Kickback culture hikes service fees in Dubai, say experts

Dubai homeowners are bearing the brunt of inflated service fees caused by suppliers paying off developers to secure maintenance contracts at above-market prices, industry experts said.

The kickback culture has seen some homeowners pay over the odds for services such as cleaning, landscaping and maintenance as developers favour companies offering bribes.

“Developers are definitely receiving fees….for giving exclusive access to a building or particular contracts. I would say its common [practice],” said Michael Ryall, director at Place Community Managers. “[Tenants] can face higher costs for fit-out for a commercial units and it can also affect their service charge if there is trickery going on over which contractors are allowed to tender on particular buildings.”

Matthew Green, head of research and consultancy at property broker CBRE, said the emirate’s move to introduce homeowner associations to oversee service contracts would go some way to stamping out bribes.

“I think there is still some way to go before investors are entirely happy with how things are being run but it is improving,” he said. “Of course [kick-backs] are still going to be prevalent; some owners are still going to be making money out of it and others equally will be losing out and suffering because of the inefficiency of their management.”

Rows over service fees have surged in the wake of Dubai’s property crash with many owners accusing developers of charging inflated fees amid tumbling real estate prices.

Nakheel, the developer embroiled in a dispute with tenants on its Shoreline apartments over access to the property’s beach clubs, previously charged owners at its Al Bashri and Al Dabbas buildings on the Palm Jumeirah more than 80 percent above the market average for the cost of maintaining the building’s pools and gym, a draft report seen by Arabian Business claimed.

The interim report, by auditors Baker Tilly Merali and dated September 2010, compared the average cost for a range of services to the price paid by owners in the years 2008-2010.

The report showed budgeted figures forecast for 2011, which revealed homeowners could expect to pay 59.5 percent more than the industry average for management fees, 17 percent less for security fees and 56.2 percent more for cleaning fees in 2011.  

A spokesperson for Nakheel said the company’s service charges have since been reduced by 35 percent at Shoreline.

There is no suggestion the company received payment in relation to its service charges.

Dubai introduced a strata law in May 2010 to give registered homeowner associations the power to oversee the maintenance budgets and contracts of their buildings.

RERA in August told Arabian Business that 228 associations had been registered, allowing the groups to legally open bank accounts, pay bills and hire contractors to manage the maintenance of their building.

But moves to register more homeowner associations have been slow and many owners have moved to withhold service fees in protest at poor maintenance.

Nakheel in December blocked some 1,300 Shoreline tenants from using leisure facilities in the buildings after it said homeowners owed more than AED72m in unpaid service fees.

Dubai authorities are understood to be mulling the establishment of a special tribunal for solving service charge disputes, and to review the legitimacy of charges.

“I believed….that they are still some way away from formally setting anything up but [authorities] do recognise that there is a need for something like this,” said Brent Baldwin from legal firm Hadef & Partners.

“There is clearly a need for it. There does need to be some sort of fast track mechanism for owners to resolve disputes within their developments that relate to owners associations.”

Nakheel in August pledged to slash service fees at its real estate developments in Dubai by nearly a third, vowing that owners in its properties would pay the lowest fees in the city.

“We are shooting for a 30 percent reduction in services charges compared to 2010… We want to have the lowest service charges in Dubai,” Ali Rashid Lootah, chairman of Nakheel, said.