The Law Regulating Off-Plan Projects in Dubai: How to Protect Your Money as an Investor?

The Law Regulating Off-Plan Projects in Dubai: How Do You Protect Your Money as an Investor?

Dubai is considered one of the most active real estate markets in the region, attracting local and international investors thanks to its diverse projects and promising opportunities. Among the most prominent opportunities is purchasing properties “off plan” or “under construction” (Off Plan), where the investor can buy a unit before construction is completed at a lower price with flexible payment plans. However, this type of investment involves risks such as project delays, project failure, or misuse of buyers’ funds. Therefore, the legislator in Dubai enacted special laws to regulate the sale of off-plan units, commonly referred to as the “law regulating off-plan projects,” which is part of a broader legislative system that includes the Escrow Account Law, the Interim Real Estate Register Law, and other laws to ensure investor rights and maintain the stability of the real estate market.

In this article, we will discuss in detail the most important aspects of this law: the definition of off-plan projects, the reasons for its enactment, the mechanism of the real estate escrow account, the developer’s obligations, investor rights, expected risks and how to reduce them, imposed penalties, a comparison between Dubai’s market and unregulated markets, a checklist for investors, and finally frequently asked questions.

An “off-plan” project is a project in which real estate units are sold on the plan, meaning before construction is completed or during execution. The Escrow Account Law in Dubai (Law No. 8 of 2007) defines the “escrow account” as the bank account dedicated to the real estate development project in which buyers’ payments or financing allocated to the project are deposited. The law applies to developers who sell units before completion and receive payments from buyers or financiers.

However, the definition of an off-plan project is not limited to the account; the legislator required that the developer be registered with the Dubai Land Department and obtain approvals from RERA before selling any unit. The Interim Real Estate Registration Law (Law No. 13 of 2008) also stipulated that all dispositions related to off-plan units must be registered in the interim real estate register; otherwise, they are considered void.

Why Are There Special Laws for Off-Plan Projects in Dubai?

Selling units on the plan differs from selling completed properties, as it involves additional risks. The most important of these risks are:

1. Project non-completion: The developer may face financial or regulatory problems that lead to project stoppage.

2. Delivery delays: Construction delays cause the investor to bear additional costs or lose other investment opportunities.

3. Misuse of buyers’ funds: Without a monitoring mechanism, the developer may use funds to finance other projects or for personal purposes.

4. Non-registration of contracts: Without official registration, the investor may lose their legal right to the unit.

Therefore, special laws were established to regulate these processes, the most important of which are:

• Escrow Account Law (8/2007): Imposes opening an independent escrow account for each project and depositing all payments into it, and prohibits withdrawing funds except according to construction progress percentages.

• Interim Real Estate Register Law (13/2008): Makes the registration of dispositions related to off-plan units mandatory; otherwise, contracts are considered void.

• Executive Council Resolution No. 6 of 2010: Requires the developer to obtain approvals from the competent authorities before marketing or selling, and any sale before registration or approval is considered void.

These texts aim to enhance transparency, protect investors’ funds, and encourage completion of projects within the announced timelines.

The Mechanism of the Real Estate Escrow Account in Dubai

Conditions for Opening the Escrow Account

According to the Escrow Account Law, the developer may not advertise, market, or sell off-plan units except after opening an independent escrow account for the project. To submit a request to open the account, the following must be provided:

• Certificate of membership in the Chamber of Commerce and Industry.

• The developer’s commercial license.

• Land title deed or development agreement between the developer and the landowner.

• Approved engineering designs and preliminary plans.

• Statement of estimated project costs signed by an accredited auditor.

• Undertaking to start construction works after obtaining approval.

After accepting the request, the developer concludes a written agreement with the bank (the escrow account trustee) specifying account management methods, depositing buyers’ payments, and withdrawal conditions. A copy of the agreement is submitted to the Land Department.

Deposit and Withdrawal of Funds

• Deposit: All payments made by buyers or financiers are deposited into the escrow account. The law prohibits using funds for purposes other than constructing the project or repaying its financing, and funds may not be seized for the benefit of the developer’s creditors.

