Nakheel 'scapegoat' in service charges row – CEO

Palm service charges were 'fair and very competitive' claims CEO Sanjay Manchanda

Nakheel's Palm Jumeirah Shoreline development.

Nakheel's Palm Jumeirah Shoreline development.

Indebted Dubai developer Nakheel has claimed it was made a "scapegoat" during the high profile Palm Jumeirah service charge debacle, the CEO of the government-owned firm has claimed.

"We were made the scapegoat. It was being said that we were not doing enough and we were increasing charges, but on the contrary people have found out that these were unfounded allegations against us," Nakheel CEO Sanjay Manchanda told the Emirates24|7 news website.

"We are encouraging our customers and owners to play their part in the whole development… You cannot expect services to be rendered without a cost. And that's the new reality in the freehold areas. If you demand services you have to pay for it. We are confident the prices we are asking our consumers to pay is a fair and very competitive," he added.

Master developer Nakheel’s long running battle with its customers on the Palm Jumeirah started in December 2011, when it banned more than 1,300 residents from using the beaches and gyms at its Shoreline Apartments residences and claimed it was owed US$20m in unpaid service charges.

In February, Manchanda told reporters the iconic developer is considering taking legal action against residents who have not paid their service charges in a bid to recoup some of the $35m outstanding.

“We will work with RERA (Real Estate Regulatory Authority) on this one... If that is the only way the owners want me to take,” Manchanda said. “The legal resort is available. I don’t want to go there in all honesty. It is not the [route] we would want to take.”

The debacle has had an impact on Nakheel as last summer real estate agents told Arabian Business tenants were starting to shun apartments on the palm-shaped island over the ongoing row.

The row escalated in July when Nakheel drained all six swimming pools at another development, its prestigious Marina Residences towers after it was revealed over US$4m in service charges remained unpaid.

While Nakheel refilled the pools, real estate agents said the ongoing negative publicity has meant renters are now shunning its developments on the Palm and some existing tenants are demanding a rebate on their rent or are seeking to relocate.

“The articles written recently about the problems of service charges or lack of payments to properties on the Palm are, I am sure, having a negative effect,” said Mario Volpi, head of residential sales and leasing at Cluttons.

“When we are offering a wide selection of properties there does now appear to be a reluctance [towards] the Nakheel properties on the palm. The questions from prospective tenants are mainly along the lines of whether the landlord is up to date with his/her maintenance payments,” he added.

Nakheel, Dubai’s biggest developer by assets, was hit hard by the global economic downturn, which saw property prices in the emirate decline by more than 65 percent from their 2008 peak.

The slump forced Nakheel to write down the value of its real estate by US$21bn and prompted a bailout from the Dubai government.

The firm's decision to ban residents from using its facilities has been heavily criticised.

In an interview with Arabian Business earlier this year, UAE business leader Khalaf Al Habtoor, chairman of Al Habtoor Group, slammed the company, claiming the decision would never have been approved by the Dubai government.

“It was 100 percent [damaging] and unacceptable. If I am buying a house and using the beach and later told I have to pay for the beach, this is abnormal. This is damaging the reputation of my country,” he said.

“I am 100 percent sure that the higher authorities were not aware of such a thing because they would not have accepted it…. They would never have [agreed to] it but some people try to show they are making money for the government - they are damaging its reputation 2m times [over] for a few dirhams,” Al Habtoor added.

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Posted by: vicky

Nakheel's top Management must have surely noticed one of the damage done to them is that they are not part of the new upcoming "Shaikh Mohammad Bin Rashid city"

Posted by: Realistic

All developers are involved in actions damaging Dubai reputation and Dubai real estate market. DPG, Nakheel are only the top of the iceberg. RERA has failed to play their role as authority. In fact all these developers should stick to their job and let owners manage the place. RERA should not allow developers to run maintenance, security and owners association managers due to the obvious conflict of interest. It is every day more obvious that HOA will never be registered by RERA. In their obsession to protect unethical and unprofessional developers who are in contract breach, they want to avoid HOA taking everybody to court. The RE market will continue to suffer as far as the laws are not implemented and transparency is not allowed by RERA.

Posted by: AK8j

This is another example of the lack of real leadership at nakheel. Does the CEO really think anyone will take him seriously after this? Why don't nakheel go and headhunt a top level CEO from abroad to help them?

Posted by: Johnathon

Absolutely correct. Nakheel will not be able to rejoin the league of world class companies with it's current management. They might be good financial crisis managers and, I commend them on helping the company survive, but they clearly have no real vision or knowledge of how to look after customers - no business can thrive without that.

Posted by: SA1

I fail to understand why Nakheel wants to be a service provider in that area when they are unable to recover the cost?

Isn't it business sense to let go bad customers?

There are other Service Providers who can come in and do better job, let the Home Owners decide on that.

Posted by: Neil

Nakheel is a developer and therefore can't "handover" responsibility for maintenance until the HOAs (Home Owner Association) has taken over responsibility for the development. Nakheel could get someone in to do the work for sure but they would still be responsible for collecting the fees.
The short route for all this would be for someone to prosecute a big real estate owner, someone who think he/she is above the law, once they have been made to pay owners would realize there is a law they cannot ignore.

Posted by: Red Snappa

The longer this debate prolongs with accusation and counter accusation, the worse the ongoing effect.

There are a number of valid reasons why, owners have failed to pay their service charges. The sooner the owners associations take on the negotiation of reasonable value service provision contractsOwnd the better.

How come for example that UDC the master developer of the Pearl-Qatar, can reduce their general service charge by 30%, then the equivalent of the Owners Association can reduce charges on common areas by a further 25%, as well as carrying forward surplus profit from the previous year to produce an even greater reduction in the current years charges of 40 per cent. Qatar is a similar cost environment as is its offshore island. concept.

Taking a legal course of action, will only serve to reduce desirability and logically demand even further. Mr Al Habtoor is adopting a public relations path, with his comments, the firm's hard nosed attitude does little to increase the appeal.

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