Lessons well learnt from a downturn

It is misleading to think that slashing rates can help a business stay competitive

All lessons learnt during the financial crisis were to do with survival in an environment that, frankly, nobody in the real estate industry here had witnessed before.

  • Image Credit: Abdel-Krim Kallouche/Gulf News
  • The Dubai Marina. There was a period when selling property in Dubai required little or no effort and even less business acumen or professionalism.

In order to survive, you needed to develop a competitive edge. To do this, you needed to adapt which required a brutally honest assessment about your own capabilities and the capability of your business to continue to provide the professional services that clients require but within a totally new business context emanating from the starkest of economic realities.

However, it’s not just about introspection, but also about making sense out of the chaos. The market changed rapidly during the recession requiring the rapid development of new solutions to new challenges. I think this is the greatest lesson that we learnt.

Innovation and fresh thinking will always prevail regardless of the circumstances. If the market is hot or cold, innovation has and always will always provide the competitive edge for us and our clients.

First mistake in 1929

During the Great Depression of 1929, the first mistake that many companies made was to downsize their sales force. This action essentially compounded their problems because it further inhibited revenue generation. This was one thing that we refused to do and, during the course of the recession, we actually grew our sales force by 30 per cent and, not coincidentally, our revenues grew in the four years.

So the focus was really on revenue generation complemented by realistic cost control measures designed to enhance productivity, not strangle operations.

Revenue generation was brought about by expanding services as opposed to slashing the prices of our services. The diversity ensured that we did not have to rely on just “buying and selling” to survive.

On the cost side, it was important to modify the business to reflect a more variable cost structure. Fortunately, we had always been conscious of overheads, particularly those that were fixed in nature and re-structuring the business to minimise those fixed costs was not too difficult to achieve.

Finally, it was about people. To develop and maintain a competitive edge any business must have a team dedicated to providing the best they possibly can for their clients. This includes not just generating the solutions but executing and delivering on promises as well.

During the recent crisis, overstretched is probably not the right word to describe the situation property companies were in. Many companies were not structured to deal with the crisis and had operated during a period when selling property in Dubai required little or no effort and even less business acumen or professionalism.

 A seller’s market

It was a seller’s market of a magnitude that has rarely been seen before and is unlikely to be seen again. The recession achieved what recessions typically do by revealing the flaws and weaknesses of those organisations that had been conducting business with limited vision or a long term perspective. While the short term gains may have been exhilarating, it typically came at the expense of long term survival.

The industry will always be cyclical in nature and only those organisations that are constantly improving, adapting and developing will last in the distance. To do that, an organisation must be able to capitalise on the good times and minimise the effect of the bad times.

We must understand that we are living in a region which is undergoing significant challenges, most of which have emanated from regime changes and the global recession. There is no doubt that Dubai’s real estate industry has benefitted from significant capital inflows as a result of regional events and there will always be an “ebb and flow” effect depending on the geo-political situation at any given time.

It’s an old adage but a good one… plan for the worst and hope for the best.

 — The writer is the managing director of Harbor Real Estate.

Source: gulfnews

What to consider when buying a home

Small points that are overlooked in the rush of completing applications and closing paperwork often come back to haunt owners

Dubai’s rents are on the rise. By some estimates, rents in the emirates increased by as much as 25 per cent in this past year. With the mounting pressure on renters, many may be considering buying a property not only to save and gain equity, but also to take advantage of an appreciating market.

This argument may initially make sense particularly for long-term expatriates who aren’t planning to leave the UAE in the near future. However, before making this jump into home ownership, it is important to take several points into consideration.

Location

Compare apples to apples. Will you be able to afford a home that is comparable to your current rental home or better? If your calculations are based on a significant downgrade, you may not be happy with the end result. In addition, make sure that the location you’re selecting is convenient not only for your current commutes but also for future ones. Consider location requirements related to changing jobs, sending children to different schools or universities, etc. In short, once you buy a home, you lose the flexibility and convenience of moving, and that is why you should be sure that your new base will be convenient at least for future foreseen events.

 Affordability

Comparing only your current rent to the potential mortgage payment isn’t the best way to go about calculating your cost. In addition to the required down payment, there are many fees, charges and commissions that will come up and you need to be prepared to pay for these at closing. In addition, your monthly cost is not limited to the mortgage payment, as a homeowner you’re responsible for maintenance, insurance, utilities. Have your real estate agent or bank representative work out an approximate scenario for a property that is within your budget to see how much the monthly cost will be. You may find out that what initially appeared to be less than your rent is actually well beyond your financial means.

