Real Estate FinancingEscrow Funds
Synonyms: Escrow Money، Funds Held in Escrow، Escrow Deposit
Last updated: 2026-09-25
Short Definition
Escrow funds are money deposited with a neutral third party — usually a dedicated bank account — and released to the entitled party only once agreed or legally defined conditions are met, protecting the payer from losing the money and reassuring the recipient that it is available.
Overview
Escrow funds are money deposited with a neutral third party — usually a dedicated bank account — and released to the entitled party only once agreed or legally defined conditions are met, protecting the payer from losing the money and reassuring the recipient that it is available.
In the Saudi real-estate market the clearest statutory application is the escrow account for off-plan sales and leases under the Off-Plan Real Estate Projects Sale and Lease Law issued by Royal Decree No. (M/44) dated 10/3/1445H: a separate escrow account is opened in the name of each project and activated only after licensing and annotation of the title deed barring disposal (Art. 9); it may be used only for the project and cannot be attached by the developer’s creditors, and any financing the developer or landowner obtains for the project must be deposited in it (Art. 10); withdrawals require a document signed by the developer, the consulting office and the chartered accountant (Art. 11). Administrative, marketing and other non-construction costs may be drawn up to 20% of the value of the unit sold (Art. 12), and the chartered accountant retains 5% of construction cost for one year after completion unless a latent-defects insurance policy is provided (Art. 14). The regime is applied through the Wafi programme under the Real Estate General Authority (REGA).
For sales of completed properties there is no general mandatory escrow; the price is usually paid at conveyance by bank transfer or certified cheque, and parties to large deals may agree a contractual escrow with a bank. The practical rule is the same: never pay reservation money or a deposit for an off-plan project except into its licensed escrow account.
⚖️ Legal Basis
The Off-Plan Real Estate Projects Sale and Lease Law issued by Royal Decree No. (M/44) dated 10/3/1445H and published on 23/6/1445H (5 January 2024), in force 90 days after publication — in particular Article 1 (defining the escrow account as a project-specific bank account into which amounts paid by financiers, buyers or tenants are deposited) and Articles 9 to 14 — together with its Implementing Regulation. It is applied by the Real Estate General Authority (REGA) through the Wafi programme. Receiving money to reserve off-plan land or units without depositing it in the escrow account is a violation punishable under the law.
💡 Practical Example
Ahmed reserves an off-plan duplex villa in a Wafi-licensed project in north Riyadh for SAR 1,200,000, paying 10% (SAR 120,000) on signing and the rest in instalments tied to construction milestones. He checks the project licence and transfers the money to the escrow account named in the contract, not to the developer’s account. The developer can draw on these funds only with a disbursement document signed together with the consulting office and the chartered accountant, and no more than SAR 240,000 (20% of the unit’s value) can go to non-construction costs attributable to Ahmed’s unit. If the developer runs into trouble with its creditors, they cannot attach the money held in the escrow account.
⚠️ Common Mistakes
- ✗Paying a deposit or reservation money in cash or into the developer’s own account instead of the project escrow account.
- ✗Not checking the project’s Wafi licence and the escrow account number before making any payment.
- ✗Assuming every Saudi property sale must go through escrow, when the obligation applies to off-plan sale and lease projects.
- ✗Neglecting to draft the release conditions in contractual escrow arrangements, such as which documents trigger release and within what time.
- ✗Believing the developer receives all payments as soon as they are made, when funds are released according to construction progress under specific controls.
🌍 International Differences
Escrow is known worldwide: in the United States an escrow agent or title company holds deal funds until closing; in Dubai off-plan projects have been required to use escrow accounts since 2007 under the Dubai Land Department; and in Turkey pre-paid housing sales are regulated by provisions of the consumer protection law. The Saudi regime stands out for precise quantitative release rules: a 20% cap on non-construction costs and retention of 5% of construction cost for one year or until a latent-defects insurance policy is provided.
FAQs
What is the escrow account in Saudi off-plan sales?▾
A separate bank account in the licensed project’s name into which buyers’, tenants’ and financiers’ payments are deposited; it can be used only for the project through a disbursement document signed by the developer, the consulting office and the chartered accountant.
Can the developer’s creditors attach escrow funds?▾
No. The Off-Plan Real Estate Projects Sale and Lease Law provides that the escrow account is dedicated to the project and that amounts deposited in it cannot be attached for the benefit of the developer’s creditors.
How much can a developer draw from escrow for marketing and administration?▾
Up to 20% of the value of the unit sold, and the chartered accountant must ensure total non-construction withdrawals do not exceed 20% of the total value of units sold.
Is an escrow account required when buying a completed property?▾
There is no general legal requirement for escrow in the sale of a completed property; the price is usually paid at conveyance, and parties to large deals can contractually agree an escrow arrangement with a bank.
What happens to the 5% retained after the project is completed?▾
The chartered accountant retains 5% of construction cost, or the developer provides a bank guarantee for it, and it is released only one year after completion or on submission of a latent-defects insurance policy.
