The Construction and Real Estate Digest with Daniel KONTIE: Legal and institutional weaknesses in real estate sector [-2]

…how the absence of statutory escrow and buyer protection regulation is fueling off-plan development fraud

For decades, Ghana’s real estate market, especially the off-plan segment operated without a statutory framework governing how buyer funds are held, secured and managed. In contrast to mature markets where escrow regulation is foundational to property transactions, Ghanaian law allows developers to collect substantial deposits from home buyers without ring-fencing those funds in protected third-party accounts.

This legal lacuna has created fertile ground for off-plan fraud, stalled or abandoned projects, diversion of pre-construction funds and buyers left as unsecured creditors when developers default or disappear.  Over the years, a few industry practitioners and policy analysts have been calling attention to the structural risks associated with this regulatory gap but nothing has since been done about it. In fact, it does appear developers do not want to hear about it, whilst policy makers pretend as though the problem never existed in the first place.

Recent industry reports points to the fact that, because of the absence of mandatory escrow protection, developers retain unfettered access to buyer deposits and converting them into working capital rather than project financing which weakens contractual integrity and breeds distrust (ACECN, 2025).

Therefore, the purpose of today’s article is to address how the absence of mandatory escrow arrangements, ring-fenced project accounts and enforceable consumer safeguards have enabled developers to divert funds for self-aggrandizement, abandon sites, or stall projects with minimal or no accountability. It further examines how this affect market confidence and proposed structural reforms urgently needed to protect investments and restore sector integrity.

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The Legal Lacuna in Buyer Protection

In 2020, Parliament of Ghana enacted the Real Estate Agency, Act 2020 (Act 1047) to address longstanding market distortions and to professionalize the country’s real estate agency sector. A key outcome of this legislation was the creation of the Real Estate Agency Council (REAC), tasked with the mandate of regulating real estate brokers/agents and promoting transparency in property transactions.

However, despite this advancement, the attention of parliament was not drawn to the fact that, a similar enforceable protection was necessary for off-plan buyers, leaving a critical gap in safeguarding clients’ funds and exposing investors to significant financial risk. This lacuna has profound implications for market confidence, particularly as Ghana’s housing sector continue to rely heavily on pre-construction sales. Critically, Ghana lacks:

• A statutory requirement for escrow accounts in property transactions

• Mandatory third-party custodians to hold and manage pre-construction deposits

• Milestone-based release controls tied to measurable construction progress and

• Explicit remedies, including refunds or compensation if developers default or fail to deliver.

As a consequence, buyers often pay funds into developers’ operational or even personal accounts, a recipe for funds misuse and fraud, with little legal recourse beyond the traditional breach-of-contract actions. In fact, a recent sectoral review indicates that, over 38 clients instituted a legal action against a particular developer (name withheld) in 2024 over stalled projects and buyer funds also not being accounted for. This is just to cite an example for want of space out of the many occurrences of this systemic cancer over the years.

Impact on Investor Confidence

As previously highlighted, this regulatory gap has facilitated the diversion of clients’ advance payments, increased litigation and financial losses for unsuspecting buyers and ultimately, eroding market confidence. Over time, such unchecked vulnerability distorts capital flows, discourage institutional investment, weaken consumer trust and undermine the long-term credibility and stability of Ghana’s real estate industry.

Erosion of Trust: Local buyers increasingly approach off-plan investments with skepticism. Many of them recount stalled projects, lack of progress updates and delayed delivery outcomes that are mitigated in jurisdictions with mandatory escrow and buyer protection frameworks. The pattern has discouraged middle-class Ghanaians from participating in formal off-plan markets, therefore, pushing transactions into informal and other opaque channels.

Reverse Capital Flow: Ghana’s substantial diaspora community has historically been a robust source of real estate investment. Yet, the absence of statutory safeguards diminishes diaspora confidence and by extension, inflows of foreign capital. Professionals and buyers alike now cite the lack of escrow protection as a key deterrent, hence the need to address this now and decisively (ACECN 2026).

Mandatory Escrow as Remedy

Escrow is a legal arrangement where funds are held by a neutral third party, typically a licensed bank or trustee until the seller or developer meets predefined contractual conditions verified by independent inspectors or regulators. In real estate, this mechanism protects buyers by:

• Securing funds from misuse

• Disbursing payments only upon verified construction milestones

• Providing legal recourse if developers default and

• Enhancing transparency and accountability

The absence of statutory escrow means buyer deposits are unprotected, effectively, converting them into unsecured credit facilities for developers. In functional markets, escrow law transforms off-plan transactions from trust-based promises into enforceable, regulated financial arrangements and this is what we need in Ghana in order to restore market integrity.