Selling

Things happen and you need to be aware of what happens in case you’ve to sell the property and leave the country. Are you buying a property that will be attractive to sell for its location, for example? Will you be able to rent it until you find a buyer? Get a clear understanding of any financial penalties that are involved in selling the property. In addition, assuming the property market will continue to appreciate, find out whether you will be able at least to break even if you get out of the deal earlier than planned.

Your risk

Know how lenders price their mortgages. If you have been in the UAE for a short period or you have not had a stable job for a long enough time, lenders may consider you a high credit risk and charge you a higher interest rate. The same goes for the amount of down payment that you’re willing to pay. In short, ask the simple question about what you can do to reduce your mortgage costs, if possible. You may find that putting more money down or waiting for a year or so, could get you better terms. Still don’t miss the changes in the property market. With the expected increase in property prices may simply price you out because your income may not be rising as the same pace.

Shopping around

With all of the questions mentioned previously in mind, make sure that you shop around and get a deal that best fits your plans. Don’t let your guard down from start to end. If you see anything that doesn’t seem right, pause and ask for explanation or revision. In many cases, small points that are overlooked in the rush of completing applications and closing paperwork often come back to haunt homeowners.

Source: Rania Oteify is a former Gulf News Business Features Editor

Retail rents up 6% in prime Dubai malls

Meanwhile, rentals in the secondary malls are flat

Dubai: Rental rates in Dubai’s prime malls were up between five and six per cent in the second quarter of the year as retail space grows in the city, according to property analysts.

In the last 12 to 15 months, “rents in prime malls have increased by 10 per cent,” said Mat Green, head of research for the UAE at CBRE.

There are a number of new projects entering the market this year and the next; the largest of these are Al Ghurair Centre in Deira and The Avenue on Al Wasl Road. A total of 48,000 sq. metres of mall-based stock is expected to be delivered this year, and 144,000 sq. metres next year, according to data by Jones Lang LaSalle (JLL).

Occupancy rates in prime malls are high, with some registering between 90 and 100 per cent occupancy, says Green. This leaves little available supply, which puts retail rents at a premium, he said.

The addition of the new supply “won’t stop rents from going up in super prime malls,” said Craig Plumb, head of research for the Middle East and North Africa (Mena) at JLL.

Retail rents for super prime malls stood at Dh4,980 per sq. metre in the second quarter of this year, up from Dh4,700 per sq. metre in the last quarter of 2012, Plumb said.

Meanwhile, according to a new CBRE report, Dubai’s average retail rents for prime locations stood at $114 per sq. feet per annum as of the second quarter of this year, while in Abu Dhabi it amounted to $71 per sq. feet per annum.

Secondary malls

Over in Dubai’s secondary malls, such as Ibn Battuta Mall and Al Ghurair Centre, retail rental rates are flat, property consultants said.

Rents over there have dropped by 7.5 per cent in the second quarter of this year to Dh1,722 per sq. metre, from Dh 1,862 per sq. metre in the last quarter of the previous year, according to Plumb.

Competition in the market has kept rental rates flat, he said, adding that “vacancies are likely to rise in secondary malls.”

However, Green said that although rates dropped previously, they are now improving as occupancy increases. Still, rents remain flat.

In the past five years, high-end brands have been leaving secondary malls and going to more prime locations.

“As more destination malls are delivered, retailers go to where there is high potential of sales and footfall,” Green said.

Secondary malls, meanwhile, have attracted local brands and start-up businesses that serve residents in the area in an effort to re-position themselves, he said.

Retail supply

There has been a relatively small increase in stock of mall-based retail space since late 2010, given the overall size of the Dubai market, according to Plumb.

“There is very little new retail supply in the last two to three years,” he said.

Total stock of mall-based retail space stands at 2,816,000 per sq. metre this year, from 2,648,000 per sq. metre in late 2010- which is an increase of 168,000 per sq. metre over the last three years.

If planned retail projects for the future are delivered, “there would be excess supply, but in reality, some will be delayed,” Plumb said.

By 2016 and 2017, an increase of supply will result in tapered rents, according to Green.

Over the next year, he expects “a steady improvement in rents.”

Source: gulfnews

New hope for Dubai investors on stalled projects?

Expats pin their hopes of recovering their lost fortunes on cancelled projects

Dubai: Back in 2006, when the ‘market was at its peak’, Indian Salim Shaikh bought two properties amounting close to Dh500,000.

Six years later, neither of his project has seen the light of day and a significant chunk of money remains stuck. Yet Shaikh hasn’t given up hope.

