Escrow Accounts in Uzbekistan: Your Key to Safer Home Buying

Buying a home is a big deal, and it should feel secure. That's why Uzbekistan is introducing a new system called "escrow accounts" for real estate transactions, starting gradually on July 1, 2025, and becoming mandatory from January 1, 2026. This change aims to make the process much safer for you, the buyer.

What Exactly is an Escrow Account?

Imagine an escrow account as a secure, neutral holding place for your money when you're buying a property. Instead of paying the construction company directly, your funds go into this special bank account. The developer, or "builder," can only access these funds after they've completed their contractual obligations, such as finishing a certain percentage of the construction or, most importantly, putting the building into operation.

This means your money is protected. If for some reason the builder doesn't complete the project or fulfill their promises, your funds are safe in the escrow account and can be returned to you. It's essentially a guarantee that the builder will deliver what they promised before they get paid.

Is This a New Concept? Global Practice of Escrow

Not at all! Escrow accounts are a widely used and proven mechanism around the world, especially in real estate. Countries like Russia, for instance, implemented mandatory escrow accounts for residential construction in mid-2019. The results there were significant: a sharp decrease in problematic projects and a near elimination of cheated homebuyers. This international success demonstrates the effectiveness of escrow in increasing transparency and protecting buyers.

Why is Uzbekistan Adopting Escrow Accounts?

Uzbekistan is introducing escrow accounts for several compelling reasons, all centered on strengthening the housing market and protecting consumers:

• Protecting Buyers' Rights: This is the primary goal. The system ensures that your hard-earned money is secure until the builder fulfills their obligations, significantly reducing the risk of fraud or unfinished projects.

• Enhancing Financial Discipline in Construction: Builders will no longer be able to use buyers' funds directly as their primary source of construction financing. They will need to secure project financing from banks, promoting more responsible financial planning and execution of projects.

• Increasing Transparency: With information about construction projects, including approved project documentation, construction progress, and financing banks, being placed on an electronic platform called "Transparent Construction" from July 1, 2025, you'll have more visibility into the project's status.

• Streamlining the Process: The system aims to simplify the legal aspects of property transfer. All contracts will be notarized and registered with cadastral authorities.

• Boosting Confidence in the Market: A more secure and transparent market encourages more people to invest in real estate, fostering further development in the housing sector.

How Will Escrow Accounts Work in Uzbekistan?

Here's a simplified breakdown of the process:

1. Notarized Agreement: When you decide to buy a property under shared construction, you'll sign a notarized shared construction agreement (DDU) that must be registered with the cadastral authorities.

2. Funds to Escrow: Instead of paying the builder directly, your money will be deposited into a special escrow account opened in an authorized commercial bank. This account is set up with an agreement between you, the builder, and the bank.

3. Builder's Initial Investment: The builder must complete at least 30% of the construction work using their own funds before the bank releases any targeted loans for the project.

4. Bank Financing: Commercial banks will provide project financing to builders, with interest rates potentially decreasing as more funds accumulate in the escrow accounts.

5. Protection of Funds: Funds in escrow accounts cannot be frozen or seized due to obligations of either the buyer or the builder to third parties.

6. Completion and Transfer: Once construction is complete and the building is approved for operation, the bank will transfer the funds from the escrow account to the builder (after repaying any loans). The builder and buyer then sign a transfer act, and your ownership rights are registered by the cadastral authorities.

7. Penalties for Delays: If the construction is not completed on time, fixed penalties will apply for each day of delay. If the delay exceeds six months from the planned completion date, you, as the buyer, can unilaterally terminate the agreement and get your funds back from the escrow account.

What Does This Mean for You, the Buyer?

This reform is overwhelmingly positive for homebuyers. It offers a level of security that was previously absent in the shared construction model. You can be more confident that your investment is safe and that you will receive the property you paid for.

While some experts predict a potential increase in property prices due to increased costs for developers (who will now rely more on bank financing), the long-term benefits of a more stable and trustworthy real estate market are significant.

In essence, Uzbekistan is moving towards a more mature and secure housing market, aligning with international best practices to ensure your peace of mind when making one of life's biggest investments.