• Withdrawal: The bank transfers funds to the developer according to completion percentages. The account trustee must submit periodic reports to the Land Department and allow revenue and expenditure records for auditing. The law stipulates retaining 5% of the total account value upon obtaining the completion certificate, and this amount is released to the developer after one year from registering units in the buyers’ names.

Supervision and Auditing

The Real Estate Regulatory Agency (RERA), the regulatory arm of the Dubai Land Department, supervises escrow accounts. It has the right to request information from the account trustee at any time, audit data, and take corrective measures when violations exist. The “Know Your Rights” document issued by DLD confirms that escrow accounts are regularly audited and monitored by RERA’s escrow accounts department.

Handling Emergencies

In the event of an emergency or project failure, the law obligates the account trustee, in coordination with the Land Department, to take necessary measures to protect depositors’ rights. These measures include completing the project or refunding buyers. The law also authorizes the department to cancel stalled projects and take actions to ensure market continuity.

Obligations of the Real Estate Developer in Dubai

Laws impose a set of obligations on the developer aimed at ensuring transparency and quality:

1. Registration and licensing: The developer must be registered in the developers’ register at the Land Department and obtain RERA approvals before advertising or selling. Any advertisement or participation in a real estate exhibition without permission is a violation.

2. Opening an independent escrow account: Mandatory for each project and depositing all payments into it.

3. Submitting documents and reports: Engineering designs, construction plans, and costs must be submitted to the Land Department, along with periodic financial data.

4. Ensuring construction quality: The Jointly Owned Property Law obliges the developer to repair structural defects for ten years and minor defects (such as finishes) for one year from the completion certificate date.

5. Starting construction and delivering on time: If the developer does not start construction within six months of obtaining the permit or delays execution without acceptable reason, the Land Department or RERA may remove their name from the developers’ register.

6. Compliance with technical standards: The developer must comply with approved specifications, health and safety requirements, and environmental standards. RERA monitors compliance and imposes penalties for violations.

Rights of the Real Estate Investor in Dubai

1. Right to verify the project: The investor has the right to visit the Land Department or its website to verify project registration, escrow account existence, and completion percentage.

2. Right to access escrow account data: The buyer or their representative may review accounting records related to their payments and request copies.

3. Right to register the contract: The sale contract must be registered in the interim register; any unregistered contract is void. Registration preserves the buyer’s right and prevents resale.

4. Right to compensation or refund: If the developer delays delivery without acceptable reason, the buyer may request contract termination or compensation, and the Land Department may complete the project or refund buyers.

5. Right to construction quality warranty: Structural defects coverage for ten years and minor defects for one year.

6. Right to transparency: The developer must provide all project information, including building permit, progress percentage, timeline, and land legal status.

Risks and How Dubai Laws Reduce Them

Potential Risks When Buying Off-Plan

• Delays or cancellation

• Mismanagement of funds

• Failure to obtain title deed

• Engineering defects

How Laws Reduce These Risks

• Independent escrow account

• Official registration requirement

• Continuous monitoring by RERA and DLD

• Engineering warranties

• Retention of 5% for defect liability

Violations and Penalties in Dubai

The law punishes violations to protect the market and investors:

• Practicing development without a license: imprisonment and fine not less than AED 100,000.

• Selling unlicensed or fake units: cancellation of permits and removal from register.

• Misuse of escrow funds: criminal offense with imprisonment and fines.

• False financial or engineering reports: penalties up to imprisonment and fines.

These strict penalties deter violators and ensure compliance.

Comparison Between Dubai Market and Unregulated Markets

Investor Checklist Before Buying Off-Plan in Dubai

1. Verify project registration with DLD.

2. Confirm escrow account details.

3. Check completion percentage and permits.

4. Review sale contract carefully (Form F).

5. Verify land ownership.

6. Review escrow financial reports.

7. Understand legal rights.

8. Consult a legal expert.

Conclusion

The law regulating off-plan projects in Dubai represents the cornerstone for protecting investors and ensuring market stability. It imposes independent escrow accounts, mandatory registration, financial monitoring, and developer warranties up to ten years, along with strict penalties for violations. By following verification procedures and the checklist, investors can benefit from Dubai real estate opportunities while minimizing risks.