International Escrow Frameworks that Worked

Dubai’s mandatory escrow framework is widely regarded as a global best practice in off-plan buyer protection. Under Law No. 8 of 2007 and subsequent regulatory oversight by the Dubai Land Department (DLD) and Real Estate Regulatory Agency (RERA), developers must open project-specific escrow accounts with licensed financial institutions before marketing or selling units (Dubai Escrow Law, 2026). Key features of this framework include but not limited to;

• Funds deposited directly into dedicated escrow accounts with approved banks

• Release of payments tied to verified construction milestones (e.g., foundation, structure, finishing)

• Retention of 5% of funds as a defects guarantee post-completion

• Severe penalties for misuse, including fines and revocation of developer registration (Dubai Escrow Penalties, 2026).

Dubai’s regime has enhanced investor confidence, encouraged cross-border capital flows and reduced the incidence of stalled projects. Buyers can track project progress through official portals and refunds or legal remedies are clearer if timelines are missed.

Abu Dhabi Global Market (ADGM)

Under the Off-Plan Development Regulations, 2024, the ADGM (an international financial center) requires structured escrow accounts and formal tripartite agreements involving buyer, developer and escrow trustee. Disbursements hinge on verifiable milestones and regulatory oversight, protecting capital integrity and project delivery (ADGM Escrow Regulations, 2024).

Our Proposed Escrow Framework for Ghana

Ghana should adopt an escrow and buyer protection regime based on the following principles as was implemented by the United Arab Emirates; a mandatory escrow accounts for all off-plan projects, a mandatory all developer registration, classification and licensing, a milestone-based release protocols, a regulatory oversight and reporting, a legal remedy for non-delivery, a mandatory post-construction defects retention fee and finally, a consumer education and transparency channels.

Mandatory Registration of all Off-plan developers: In this framework, all developers will be required to register, classified and licensed as either off-plan developer or a ready-built property developer that is, for both institutional and private individuals. This will help check and ensure ready-built developers do not turn off-plan developers whilst ensuring off-plan developers create escrow accounts before they are eligible to operate.

This will also make room for off-plan developers to upgrade as and when they think they have the financial muscle to do ready-built and similarly, the opportunity for ready-built developers to downgrade to off-plan developers if they think they no longer have the capacity to self-finance their developments.

Mandatory Escrow Accounts for all Off-Plan Projects: Developers should be prohibited from collecting advance deposits until escrow accounts are established with licensed banks or trustees.

Milestone-Based Release Protocols: Funds should only be released upon independent verification of construction progress and approvals for release of funds.

Regulatory Oversight and Reporting: A designated authority potentially the Lands Commission, or the Real Estate Agency Council or maybe a specialized real estate regulator should audit escrow accounts and enforce compliance.

Legal Remedies for Non-Delivery: Statutory rights for buyers to obtain refunds, compensation and penalties for delays or abandonment must be codified.

License Withdrawal: Statutory powers are given to the regulating authority to sanction or even withdraw developer license upon repeated offenses.

Mandatory Retention Fee for Post-Construction Defects: As part of this regulation we also propose that, Ghana should consider introducing a mandatory post-construction retention fund for all real estate developers, particularly off-plan projects, to safeguard buyers against structural and workmanship defects that emerge after handover. Under this framework, we are proposing 5% of the total contract value to be withheld in a regulated escrow account for a defined defects liability period (for example, 12–24 months), to be released only upon certified confirmation that all post-construction defects have been rectified.

This mechanism would not only incentivize developers to prioritize quality assurance and compliance with building standards, but also restore purchaser confidence, reduce litigation, and strengthen overall market credibility. A structured retention regime would signal a shift from transactional development practices to long-term accountability and professional risk management within Ghana’s real estate sector.

Consumer Education and Transparency:  Buyers, especially diaspora investors must have access to project registrations, escrow status and progress reports via digital platforms.

Conclusion

In conclusion, real estate investment thrives on trust, but trust must be grounded in law. Ghana’s omission of escrow and buyer protection legislation emboldens fraud, weakens market confidence and hampers the sector’s long-term growth. By adopting a statutory escrow framework, informed by proven models in Dubai and ADGM, Ghana can unlock greater investor participation, dilute systemic risks and set a new standard for real estate market integrity.

But before we part, do note that information provided in this article or any article by this writer is the opinions or views of the writer for general education purposes and does not constitute professional or legal advice. Readers are therefore advised to consult certified professionals/consultants before making any legally binding decision or any commitment that has financial implications. Stay tuned for the final part, Part 4, which will be on Post-Purchase Perfection. Stay tuned for part 3.

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