Dubai’s Real Estate Regulatory Agency (Rera) has inked an agreement a major local bank, which will provide escrow account services to owners associations, thus allowing the associations to manage their own finances.
Emirates NBD will be the first bank in the UAE to offer escrow account services to these associations.
Until now, service charges are still being collected in bank accounts managed by developers, but in some cases, developers have got board members of interim owners associations (IOAs) as co-signatories. Dubai, currently, has over 400 IOAs, far less than the 2000 odd expected.
Emirates 24|7 reported in July that Rera will allow homeowners' associations to open bank accounts from September.
Marwan Bin Ghalaita, CEO, Rera, said, in a statement,: “This agreement will not be the last one to be made between Rera and a known banking entity. In the near future similar agreements will be executed for facilitating the business of owner associations under Law No. 27 of 2007 concerning ownership of jointly owned properties in Dubai.”
He added: “The agreement will make transactions in the real estate market more transparent and clear given the important role of owner associations in protecting joint ownership. This agreement comes to support the efforts by such owner associations in organizing the deposit and imbursement of their funds according to strict regulations governing the parties’ obligations while protecting their rights.”
Although allowing opening of escrow account is an important step, IOAs will still have to meet conditions such as submitting the common area site plan along with the Jointly Owned Property Declaration; copy of the annual general meeting and code of conduct certificate for IOA members from the local police to get legal status.
Samir Sahu, Deputy General Manager and Head of Transaction Banking Services, Emirates NBD, added that the bank is now authorized to open escrow accounts for owner associations and the funds will be credited and disbursed as per Rera regulations.
He added that the account will be in the name of the associations, however, the bank will remain a trustee for the accounts and deposits on behalf of the associations.
The escrow account will consist of two sub-accounts: general and reserve. No payment, transfer, process or credit of funds to the accounts shall be done unless it is authorised by the owner associations or by Rera’s written approval. Moreover, the bank will not allow any payment or cash withdrawal from the escrow account if it exceeds the amount authorized for a service provider or for a specific service.
Rera’s role will be limited to supervision and follow up, while Emirates NBD will not close or cancel any account or dispose of any amounts in the reserve account without Rera’s approval.
Emirates NBD will also provide the department and the owners association with online access to the escrow accounts so to ease financial settlement operations.
Good for all
Meanwhile, experts hailed Rera’s initiative to allows OAs to open and operate bank accounts.
Shahram Safai, Partner, Afridi & Angell, said, Rera has diligently pushed OAs’ formation to protect purchasers' interests, and also accepted jointly owned property documentation for filing pursuant to the Jointly Owned Property Law (Law 27 of 2007).
The impediment in implementation of the law, as far as OAs are concerned, has been that they could not open bank accounts, he states.
“This has meant that they have not had complete control and autonomy, and that they have had to use the bank accounts of developers or others. This has not been a comfortable situation for owners, OAs or developers. With the ability of OAs to open and operate their own bank accounts, the full purpose of the Jointly Owned Property Law can now be realized in this regard.”
Brent Baldwin, Associate, Hadef & Partners, stated: "Though we don't know whether the OAs will have full or partial control of their bank accounts, we do believe it's a positive step. The owners will be more in control of their own money and this could lead to increase in service charge collection."
Kent O'Brien, CEO, Strata Global Real Estate Consultants, added: “This is very good news and sets in place the mechanism for opening bank accounts for those OA’s where the registration process required by Rera has been implemented.”
"We expects Le Reve, Dubai Marina, to be the first to complete this inasmuch as all the issues including signatories have been addressed by the board. Even to the extent we will have an internal auditor appointed on a permanent basis to facilitate a seamless and efficient interaction between OA Manager (Strata Global) and the Rera accredited auditor," he revealed.