He, like several other forlorn investors, now believes a new decree by the Ruler of Dubai will bring deliverance. “I read about a new panel being set up to settle disputes related to projects cancelled by the Rera (Real Estate Regulatory Authority). It’s encouraging,” Shaikh says.

Change of Fortune

Recently it has emerged that Dubai will liquidate scores of cancelled projects and use the funds to repay investors.

Shaikh paid Dh186,610 for a one-bedroom unit in the Toronto Tower project in International City Phase III. The price of the development was Dh327,386. It was due for completion in November 2007.

Six years on all that stands on a large swathe of barren land is a long stretch of rickety black fence.

“When I sought to withdraw from the project they offered me only 30 per cent as refund and said that I could challenge them if I liked. Lawyers told me it was a straight case and I would win it but then what? I had no confidence of getting back the actual amount,” said the 52-year-old, who had shelled out another Dh257,000 for a one-bedroom unit at Chapal the Harmony project in Emirates City, Ajman. Only five levels out of a planned 27 and six parking levels were complete as of last month. On paper it should have all been completed by 2011.

Shaikh says the developers have offered him a ‘swap deal’ with a Dubai Sports City property but at a ‘premium price’, Dh100,000 above the market rate. The International City project is apparently up for liquidation.

“I came to know about it from another investor. When I contacted Rera, they confirmed that the project was up for liquidation but didn’t specify other details.

In response to an XPRESS query about the refund process, the Dubai Land Department said that investors could contact Dubai Courts as the committee in question belongs to them.

Canadian expatriate Taimur, 27, invested about Dh850,000 in four one-bedroom units worth Dh2 million in a Dubai Lagoon project undertaken by Schon Properties.

Due for completion in 2007 it has yet to be finished. But he too, like Shaikh, hopes he will not be forced to forget about his hard-earned money.

About 217 projects were cancelled in Dubai between 2009 and 2011, according to Rera.

Source: gulfnews

Dubai average property price is world’s highest

Dubai’s average property price jumped 21.7 per cent in the 12 months leading up to the end of the second quarter

Dubai: Dubai’s property market recorded the largest year-on-year average price increase in the second quarter, according to London-based property broker Knight Frank.

Knight Frank’s Global House Price Index stated the average property price in Dubai surged 21.7 per cent between second quarter 2012 and second quarter 2013.

Helen Tatham, Director of Residential at Knight Frank in UAE, said the increase was a correction on pre 2012 second quarter market activity.

Tatham said the Arab Spring and tougher European tax regimes had led to an increase in property investment by expatriates.

Deepak Jain, Head of Strategic Consulting, MENA at Jones Lang LaSalle, agrees with Tatham.

He said along with Dubai being seen as a safe location for investment by Arab Spring investors it was also becoming the ideal location for Saudi, Kuwaiti, and Qatari investors looking to buy a second home.

Other factors lending to the higher average prices were that Dubai residents were now looking to purchase instead of rent due to increased rental rates and lower mortgages, Jain said.

Tatham said the Real Estate Regulatory Agency (RERA) control of supply flowing into the market had also impacted pricing.

Jain said that the prices could soften at the end of the third quarter next year when new supply enters the market.

Tatham said the market wouldn’t continue to rise by more than 20 per cent over the next 12 months.

Martin Cooper, Director, Deloitte Corporate Finance Limited — Real Estate Consulting, said: “There are a number of factors contributing to the strong growth of Dubai’s residential sector over the past 12 months. These include a growing domestic economy and increasing levels of in-migration to Dubai.”

Cooper said that although Dubai is out-performing its regional peers, “it is important to note that residential growth in the Emirate has been concentrated mainly in prime locations and that average rates mask a significant variation in performance in the city.”

Comparatively, the Global House Price Index found that the in the six months leading to end of second quarter 2013 prices were up by 14.7 per cent.

In the three months leading up to end of second quarter prices were up by just five per cent.

In comparison Taiwan (7.4), Estonia (5.2), US (7.1), Lithuania (5.4), all had higher average property price percentage growth than Dubai in the three months leading to second quarter 2013.

The report found that Greece recorded the largest annual fall in mainstream prices for the fourth consecutive quarter, declining by 11.5 per cent

“For the first time since 2010, European countries recorded positive annual price growth. However, the average 0.7 per cent uplift over the past 12 months masks a sharp divergence in performance between individual countries,” the report stated.

Turkey was the strong performer with 12.2 per cent growth, and Greece was the weakest.

Europe recorded positive annual growth for the first time since 2010 but it is the poorest performing global region, the report stated.

