Escrow Accounts and Insurance Bond
Purpose of escrow
Escrow protects off-plan buyers by ensuring funds are used for construction of the project rather than diverted. Candidates must understand how escrow accounts are established, who controls them, and how withdrawals are authorised.
Mechanics
Know that the escrow account is opened with an approved bank under a project-specific escrow agreement involving the developer and the bank. Funds are released against verified construction milestones, typically supported by engineer or consultant certification. Records of deposits and withdrawals must be maintained and available for inspection.
Insurance bond
An insurance bond or similar guarantee provides additional security if the developer fails to complete. Understand what it covers, who the beneficiary is, and when it can be called upon. Distinguish it from professional indemnity insurance and from buyer mortgage insurance.
Common traps
Questions suggest paying marketing costs directly from escrow (generally not permitted), releasing funds before milestone verification, or treating the bond as a substitute for escrow (it is complementary). Another trap is confusing the escrow bank's role with the regulator's supervisory role.
Rule of thumb
Escrow money follows verified construction progress - no certificate, no release.
Worked example
A developer wants early release of escrow funds to cover advertising. Correct answer: escrow funds are tied to construction milestones and cannot be used for marketing expenses.