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Mon 5 Dec 2011 10:11 AM

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Abu Dhabi sees service fee rows as handovers begin

Lack of property laws means developers hold the upper hand in disputes, say analysts

Abu Dhabi sees service fee rows as handovers begin
Most Abu Dhabi developers have focused on delivering existing projects after the crisis

Abu Dhabi may face a string of Dubai-like property disputes in the coming months as rows over service charges coincide with the handover of new homes, the managing director of Elysian Real Estate said.

The UAE capital is scheduled to see 11,000 units handed over before the year-end, Jones Lang LaSalle said in October, and disputes over maintenance fees have already begun.

“We are seeing a lot of that now, [as] Abu Dhabi is coming to a time when a lot supply is being handed over,” Paul Preston told Arabian Business. “A lot of these developers are new, they’ve never developed before, so they don’t know how to deal with things. I think it will happen a lot. It will be a pattern and lawyers will be busy.”

Elysian, which develops projects internationally but acts as a property broker in the UAE, said a number of its clients had been charged for maintenance fees before the handover of their home.

 “Some developers are two years late on delivery and then, when they hand the project over in September, they start charging homeowners service charges dating back to February,” Preston said. “The master developer charges the individual developer so they try to pass that cost on.”

Most Abu Dhabi developers have focused on delivering existing projects after suffering significant losses amid the economic downturn, which ended a five-year housing boom.

Around 2,800 residential units were delivered during the third quarter in Abu Dhabi, Jones Lang LaSalle said in October.

The majority of units were located in Al Zeina on Raha Beach, Yas villas and the Capital Plaza residential towers, bringing the total current residential stock to approximately 193,000 units.

Average real estate prices in the capital declined seven percent to AED 11,000 per sq in the third quarter, a 49 percent decline from their peak in 2008, JLL said. The rate for apartments was slightly higher at AED 11,900 per sq m, compared to villas at AED10,100 per sq m.

Abu Dhabi’s property market has to date sidestepped some of the difficulties seen in neighbouring Dubai’s real estate market, where prices slumped following the financial crisis.

Dubai has seen a string of disputes over service fees, as homeowners accused developers of charging inflated fees for building upkeep in a bid to maintain a revenue stream.

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

Analysts say the issue is gradually being tackled in Dubai with the assistance of real estate watchdog, RERA – but not in Abu Dhabi’s comparatively immature market.

“Abu Dhabi is a market still very much in its infancy, with the emirate still lacking a comprehensive set of real estate laws,” said Matthew Green, head of research and consultancy for the UAE at property consultancy CBRE.

“The lack of enforceable strata and investor protection laws means developers in the capital still hold significant power over purchasers. Legal disputes are clearly on the rise as the flow of completed freehold properties picks up pace, and as investors contest issues such as construction delays, quality of promised versus delivered product, and charging of additional previously unidentified fees.”

Until tighter laws are rolled out in the capital, the picture is likely to remain unchanged, he said.

“This is not conducive to improving the emirate’s investment environment, which requires greater levels of transparency and protection for investors.”