18 July, 2011

UAE Property Service Charges Explained – Part 2: Service charges

UAE Property Service Charges Explained – Part 2: Service charges

The property service or maintenance fee entails just that, the general maintenance of common areas, swimming pools, lifts, landscaping, security, cleaning and so on. In the case of a multi-apartment building or villa development additional master community charges may include services like maintenance of roads, pavements, storm water drains and sewage water treatment.

The fee should also include a percentage for management and its admin fees, as well as for the so-called sinking fund. The latter is a dicey subject, as not all developers established one and/or some have used the funds for general maintenance rather than saving it for the major repairs and replacements it is intended for. Construction defects, for example, should not be rectified with the use of service fees.

As a buyer it would be advisable to take a closer look at the building, not only the apartment, and if possible speak to the maintenance and/or management company contracted to look after the building. Even better contact current homeowners.

Disputes over the level of service and fees also occur. Check what services can be expected and whether they’re fully provided. A badly maintained building could over time devalue a property. During the real estate downturn there have been instances where the developer did not pay the service providers and they stopped to perform in response.

Depending on the level of service, rates of course vary, but expect an average of Dh14 per square foot, which can though easily double in some developments. On the villa side, they are less complex and therefore start at less than Dh2 and rarely supersede Dh4 per square foot.

Some experts believe service fees in Dubai should average Dh8, highlighting that the property management part of the fees is well above the global norm. Others in the same business however, feel that service charges for individual buildings aren’t overly inflated compared to the rest of the world. Master communities are more difficult to compare.

As an example a 3-bed villa in Al Reem in the Arabian Ranches attracts service rates of around Dh9,000 per year. The more spacious villas in Saheel and The Green Community nearly double that.

Compare these to a 1,000 square foot apartment in Business Bay’s Executive Towers with service fees of around Dh15,000 plus, whilst the Greens averages Dh14,000. A property, villa or apartment, on The Palm Jumeirah sets an owner back anything from Dh15,000 to Dh30,000.

A property investor needs to measure service and cooling fees against achievable rents to gauge affordability and return on investment. Since rents have halved, in some developments it simply has ceased to make sense. Discovery Gardens for example, has been highlighted as a community, where service, community and cooling fees for a one-bed could eat up half the rent. 

It is important to note that most developers did not build-in service fees in their sales price during the boom and therefore ended up subsidising them. Subsequently, when raising the rates, they have been accused of trying to claw lost revenue back. 

The lack of transparency on how the money has been used has led to disputes and non-payment of fees, so much so that Dubai’s Real Estate Regulatory Agency had to jump in. Now all service fees in Dubai are vetted and carry the RERA approval stamp.

Owners Associations

According to the regulations developers should not collect service fees before registering owners associations but in practice this hasn’t always happened and should be reported to the authority.

Since last year the law regulating jointly owned properties (also known as strata law) has come into force. Home Owners Associations are in the process of being formed giving them future control over service levels and fees. The general consensus is that it won’t be an easy road, but in the best case scenario should reduce service fees in the long run.

Interestingly, the law also stipulates that the owners association can, via the courts, apply to auction off a property, if the owner is more than three months behind paying service fees and then refuses to pay up after a warning. A point tenants should keep in mind.

Most owners take over the cooling and service fees. However, because of the high cost reducing return on investment, rents could reflect the same or the landlord may ask the tenant to take over those fees.

More on propertyfinder.ae:
Read part 1: UAE property service charges explained - District Cooling
On the blog: join the conversation about service charges
 
 

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