Dubai developers net illegal fees from buyers

Real estate firms raking in profit from illegal registration fees, ramping up service charges
Dubai developers net illegal fees from buyers
Rows between tenants and developers over maintenance have soared in the wake of Dubai’s real estate crash
By Elizabeth Broomhall
Wed 01 Jun 2011 02:01 PM

Dubai developers are charging homeowners thousands of dirhams in illegal
registration fees in a bid to ramp up profits, a report by law firm Hadef &
Partners said.

Dubai Land Department (DLD) is the only body legally allowed to collect fees
for registering properties, yet some developers continue to flout the law by
demanding additional sums, the report of 350 buyers and industry professionals
found.

“Some developers are a charging an illegal, blanket fee of AED5,000 for
registration and AED1,000 in handling fees,” said Michael Lunjevich, a partner
in the firm, and author of the report. “But if you have an apartment worth
AED1m for example, the DLD, who is the official body, only charges AED 2,500
for you to register the property, or 0.25 percent of market value.”

Developers are split between those who are willfully ignoring the law in
order to make a profit and those who are not aware the practice is illegal, Lunjevich
said.

The problem also extends to service charges, a particular bone of contention
between homeowners and developers, the report found. Dubai law dictates that
firms are barred from adding profit margins on to service fees and are only
allowed to charge tenants the cost-price of maintaining facilities.

Under Strata Law, developers are required to gain approval for their
maintenance fees from Dubai’s real estate watchdog, RERA, until homeowner
groups are able to take over the accounts.

“There are some developers who are taking a collaborative approach with the
new owners’ associations and some that are not, where again, they see it as an
opportunity to make some money in a down market,” said Lunjevich.

Rows between tenants and developers over maintenance have soared in the wake
of Dubai’s real estate crash. In locations such as JBR, Discovery Gardens and
Nakheel’s Shoreline apartments, scores of owners have withheld service fees in
protest at the poor upkeep of facilities.

“The jointly-owned property law is not about creating a profit centre for
the developer, it’s quite the opposite,” Lunjevich said.

Developers who once saw millions of dollars in profit during Dubai’s real
estate boom have struggled to stay afloat after emirate’s property bubble burst
in late 2008.

Many have chosen to complete projects started before Dubai’s property market
collapsed rather than canceling them and facing a legal obligation to return
all advance payments to customers.

Analysts warn the practice of illegally charging fees to buyers could have a
negative impact on Dubai’s already stalled real estate market, deterring
potential homeowners and potentially forcing house prices to sag further.

“It affects confidence in the market, which is required for the market to
recover,” said Sadalla Abed, a senior consultant at Colliers International.
“And of course if people have to pay the fees twice, it might stop some them
from entering the market because it will be too expensive for them.

“There could also be some legal implications down the road,” he added. “If
people haven’t registered their property they cannot sell it, there are so many
things that they won’t be able to do with their properties.”

 

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