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Mon 6 Dec 2010 12:00 AM

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Number crunching

According to reports, developers are not disclosing if they are paying the service charges for the upkeep of a building where an Owner Association (OA) has not been formed. Does this mean residents risk having utility services disconnected owing to a few owners playing truant on service fee payments?

Number crunching
A bird’s eye view of Dubai: Both the OA and unit owners are responsible for the property management of a building.

According to reports, developers are not disclosing if they are paying the service charges for the upkeep of a building where an Owner Association (OA) has not been formed. Does this mean residents risk having utility services disconnected owing to a few owners playing truant on service fee payments?

Lease rates have significantly declined since research was
published by the Landmark Advisory in June 2010.

“Tenants realise it is currently a renters’ market and want
more value for their rental dirhams and are able to leverage alternative
options to negotiate attractive deals,” said Jesse Downs, director of research
and advisory, Landmark Advisory.

“Some developers and landlords are finally realising the
implications of this supply pipeline and are slashing rents by up to 20-30%
below market rates to achieve higher occupancy in newly handed-over buildings.”

However, if a master developer or sub developer has failed
to pay service charges, on any previously unsold units, the building will be in
need of repair and basic upkeep on common areas including the lobby, lifts,
stairwells, gymnasiums, swimming pools, BBQ areas and gardens.

“Rents are often an illustration of the quality of the
community, including building maintenance and infrastructure. The most
significant recent rent declines are in areas with maintenance and
infrastructural issues,” added Downs.

According to Landmark Advisory, lease rates will continue to
decline, especially in areas which suffer from maintenance and infrastructural
issues.

Until a property unit is registered in a buyer’s name with
an Owner Association (OA) with RERA, the master developer or sub developer is
supposed to pay a monthly service charge for all unsold units but some
developers have not been paying the fee.

Early estimates predict the arrears could be around 30 to
40%.

“All unit owners must pay the RERA approved service charge
and the developer must pay the service charge for any unsold units,” said
Marwan Bin Ghulaita, CEO, RERA, in its 2010 circular.

“Failure to pay the service charge on time is a violation of
the law and may result in civil penalties including a lien being imposed over
the unit.

“Continued failure to pay the service charge may result in
legal enforcement of the lien to recover the service charges which may result
in a public auction, with the outstanding service charges being deducted from
the selling price.”

Abu Dhabi Ports Authority

Ali Al Suwaidi, senior manager of facilities management for
Abu Dhabi Ports Company (ADPC) industrial zones said it is true, master
developers are still not disclosing full service charge components most of the
time and have no clear asset management strategy from a long term perspective.

“I do not consider the service charge payment is in arrears;
it is more to do with funding the upkeep of a common area from day one of a
building that is occupied even if the occupancy is as low as 10%.

“The main issue is that there was no administration of
service charge collection in the initial stage and it was up to developer to
use or abuse it as the master developer was responsible for its upkeep until
the formation of an owner association (OA).”

Suwaidi said the requirement to register an OA before
service charges can be collected is an incentive to comply with the Jointly
Owned Property Law because once an OA is up and running, it will be responsible
for running the common facilities and developers will be required to pay
service charges for units they still own, until they can sell them.

“There really is no risk of utility disconnection especially
on the resident paying the utilities bills directly,” he said.

“But for the facilities manager, non-payment of service
charges means sometimes it has no sufficient fund and no clear maintenance
strategy for its performance of systems or from a health and safety point of
view.

“The new Jointly Owned Property Declaration (JOPD) and
association manager role will hopefully improve the administration and
collection of money and effective utilisation of funds to avoid a markup of
management companies.

“If developers don’t register with an OA, they get penalties
and cannot sell until they get the OA registered and relative accounts created.

“In areas where owners have not paid their service charges
for years, this is a dispute that has to go through RERA which decides on the
merits of each case on its own,” he added.

“It used to be an area of no man’s land for a long time and
that was why it was a case by case dispute between the owners and developers.

“Now, the guidelines are clear cut by RERA reflecting all
common duties and responsibilities enforced by law.”

According to the Landmark Advisory, average vacancy rates in
Dubai are
currently 15-18% but will increase to 19-24% by 2012.

Even considering the Abu Dhabi
commuter demand, it is clear that average rents in Dubai
will continue on a downward trajectory,” added Downs.

Al Shirawi Facilities Management

Rohit Dalmia, business development manager for Al Shirawi
Facilities Management believes the recently introduced Joint Ownership Property
law will begin to take hold in 2011 and have a positive effect on the market.

“However, as a law, there is still uncertainty as to its
implementation and doubts about its enforcement that need to be clarified if,
as an FM provider, we are to align our corporate strategy with the new
regulatory requirements,” he said.

“It’s important to ensure professionals and owners are
making educated and informed choices which are guided by the correct decision
makers, namely Dubai Real Estate Institute, RERA and MEFMA.

“We believe it is imperative that such knowledge be shared
in the most professional and unbiased manner and all bodies are perfectly
placed to advise the market accordingly.”

Dalmia added that he was sensing more fairness and
transparency related to the bidding and tendering process because such bodies
are introducing benchmarking into the industry.

He said that while competition may be intense, focus has
definitely shifted to quality-based service differentiation and in 2011 he
would like to see more of this happen amongst the FM community.

“As an industry in the UAE, it not only raises the standards
but sets an example for neighbouring countries that are slowly but surely
acknowledging the importance and benefits of FM,” he added.

“Whether the same is related to sustainability, best
practices, sourcing or innovation; quality in the industry as a whole must
improve further.

“Perhaps my biggest wish is to see a greater involvement of
FM firms during the design and construction stage.

“Past projects have had little or no regard for FM and the
focus has been on aesthetics and sales rather than practicality and
maintenance.

“By incorporating FM early on, developers can save in
construction costs and pass these savings to potential buyers who in turn will
save by lower maintenance costs. As such, it could be a catalyst to reviving Dubai’s real estate
market. Of course before this happens we need 2011 to be the end of
recessionary pressure and developments to re-start,” added Dalmia.

Emaar

A spokesman for Emaar Properties claims it had already set
up Owner Committees before RERA issued the directions regarding Law No.27 of
2007 concerning JOPs in Dubai.

It initially created 16 Owner Committees and now has over 39
Interim Boards across its Emaar communities.

“The Interim Boards have been working together with the
Community Management Department, and we have had a very successful track-record
of co-operation from the owners in paying the service charges,” he said.

“As per the JOP Law and RERA’s directions, every owner is
obliged to pay their share of the service fee for the management and
maintenance of common areas. This is important for sustaining the long-term
value of their property as well as for the overall welfare of the community.

“Emaar’s communities have a high level of occupancy and most
of the units in the established neighbourhoods have been handed over. Emaar has
always been paying service fees, wherever applicable, for unsold units.”

He added the company has also, on occasions, subsidised some
costs and paid on for them on behalf of the community when there was a
shortfall to ensure the interests of the community are upheld.

“Once an Owners Association is formed it is fully
responsible for the payment to service providers and any defaults in collection
could adversely affect the maintenance of the community. As such, it is
important for all owners to pay their dues in full and on time.

“Emaar knows each community in detail. This knowledge is
essential in ensuring the value of the assets and equipment are protected for
the long-term.

“We also follow all regulations by RERA and other concerned
authorities across all its community management practices,” he said.

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