Source: http://gulfnews.com/business/property/uae/dubai-average-property-price-is-world-s-highest-1.1229207

Dubai house prices continue to rise

In the past year, prices of apartments have spiralled by 38 per cent

Dubai: Dubai’s rising house prices, underpinned by a much-improved economy and strong demand, are likely to continue their uptrend, but no bubble is on the horizon, industry experts said.

After a severe decline in prices and demand during the global recession in 2009, Dubai’s real estate market started to recover in 2011. In the past year, prices of apartments had gone up by 38 per cent. Rents also increased by 20 per cent for flats and 17 per cent for villas.

Analysts have said that the recent price movements have been driven by real demand, as well as by stronger economic fundamentals. Dubai’s economy has been buoyant in recent years, thanks to its expanding logistics, hospitality and retail sectors.

A stronger economy has translated into higher levels of job creation, which in turn triggered further population growth. And with Dubai’s population continuously growing, more people are looking for apartments and villas, causing values to creep up. Affordable lending rates are also enabling investors to buy properties.

“This time around, substantive and meaningful demand from end occupiers taking advantage of attractive mortgage offerings from the banks is helping to drive the market, in addition to the return of investor interest in the market,” Jonathan Fothergill, head of valuations, UAE, at Cluttons.

Faisal Durrani, associate at Cluttons research, said that the upward momentum in housing values look set to continue. “The demand pressures all suggest that an upward creep in capital values will persist,” Durrani told Gulf News earlier.

Improving business confidence is another factor that could lead to higher price increases. “Improving fundamentals and rising prices are feeding through to improved confidence. This could drive prices further up, with prices and investment feeding off of each other,” Standard Chartered said in its recent report.

A recent Business Confidence Survey led by the Department of Economic Development (DED) showed that more than half of businesses (55 per cent) were upbeat about achieving higher sale revenues in the second quarter of the year.

About 30 per cent also anticipated stable sales, while 55 per cent said they were willing to invest during the next several months. Almost all businesses included in the survey (98 per cent) had intentions of either increasing (23 per cent) or maintaining (75 per cent) their payroll count.

Standard Chartered also said that Expo 2020, which is expected to create 277,000 jobs, will help sustain the housing market. However, the bank maintained that despite the rising prices, “there are no serious indications of a speculative bubble” in the real estate market.

“The market seems to be driven by fundamentals rather than excess speculation, in contrast to what the market went through in 2008. The outlook of the market will, therefore, depend on how these fundamentals evolve over time,” the report said.

Non-premium areas benefit

The continued upward trend in housing rent has led many tenants to move out of premium locations, causing non-premium areas to benefit from a surge in demand.

As demand for affordable accommodations increases, areas like International City and the Springs have witnessed noticeable increases in rent, according to a Standard Chartered report.

International City topped all other areas with an increase in average rental rate of 27 per cent year-on-year and 11 per cent quarter-on-quarter.

“Similarly, the top-performing area in the villa leasing markets is the Springs, with an increase in the average rental rate of 35 per cent (year-on-year) and 10 per cent (quarter-on-quarter),” the report said.

In the residential-sale market, the top performers are the Greens, posting a 44 per year-on-year increase in apartment sales and Jumeirah Village, with a 40 per cent increase in villa sales year-on-year.

Source: gulfnews

Developers get back into sales mode

Even specialist funds could become active in a more regulated market

Dubai: With the demand-supply gap deemed manageable, developers are firming up their plans to keep the property pipeline in constant motion over the mid-term.

Sheffield Holdings plans to release units at its Dh1.2 billion mixed-use Marina 101 high-rise in Dubai Marina at Cityscape next month. (A hotel operator has been named for the hospitality component, which makes up 35 per cent of the overall.)

“Clearly it will be a case of trying to encash on the market sentiments which are uniformly favourable at this moment,” said Abu Ali Malek Shroff, CEO at the developer. “There are units which we have not sold at the project and some of the existing owners might try to take advantage of the premiums available. It is a case of both developers and investors trying to make full use of the circumstances.”

According to him, the downturn of 2009 cannot all be coloured in black where local real estate is concerned. Marina 101 was one among the many projects announced during the peak years between 2005 to 2008, But unlike many, this one did then go on past the finish line.

 “For the developer with projects on the ground there were savings to be made during the recession by renegotiating contractual terms with contractors and suppliers,” said Shroff. “These saving helped mitigate some of the cost overruns brought on by project delays.”

Going forward, expect specialist funds to get active in the marketplace if the upward trajectory is maintained and yields are conducive. This will be the cue for real estate investment trusts to step forward.

