Property fees to increase for owners' associations

Property owners in Dubai are likely to see a sharp rise in building service fees due to home owners' associations.

Property owners in Dubai are likely to see a sharp rise in their building service fees with the introduction of home owners' associations. Some will see thousands of dirhams added to their annual fees when the new associations take responsibility for the management of jointly owned areas within residential communities. The fees, which cover the upkeep of items such as lifts, foyers, swimming pools and gardens, can in some cases total more than Dh40,000 (US$10,900) per year for a two-bedroom flat, although they are sometimes subsidised by building developers.

Communities that have enjoyed subsidised rates are in for a "rude shock" when the associations replace property developers as building managers; a process expected to begin once the Strata Title Law is formally introduced in October, said Peter Crogan, the chief executive of BCS Strata Management Services, which manages 130,000 properties under strata title in Australia and is to adopt a similar role in Dubai.

"Many of the sales and purchase contracts I have seen contain very low service charges and this has been a deliberate ploy by some developers to attract buyers," he said. Under the new law, the associations must be properly funded to ensure properties are correctly insured and that there are sufficient funds for daily maintenance. Crucially, the service fees set by the associations will include contributions towards building insurance (to full replacement value) and a reserve fund to pay for large maintenance jobs that are required as buildings age. Mr Crogan said these fees were not commonly included in the current arrangements.

"The introduction of the reserve fund and the new insurance requirements will cause an increase in service charges," he said. "The communities that have been enjoying a subsidised service charge will be in for a rude shock as they are required to meet the proper funding rules." Jane Dalton, a solicitor at Trowers and Hamlins, which specialises in property law among other areas, said the reserve fund would pay for major maintenance jobs, such as the replacement of lifts and the repair of roofs and roads.

She admitted it would be difficult to convince short-term owners of newly built property to contribute towards maintenance work that would be required long after they had moved out. She also described the introduction of building insurance as a positive step, despite its possible impact on service fees. "This is a big positive," she said. "Can you imagine buying a flat in the UK without knowing the building was insured and trying to get a mortgage?"

Jeevan D'Mello, the director of community management at Emaar, confirmed the company "has absorbed a lot of cost [of maintenance] in the past years". "Owners got a reduced fee because the master developer subsidised their services," he said, adding that service fees could rise or fall in the future, depending on the inclination of the community. Developments where the service fees are already inclusive of a reserve fund and insurance may benefit from a lower rate if the association is able to secure maintenance contracts at a lower price.

In a situation where owners are able to vote on maintenance budgets and the resulting service fees, there could be a temptation to purposely set a low rate. Mr Crogan warned that doing so would have dire consequences for the condition of a building and could result in RERA, Dubai's property market regulator, replacing the association with an independent administrator. "Any association that deliberately sets inadequate budgets will quickly realise that they are contributing to a reduction in their community's overall capital value and resales will be affected," he said.

Khalid Halabi, a Syrian who owns a flat in International City, was confident the owners' groups would take good care of their building. "We, as owners, have a choice between living in our apartment, renting it out or selling it," he said. "In each case, having an apartment in a building that is falling apart is not in our interests." Owners will also benefit from having a greater say in how their building is run.

They will be able to elect members of the association's management board, vote on budgets that determine their service fees and draw up community rules governing issues such as pets, building alterations and late-night parties. Owners will also have the right to inspect the body's records to determine how their service fees are being spent. At most residential communities today, the project developer continues to manage the buildings after they have been handed over and often sets the service fees without revealing a breakdown of the maintenance costs.

This has caused friction between developers and owners over rates that are perceived as excessively high, especially where residents feel communal facilities are either poorly maintained or, in some cases, non-existent. "Owners had little say in how [buildings] were funded and how the service charges were calculated," said Mr Crogan. "Management companies appointed by the developers were not transparent in their operation and owners had no recourse for objection."

Joanna Gillam, a Briton who owns a two-bedroom apartment in Green Community, pays annual service fees of Dh16,000. She said the communal areas at Green Community, which include tennis courts, swimming pools and landscaped gardens, were well maintained, but said she would welcome greater transparency in how the funds were spent. "Having that transparency is very important to residents," Ms Gillam said. "I'd definitely want to have more control over where I live and to know exactly what my money is being spent on, even if the service fee is higher."

Mr Crogan said RERA has appointed BCS to educate more than 3,000 estate agents in Dubai on the impact of strata title. The company has also been appointed to manage and consult at residential developments including Green Community, Green Community West and Tiara Residence on the Palm Jumeirah.

Published: August 11, 2008 04:00 AM


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