Dubai maintenance battles reveal the downside of upkeep

From foul smells to shut-off air conditioning, residents taking charge of maintaining their buildings may find themselves already in debt.

DUBAI, UNITED ARAB EMIRATES, July 12: Private company workers working in the garden of Discovery Gardens residential area in Dubai. (Pawan Singh / The National) For Business Stock
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Every day, Ercelan Yazdani says he dreads the arrival of a foul odour. The Sky Gardens Tower resident, next to Dubai International Financial Centre, says the source of the smell isn't entirely clear. But he has been told by the building's maintenance staff that the pipes running through the tower have likely sprung a leak, which is allowing sewage odours to permeate through the walls. The issue has persisted for about nine months and he says there are no plans at the moment to permanently fix the problem.
"It's like a wake-up call," says Mr Yazdani, who is an executive at a company in Media City. "It's the biggest problem in my building. Sometimes, I'd rather just not go home." The larger issue, he says, is that the maintenance company has gradually reduced its staff to a skeleton crew. Even minor problems are ignored, he adds, leaving residents helpless when it comes to repairs. The building is the subject of a major investor dispute currently playing out in the DIFC Courts, and its owners are allegedly behind on paying maintenance fees that fund the operating expenses of the building.
The smell at the Sky Gardens Tower isn't an isolated incident. Indeed, maintenance has proven to be a major problem in Dubai, where the property market is coming of age after years of rapid construction and off-plan sales. Now that speculative buying and selling has receded, homeowners are dealing with the more mundane issues of upkeep and managing jointly owned areas such as lifts, lobbies and swimming pools.
For the past two years, these responsibilities have rested with the original developers. Now, homeowners themselves are beginning to take control after property regulators issued guidelines for the much-anticipated "strata law", a new system of management that governs how buildings with multiple owners take care of jointly owned properties. Under the law, a building collective will be established, giving its members the power to hire its own maintenance company, disperse funds and ensure the money is spent properly.
Dubai highrises, which tend to offer more perks and amenities, charge tenants thousands of dirhams worth of fees every year. And yet, with this new period of transparency, what is coming to light is the extent of the shortage of maintenance money at developments around the emirate. In some buildings, the payment default rate is as high as 75 per cent, according to maintenance companies. However, a homeowner collective will in theory have the power to seize the homes of owners who refuse to make payments.
"A lot of buildings have incurred debt because of defaults on maintenance fees," says Peter Crogan, the chief executive of BCS Strata Management Services. "Because of this, the first 12 months will be about debt recovery. The significant thing is that debt stays with a building. If you don't save up for bigger maintenance projects, then you'll have to pay later." In some parts of Dubai, the situation has deteriorated to the point that residents have had their air conditioning shut down in the peak of summer.
This month, more than 100 apartments in Jumeirah Lakes Towers had the air conditioning disconnected after the owners failed to pay outstanding fees to the developer, Distinguished Real Estate. Other maintenance companies have distributed letters to tenants and landlords demanding payment. Even more worrisome for many homeowners is the absence of an appropriate "sinking fund" for major capital improvements and replacements.
Maintenance fees - which average out to about Dh20,000 a year for a typical one-bedroom apartment - are broken into operating expenses and larger projects. While the latter pays for services such as gardeners, cleaning staff and security guards, the sinking fund is used to repaint buildings and replace expensive equipment such as coolers that can cost Dh3 million. The Real Estate Regulatory Agency is planning to oversee each building's sinking fund to ensure enough is being saved by the homeowner association for important work. Still, current owners could soon be hit with increases in maintenance fees to make up for lost savings if such a fund was not set up properly for their development.
But for another resident in the Sky Gardens Tower, who asked to remain anonymous, a rise in fees is the least of his problems. While the smell in his apartment has improved of late, he is still thinking of finding a new place. "I am considering moving," he says. "The apartments are nice - they have a good finish - but there is basically no building management anymore." The problem started, he says, shortly after he moved into the apartment about nine months ago. The Sky Gardens resident says he moved from an apartment in Jumeirah because he was seeking a more central location with better furnishings. Overall, the building has reached his expectations, but the persistent odour has soured him to the location. And despite sending several letters to his landlord about the problems, he has yet to receive a reply.
"It's especially frustrating paying Dh152,000 for a two-bedroom apartment," he says. "You don't get the services you are promised." He adds that the introduction of a strata law would be a much-needed sounding board for complaints. "The biggest obstacle is nobody is listening," he says. "It's a way to get these problems out there. Some landlords own half the tower, but aren't willing to reply to any complaints."
Maintenance fees are sometimes hidden from potential buyers and renters but they should be fully investigated before any deal is struck, according to the facilities management company MAG Me Property Solution in Dubai. "When considering a real estate investment, prospective owners should always seek advice from professionals who can evaluate all potential operational costs, as well calculating depreciation or the appropriate deposits for a 'sinking fund'," says Mazen Falhout, the general manager of the company. "What might seem on the surface to be a good sales price may not be cost-effective over time, when the so-called hidden capital and their respective operational expenses have been factored in."
Mr Falhout adds that many buyers do not factor these costs into their purchase of units when they planned to quickly resell for a profit, but now that prices have declined and remain fairly stable they need to consider maintenance a crucial part of owning a property. An under-maintained building is less appealing to buyers and hurts the long-term prospects of reselling apartments, he says. Renters, however, are often left with few options when it comes to poor maintenance problems in buildings. They can appeal to the owner to be let out of their lease early, but they may not succeed.
Mr Yazdani and his fellow Sky Gardens resident say they are considering moving, but their landlords are not willing to let them out of their leases early. Matthew Hooton from Ashurst Dubai, a firm specialising in property, recommends that tenants include a section in their rental contract before they sign that requires the landlord to keep up his payments for the maintenance of the building itself.
This way, if the landlord defaults the renter has the contractual ability to get out of their lease. "The law provides that the landlord is basically responsible for the repairs to their apartment, but it gets more complicated when it comes to common areas in a jointly owned building," Mr Hooton says. "Most leases don't oblige the landlord to repair the common parts of the building." Abu Dhabi does not yet have any law to govern jointly owned property, which could begin causing issues when thousands of apartments are handed over later this year on Reem Island and Al Raha Beach.
Similar to Dubai, these developments will offer communal areas and amenities requiring upkeep and maintenance fees. Mr Hooton forsees major problems in the capital if the issue isn't addressed prior to tenants moving in. "I think it's going to be an increasing problem if it is not gripped quite hard," he says. "I'm sure it will be an ongoing issue." In the longer term, the full enactment of the strata law in Dubai will actually reduce costs for home owners and improve the efficiency of the maintenance of their buildings.
Once a homeowner association is set up, it will invite maintenance companies to bid on contracts. The association can then choose the cheapest offer. Competition will lead to better prices. Full transparency will be required on how the association spends the money, which will also be reassuring for owners who have for years paid tens of thousands of dirhams to developers per annum without full disclosure of how the money was being spent.
Abdul Majeed Ismail al Fahim, the chairman of the under-construction Dubai Pearl development, recently said: "It will put the mandate into the hands of property owners, who will decide what services they want and they won't be overcharged. They will nominate their homeowner associations at general assemblies and they will be able to vote for people who they think will do a good job."
* With additional reporting by Jeffrey Todd