Property service charges stave off inflationary pressures

Dubai: The UAE’s property market is feeling the bounce – home prices are on the up and up and rental gains are getting sharper with each quarter. Home financing companies are clocking steady growth in disbursals, which attests to the fact that market is gaining depth.

So, while all the key fundamentals are pointing upwards, there is still one key indicator that is holding steady or has actually taken a dip – service charges. So much so, the setting of service charges – and collecting on them – has become less of a point of friction between property management companies and homeowners.

What explains this seeming anomaly? The answer is obvious – owners associations are now taking complete control over the process from developers and their nominated facilities management companies.

“The fundamentals of ‘owners association management’ are now in place with most freehold communities having understood the basics,” said P. R. Vijayakumar, managing director at Pacific Owners Association Management Services. “The fact that owners themselves control the management of buildings and decide their own service charges has been accepted by the communities.

“Many homeowners in Dubai have taken control of their properties and with Rera (Real Estate Regulatory Agency) registration of owner associations about to happen, it will enable them to take full financial control as well. This will end an era where developers controlled freehold properties.”

While owner associations have assumed control, another factor has been in play in keeping property and service charges from spiking. An “explosion” in new facilities management companies has taken place and all aiming for a share of a pie that is growing bigger but not at the cost of higher end-user tariffs. The majority of these contracts are for a year, with provisions for extensions. It is another way to ensure service providers stay true to agreed rate cards.

“Most freehold communities in Dubai have formed owners associations or on the verge of doing so,” said Iona Stanley, who is on the board of directors of an owners association at a high-rise in Jumeirah Lakes Towers. “By its very nature, this process leads to less dependence on the developer, and in the case of unpleasant relations, a cutting of the strings.

“For instance, in a freehold building with an active OA [owners’ association] , it is this elected body of homeowners that is now in charge of its finances, facilities, safety and upkeep – portfolios hitherto controlled by the developer. “The transition period may be long and fraught – in our case it exceeded a year. We recently changed our facilities management, security and lift maintenance contracts after a tendering, and more importantly, we now operate our own bank account.

“When a freehold property forms an OA and hires the services of an owners association management services firm, it is assumed service charges will be lowered, or at the very least stay the same as what the developer charged. This is achieved by studying all the suppliers and services contracted by the developer, and renegotiating them or seeking suitable alternatives. There are of course, unpredictable factors like district cooling, water and electricity, and master community fees and any hike in these bills will reflect automatically on the service fees.”

Saying service charges have been stable is not the same as saying that they do not face inflationary pressures. In recent years, the cost of utility has been on the rise. “The average utility cost across all buildings in Dubai is about 37 per cent of the total service charges,” said Vijayakumar. “In addition there is is the ‘master community charge’ and unlike in the past the Reserve Fund collection has become mandatory.

“These three account for more than 50 per cent for the service charge and risen directly due to inflation. It is true that other measures deployed like energy conservation, maximization of manpower utilisation and increasing service charge collections have helped keep service charges stable.”

Source: gulfnews

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