Oman’s Escrow Account : A Guide for Buyers

Oman’s real estate market has undergone a significant transformation with the introduction of the Escrow Account Law. This regulatory framework is designed to protect buyer investments by ensuring that funds are used exclusively for the intended projects. In this blog, we break down the law in simple terms, explain its timeline, outline the responsibilities it places on developers, compare it with similar systems in neighboring GCC countries, and discuss its practical impact on the market.

What Is an Escrow Account?

An escrow account is a special bank account where funds are held securely until specific conditions are met. In the context of real estate, money paid by buyers is deposited into this account. The funds are then released to the developer only when certain project milestones have been completed. This approach minimizes the risk of mismanagement of funds and provides buyers with added security.

Timeline and Effective Dates

• Royal Decree No. 30/2018: Introduced on November 11, 2018, this decree laid the groundwork for the new escrow framework. However, it wasn’t implemented immediately.
• Effective Date – May 11, 2019: The law officially came into effect on this date. The delay was intentional, giving developers enough time to adjust to the new requirements and ensure compliance before the law took full effect.
• Ministerial Decision No. 72/2019: Issued later in 2019 by the Ministry of Housing, this decision provided detailed guidelines on how the escrow mechanism should operate, further clarifying the responsibilities of developers and banks.

For official details, you can review the documents here:

• Royal Decree No. 30/2018
• Ministerial Decision No. 72/2019

Key Provisions of the Escrow Account Law

Mandatory Escrow Accounts for Each Project

• Separate Accounts: Developers must open a dedicated escrow account with a local bank for each project, ensuring that the funds are not commingled with other finances.
• Licensing Requirement: Before setting up an escrow account, developers must obtain a real estate development license. This step ensures that only qualified and compliant developers can undertake projects.

Strict Use of Funds

• Project-Specific Allocation: Money deposited in the escrow account can only be used for the designated project. The funds are released in stages as project milestones are met.
• Withdrawal Oversight: Any withdrawal of funds requires approval from a project monitor or consultant appointed by the developer. This extra layer of oversight guarantees that funds are used appropriately.

Oversight and Transparency

• Regular Reporting: Developers are required to submit detailed escrow account statements to the relevant ministry every three months. This regular reporting helps maintain transparency and ensures ongoing compliance.
• Record Keeping: All records related to escrow accounts must be maintained for at least five years, providing a clear audit trail for regulatory purposes.

Retention Funds for Defects

• Post-Completion Protection: Developers are mandated to retain 5% of the sales value of each unit for one year after registration. This retained amount is reserved to cover any remedial works for post-completion defects, further protecting the buyer’s investment.

Developer Obligations

Under Ministerial Decision No. 72/2019, developers must comply with several additional requirements:

• Licensing: Obtain a real estate development license before launching a project.
• Record Maintenance: Keep detailed records for a minimum of five years.
• Periodic Compliance Reports: Submit escrow account statements every three months.
• Advertising Restrictions: Any advertising or promotional activities must receive prior approval from the relevant authorities to ensure they adhere to regulatory standards.

Comparing Regional Frameworks

Oman’s approach to escrow accounts aligns with modern practices observed in other GCC countries:

• Dubai: Developers in Dubai must register with the Real Estate Regulatory Agency (RERA) before they can open an escrow account. This process ensures stringent oversight similar to Oman’s system.
• Bahrain: Bahrain has introduced comparable laws that require developers to set up dedicated escrow accounts for off-plan projects, ensuring that buyer funds are protected.

This regional context highlights how Oman has adopted and adapted global best practices to suit its local market needs, thereby enhancing overall investor confidence.

Practical Impact on Buyers and Developers

For Buyers:

• Enhanced Security: Knowing that their funds are held in a dedicated escrow account, buyers can invest with greater confidence.
• Financial Protection: The staged release of funds and the retention of 5% for remedial work help mitigate the risk of fund mismanagement and post-completion issues.

For Developers:

• Increased Administrative Duties: While developers face more rigorous compliance requirements, including detailed record-keeping and periodic reporting, these measures contribute to a more regulated and transparent market.
• Market Credibility: Adhering to these strict regulations can improve a developer's reputation and increase buyer trust, potentially leading to more robust project pipelines.

Risks and Considerations

Despite the robust framework, certain risks remain:

• Project Delays: Even with escrow protections, buyers may still face delays in project completion.
• Developer Insolvency: In cases of developer insolvency, buyers might be treated as unsecured creditors, meaning they may not have preferential claims over the funds in the escrow account.

These caveats remind investors to remain cautious and conduct thorough due diligence before investing.

Conclusion

Oman's implementation of the Escrow Account Law through Royal Decree No. 30/2018 (effective May 11, 2019) and its detailed execution via Ministerial Decision No. 72/2019 has significantly modernized the real estate sector. By mandating dedicated escrow accounts, imposing strict developer obligations, and retaining funds for post-completion defects, the law enhances transparency, protects buyer investments, and aligns with regional best practices.

This comprehensive approach not only bolsters investor confidence but also promotes a stable and credible market for both local and international participants.

For further reading, consult the official documents:

• Royal Decree No. 30/2018
• Ministerial Decision No. 72/2019
• Insights on regional practices and legal frameworks can be found at Trowers Insights on Escrow Laws.

By understanding these regulations and their practical implications, buyers and developers can navigate Oman’s evolving real estate market with greater confidence and clarity.

Who am I?

I’m a serial entrepreneur with 28 years of experience across 18 industries, combining technology and human behavior. Since 1997, I’ve been leading the telecom and digital media space, helping major companies like P&G, L'Oréal, Mazda Motors, and others enter the digital world and generate millions in revenue while building strong customer relationships.

For over 13 years, I’ve had the pleasure of doing business in Oman, where I’ve grown to love the culture and the people.

If you're looking for guidance on navigating the real estate markets in the GCC, feel free to reach out!

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