Developers drag their heels in handover to owners

Dubai firms seen delaying sign-off on homeowner associations to cling to revenue
Developers drag their heels in handover to owners
Dubai had 218 registered OAs at the end of August
By Claire Ferris-Lay
Tue 13 Dec 2011 08:58 AM

Dubai developers are delaying registering homeowners
(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

“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

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

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
, 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.

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