Why the regimes exist
Off-plan sales fund development from buyer deposits before an asset exists. When developers failed in earlier cycles, buyers discovered their money had funded other projects or general overheads. Escrow regimes across the Gulf were introduced in response, and they are now a permanent feature of how development is financed.
How they work
Buyer payments go into an account held by an approved trustee, dedicated to the specific project. Releases are made against construction progress certified by an appointed consultant, in stages set by the regulator. A retention is typically held past completion against defects and handover obligations.
The developer therefore cannot treat pre-sales as general liquidity. Capital raised for a project stays with that project.
What it means for financing
Working capital is constrained. A developer running several projects cannot move surplus from a fast-selling one to a slower one. Group treasury planning has to account for that, and lenders will test it.
Lenders sit alongside, not above. A financier taking security over a project must understand that escrow releases follow the regulatory mechanism, not the loan agreement. Security packages are structured around that constraint.
Certification is the bottleneck. Releases depend on the consultant's certification. Delays there translate directly into cash flow pressure, and disputes about progress measurement are a recurring cause of strain.
Cancellation and refunds. Where a project fails to progress, regimes provide for buyer remedies. The conditions and processes differ by jurisdiction, and a developer's exposure on cancellation should be modelled rather than assumed away.
What to plan for
- Project-level cash planning that does not rely on moving money between projects
- A security structure that works with the escrow mechanism rather than against it
- Certification timetable built into the cash flow, with contingency
- Clarity on cancellation exposure under the applicable regime
- Handover and defect retention held in the plan, not discovered at completion
The regimes make off-plan development slower to finance and considerably safer to buy into. For a developer with a genuine pipeline they are a constraint to plan around; for one relying on cross-subsidy between projects they are a wall.
