Developers drag their heels in handover to owners

by Claire Ferris-Lay Tuesday, 13 December 2011

Dubai developers are delaying registering homeowners associations (OA) with the city's real estate bodies in a bid to retain the revenue of service fees, industry experts said.

Large-scale developers are failing to register paperwork with Dubai Land Department, allowing them to delay handing over the management of their properties to buyers, said Edward Sanders, director at Dubai building management firm, Place.

"There certainly are delays. Dubai has excellent legislation for joint ownership property but it's not being enforced," he said. "There is a perspective from developers that they'll get around to it when it is being enforced.

"They think it's a good idea to try and hold onto the development for as long as possible... because they think there is a revenue stream there or a benefit."

Strata law, which entitles OAs to oversee the maintenance budgets and contracts of their properties, was decreed in 2007 but only implemented in May last year.

OAs must be registered with the Dubai Land Department [DLD] to allow them to open a bank account, pay bills and hire contractors to oversee building maintenance.

Arabian Business reported in August that interim OAs were Dubai were facing charges of up to AED15,000 ($4,038) a month from developers, in exchange for the company paying bills on their behalf while they waited for DLD approval.

Dubai's Real Estate Regulatory Authority (RERA) said in August there were 218 registered OAs in the emirate, a number that analysts said was low in comparison to the city's property supply.

The watchdog said it expected a 70 percent rise in owner-managed properties by the year-end.

House prices in Dubai, the Gulf's worst-performing market in the last three years, have fallen more than 60 percent from their peak in late-2008. Disputes over service fees have soared in the wake of the financial crisis, with buyers accusing developers of charging inflated fees to help temper slumping revenues in the property market.

In projects such as Nakheel's Discovery Gardens and the Palm Jumeirah, default rates on service charges among homeowners are estimated to be as high as 50 percent.

A tenant in Nakheel's Discovery Gardens told Arabian Business: "Nakheel appears to be doing everything possible to disrupt and delay the formation of the owners associations, which would enable responsible owners to take decisions about maintenance into their own hands.

"Red tape and recalcitrance are leaving owners who wish to safeguard their investment in the future of Dubai with their hands tied," he added.

Developers may also be reluctant to register OAs due to their inexperience in managing properties, said Ron Hinchey, director of real estate consultancy Cluttons, UAE.

"Because the OA are acting on behalf of their owners there is a temptation for them to do things on the cheap. If you start managing buildings on the cheap there is a tendency, especially in this climate, for them to deteriorate quite quickly. If you are a big branded developer you will be reluctant to have the brand tainted in that way going forward."

Smaller developers, struggling with cash flow, are more likely to push through registration, added Sanders.

"We're finding that the smaller developers...they are getting into financial difficulties because they are having to cash flow the developments so want to pass it over as fast as possible."

RERA did not respond to calls made by Arabian Business.

Disputes over service charges are likely to continue as developers delay registration. Nakheel, the developer of the Palm Jumeirah, is locked in a dispute with tenants over its plan to privatise the Shoreline's pools, gyms and beach. Homeowners argue they own the facilities.

"Nakheel have been delaying and postponing," said one homeowner. It is not in their interest to speed it up because as soon as everyone is registered Nakheel will lose the business of managing the shoreline," one home owner told Arabian Business.