Why Escrow Matters: A Conveyancer’s Perspective
Recently, we had the opportunity to speak with a well-regarded property conveyancer in Dubai about the challenges for non-resident buyers when it comes to transferring funds. Drawing on over a decade of experience in the Dubai property market, K. explains the risks of using real estate agencies and law firms to handle purchase money.
(Note that we edited this interview for length and clarity.)
Arabian Ranches II, Photo courtesy of Emaar Properties
Laura, Director of Marketing: K., we were hoping we could talk with you today because we understand the conveyancing process and how funds transfer works. You're the person who handles these transactions. In particular, it would be helpful to know your experience with non-resident property buyers. Are there any specific challenges they run into? I know there are restrictions, but what have you seen, your personal experiences?
K., Property Conveyancer: Yeah, it's still the same as before, there are always newcomers or people in Dubai. There has been a huge influx of new investors, especially those who have never been to Dubai and yet are keen on investing in real estate. The biggest challenge for them is that there's no way to bridge the gap between their intent to send funds and the requirements of sellers in Dubai.
Sellers would only sign a contract when there is a deposit cheque. While we're moving towards a paperless transaction market, we're still tied up with the deposit cheque mentality. That's where you guys come in. Titanium can provide a guaranteed approach, a well-documented, secure way of receiving funds with transparency and accountability compared to what has been done before.
Laura: Can you talk a bit about how people have been addressing this problem in the absence of a service like Titanium? What kind of workarounds are they using to overcome this?
K., Property Conveyancer: The workarounds in the past included transferring funds to relatives, which was the primary and still acceptable option. This involved justifying the transaction through banking protocols by proving the existence of a family relationship, and it only worked if the recipients satisfied the criteria.
Another option was for agents to present themselves as funds custodians, which was risky and conflicted with the regulations set by the Real Estate Regulatory Authority (RERA). Agents handling funds could lead to funds getting stuck or misappropriated, creating headaches for RERA. Despite the prohibition, some agents still engage in this practice. Law firms also played a role by providing the service, on the basis of a lawyer-client relationship. This had limitations, too, due to potential conflicts for future transactions.
The worst option was relying on random companies that were not legitimately engaged in such business activity. These companies would receive funds and issue cheques, but they lacked a proper paper trail, making it very risky.
Laura: So, if I understand correctly, there are legal options like sending funds to relatives. However, what happens if you don't have relatives or can't qualify the transaction? Then there are ethically questionable options such as sending funds to a law firm or an agent. And finally, the worst option is sending funds to a complete stranger and hoping for the best.
I'm curious if the agencies and law firms are aware that their actions go against what RERA says they should do. Do they just cross their fingers and hope for the best?
K., Property Conveyancer: The Real Estate Agencies are aware of the prohibition, but to be blunt about it, they are crossing their fingers. Most agencies that have been engaging in these practices are now struggling to find other options because someone caught wind of what they were doing.
Laura: I understand. Now, let's talk about transparency and the importance of a paper trail. Who does that paper trail matter to? In what situations as a conveyancer do you need to be able to provide a clear record of where the money comes from and when it hits the account? While the buyer and seller obviously want to know, which agencies and under what circumstances does it matter to you as a conveyancer?
K., Property Conveyancer: First and foremost, it matters to the party sending the funds. The Land Department, on the other hand, doesn't really inquire about the source of the funds. They only expect the buyers to provide a manager's cheque on the day of completion, regardless of where it comes from. As long as it's a manager's cheque, they consider it guaranteed funds and won't face any issues with bounced cheques.
However, for the buyer, it is important to ensure that their funds have been received and that someone can deliver the manager's cheque on their behalf in a timely manner. It matters to us as conveyancers because we want to ensure that the transaction proceeds as outlined in the contract.
Laura: It's the old saying, "Time is money." From the perspective of the conveyancer and the buyer, it seems that the ability to perform AML and KYC checks quickly is valuable. It provides security, but you also know that you’ll be able to close on time. Is that accurate?
K., Property Conveyancer: Correct.
Laura: Just out of curiosity, can you recall a situation where a transaction didn't go well because someone used a workaround and encountered problems like funds getting stuck or a bounced check?
K., Property Conveyancer: I can provide a specific example without mentioning any names. One client opted for a similar transaction through a local law firm, where the law firm would receive above AED 50 million. The law firm was confident that they could receive the funds and issue the cheques in time for the title transfer. However, the law firm only received the funds the day before the scheduled closing, and the bank had questions about the source of such a massive fund transfer, perhaps because the law firm never told the bank to expect such a large transaction.
Because of the delays, the contract expired and it took the law firm three weeks to resolve the situation with the bank and release the funds so the deal could close. The buyer had to pay the seller a penalty to get the seller to continue.
Laura: I can understand why the buyer would be frustrated! It seems that one of the problems in working with agents and law firms is that they are professionals in their field but not finance specialists. As in the case of the law firm you mentioned, they didn't know they needed to inform the bank about the transaction. However, if you work with a company dedicated specifically to providing escrow services, you won't encounter such issues because that's their expertise.
K., Property Conveyancer: Correct.
Laura: That's really helpful to know. Have you ever come across a situation where a company just ran off with the money? Like in the fourth workaround scenario?
K., Property Conveyancer: Yes.
Laura: Could you share a bit about that?
K., Property Conveyancer: There was a case similar to that, but fortunately, we managed to pressure the company that issued a check on behalf of the buyer to provide documentation.
However, in most cases, this doesn't work out because it's usually a random company unrelated to the transaction, and handling client funds. In the last transaction I encountered, the buyer was using a random company to transfer funds. We were able to salvage the situation by insisting on a document that linked the buyer to the third-party company. Thankfully, the seller's bank accepted it. But again, it's not a foolproof method.
Laura: You mentioned that Dubai is striving for paperless transactions and increased efficiency, yet the escrow process remains complicated. Why do you think that is?
K., Property Conveyancer: The issue lies in the fact that the Real Estate Market doesn't fully understand the concept of escrow. When you mention "escrow" to them, they immediately associate it with developers establishing escrow accounts for off-plan properties.
The escrow law was implemented to secure investor payments to developers. However, outside of that specific context, the automatic response is that no one is allowed to provide escrow services unless it's explicitly stated on their license, as it is for Titanium.
Even banks here don't fully comprehend the application of escrow. Unlike in other places, where escrow can refer to various arrangements, in Dubai, it has a narrower definition. This is why services like yours have been highly beneficial for investors, as they know they can rely on you, knowing that you're regulated.
To learn more about how Titanium Escrow can assist you or your clients in a property purchase, contact us directly at +971 58 592 4642.
