors and safeguard measures by the Bank.
- Upon Force Majure or Project abandonment payments are restricted and will only be released from Guarantee Account to depositors after consultation with the Lands Department.
Legal Issues
Account Trustee
- Any approved bank may act as an Account Trustee as well as project/development financier with out any conflict of interest.
- Account Trustee, if also project financier, cannot set off amounts from Guarantee Account on account of Event of Default by the Developer.
- Low risk and value addition service as Account Trustee.
- Control over funds deposited in the Guarantee Account.
- Interest / Profit Payments.
- Nature of the Guarantee Account Holder - Bank or Developer.
- Know Your Customer (KYC) requirements.
Registered Account Trustees
* HSBC
* Tamweel
* Dubai Islamic Bank
* Amlak Finance PJSC
* Commercial Bank of Dubai
* Abu Dhabi Commercial Bank
* National Bank of Dubai
* Emirates Bank
Escrow Agreement – Salient Features
- Establishment of Guarantee Account and any sub accounts.
- Appointment of Account Trustee.
- Mechanism of depositing Unit Finance (as purchase price) and Project Finance.
- Appointment and Role of the Engineer/Consultant.
- Structuring of Project Milestones, Completion stages and issuance of Completion Certificates.
- Mechanism of withdrawal of deposits from the Guarantee Account and retention of deposits until final completion.
- Rights of the Account Trustee (on the basis of the Agreement with the Lands Department.
- Indemnity in favor of the Account Trustee.
- Dispute Resolution and Conciliation through the Lands Department.
- Schedules (would generally include Deposit Instructions Milestone Certificates, Completion Certificate etc.),