Escrow Law leaves developers at risk: Trowers & Hamlins
Saturday, September 08, 2007
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There are probabilities that the recently announced Trust Account Law in Dubai could pose problems for its developers, as they may be unable to use investors money for constructing projects, say experts.
The international law firm, Trowers & Hamlins are of the opinion that the recent Escrow Law could pose troubles to developers who usually release payments in stages from purchasers to contractors.
The delay in delivery of projects has been a major issue in Dubai. Now, with the new law, such cases could be more common, and the developers could be compelled to turn to Banks for seeking finance. The Dubai Government has launched the RERA (Real Estate Regulatory Authority) to fix such problems.
As per the new law, the developers should keep the deposits of the buyers in escrow accounts rather than allowing them to release funds to pay money early to contractors, with the progress of the project. This in turn, could also lead to contractors refusing to continue their works until the promised payment has been made.
During the last financial year, 2005-06, the total values of residential and commercial projects have touched $90 billion.
According to Trowers & Hamlins, the construction boom is causing problems that are more serious than the advertised shortages of sand and steel. Currently there is a shortage experienced in capacity among engineering firms, subcontractors and skilled contractors, and the contractors can even negotiate better deals at the risk of the developer.
The international law firm, Trowers & Hamlins are of the opinion that the recent Escrow Law could pose troubles to developers who usually release payments in stages from purchasers to contractors.The delay in delivery of projects has been a major issue in Dubai. Now, with the new law, such cases could be more common, and the developers could be compelled to turn to Banks for seeking finance. The Dubai Government has launched the RERA (Real Estate Regulatory Authority) to fix such problems.
As per the new law, the developers should keep the deposits of the buyers in escrow accounts rather than allowing them to release funds to pay money early to contractors, with the progress of the project. This in turn, could also lead to contractors refusing to continue their works until the promised payment has been made.
During the last financial year, 2005-06, the total values of residential and commercial projects have touched $90 billion.
According to Trowers & Hamlins, the construction boom is causing problems that are more serious than the advertised shortages of sand and steel. Currently there is a shortage experienced in capacity among engineering firms, subcontractors and skilled contractors, and the contractors can even negotiate better deals at the risk of the developer.
Labels: Property Law, Real Estate News
