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Tue 13 Dec 2011 08:58 AM

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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
Developers drag their heels in handover to owners
Dubai had 218 registered OAs at the end of August

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.

gordon 7 years ago

I think the remark from Cluttons was one sided, one can argue the opposite....home owners would protect and look after the property while developers milk the tennants and under service the property...just look at the JBR...

The correct way is for a professional company to bid to manage the project, this may be a 2 or 3 year contract.
As they have to keep the client they tend to be more professional (that does not preclude the occasional black sheep)

Telcoguy 7 years ago

Hi Gordon, I think you may want to consider another possibility. After reading AB for a long time I think there is an alternative reality Dubai where many of the people involved in RE live.
It seems you and me, mere mortals are in the "other" Dubai, not the really glossy one with population growing 5%, traffic jams at 4AM and developers properly maintaining the buildings.
Who knows... maybe one day we will be able to find the entry!
In the meantime, poor maintenance of the buildings in Marina (the area I know better) is pushing people to play musical chairs. People are even switching to JLT because the buildings are brand new and do not show age yet. Not sure it is a good idea.

Chris 7 years ago

It is interesting that we still only have Interim owners associations. Until we see laws relating to owners associations having the power to recover unpaid maintenance fees by sancyioning owners who are slow at paying maintenance fees, no owner will want to assume responsibility for managing buildings on a volunteer basis with inadequate funding. The system currently is against owners and in favour of the large firms who have no transperancy in terms of the contracts that they have signed or the Service Level Agreements signed with suppliers. When you have layer on layer of non transparent dealings designed to enrich the Community Managers this will continue to be an area of profit to the developers.

Dr. Afzal Javaid 7 years ago

Hi, This is Dr. Javaid from Pakistan.

Having gone through different comments, I want to add that since almost all developers are passing wrong information to their investors / owners about completion of projects or even most of their information are misleading, I want to ask about any Law, planning or way to get our our investments back?
Please suggest that whether knocking the DIAC or like forum will be a positive move for recovery or settlement?

Please add your comments as I understand their are thousands of victims of same issue.