“Reits have gained momentum since the crash; there was only 1 GCC Reit in operation and now we have at least three that I can think of,” said Robin Teh of Chesterton International. “Reits give common folks a chance to invest in and own buildings and is a good way to increase market transparency and competition.

“The market I believe can now take Reits especially if there is a specific law that is passed to regulate this.”

Source: gulfnews

UAE realty learns lessons from Lehman

Regulatory regime has been entirely recast to push through investor rights

Dubai: UAE’s property market has every reason to blame Lehman Brothers for the freefall it went through in 2009 and the on-edge nature of its existence in 2010. No other sector in the local economy had to bear the direct — and immediate — consequences of the investment bank’s failure which set off the chain of events that culminated in the Great Recession.

Foreign investors who had huffed and puffed local property levels to stratospheric levels between 2005 and September 2008 made a beeline for the exit doors. Developers who it seemed were there just to announce a new project every other week found they were staring at a vacant marketplace. Genuine investors who came on board the realty show in the hope of staying for the long term found that the promise of prestige projects with celebrity neighbours was about to become a living nightmare.

For sure, UAE’s property market — and its then stakeholders — can blame it on Lehman. But a full five years down the line, it has a lot to be thankful for as well.

Maturity

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For what the fallout did was rush the UAE’s realty — and particularly Dubai’s — to a certain maturity, a status that would have taken a lot more years to achieve if the Lehman Brothers closure — or the Great Recession — had never happened.

Sure, there are those who believe that a massive correction on the lines of what the market saw in 2009-10 would still have been triggered by some spark or the other. There was no way the property values then could have been sustained for much longer.

“One effect of the financial crisis is to have accelerated the maturation rate markedly and things have definitely changed for the better,” said Mohanad Al Wadiya, managing director of Harbor Real Estate. “While speculation still does exist, the market is now comprised of a greater proportion of wary and astute buyers who are more adept at making decisions based on market fundamentals and investment logic.

“Meanwhile, those developers who survived the recession have learnt that realistic planning and demand estimation is paramount to long term profitable growth. The industry, while improving, is still showing the effects of poor planning.”

Regulatory framework

That is why the authorities are constantly at the back of developers to get their games in order, more so as transaction levels that spiked following the Arab Spring have now settled to market-sustainable levels. Attaining maturity requires that the property has a certain depth in terms of project offerings and, just as important, got the regulatory framework to go with it.

And, where possible, regulations are being put in place that would even out the playing field for investors and developers alike, which includes a recent decree by Dubai that allows investors a chance to recover funds stuck in projects that never materialised.

This in itself is a seismic change from the situation in the pre-crisis era, when the deck was heavily loaded in favour of developers and where a sales and purchase agreement was but an instrument for investors to part with their monies and no questions could be asked.

“The spate of new rulings has made it easier for valuations to be more transparent,” said Robin Teh, country manager at the property firm Chesterton. “However, until a formal Valuation Law is passed which states the do’s and don’ts and having only regulated and qualified valuation companies to practice here, this market is still a challenge in transparency.”

Precedents

As for the liquidation of defunct projects and subsequent fund recoveries, Teh added: “There are definitely precedents in other markets especially mature ones like the UK, US and Singapore to follow. There is no ideal way as each country has its own culture and bureaucracies to deal with. However, it is something that Dubai must implement and amend and improve as the market changes. I would always say that having something is better than nothing at all.”

The fact that Dubai decided to go ahead with the project liquidation move now is noteworthy. It came at a time when not many were expecting it. Plus, the market was on the upside and upscale project launches were again becoming a feature of the landscape. It would have been easy to ride on the current momentum and not let the past be a distraction.

But that Dubai issued such a decree which has investor rights at its core should be duly noted. Clearly, it is on the regulatory side that the most transparent changes are being effected within the property market. Here too a link — tenuous or direct — can be drawn between the Lehman collapse and how authorities — here and elsewhere — are trying to protect the rights of investors in their exposures to varying asset classes.

Confidence

Specific to the UAE property market, tighter regulations have been in sync with efforts to make it easier to come in — and exit — a property investment. “Regulation is improving all the time with investor protection laws and bodies being created, thereby instilling more confidence in the market and the longer term benefits are becoming more apparent,” said Helen Tatham, head of UAE residential at Knight Frank.

“The market is rising and has risen over the last 12 months to the extent that, in the majority of cases, an investor can claw back his original investment at the very least. The process of exit is simple and inexpensive compared to other countries… at this point in time it is fairly straightforward.”

The “For Sale” signs are back on and have been ever since the Arab Spring set off a trail of uncertainty in its wake. In such an environment the UAE offered certain sureties and its real estate sector was able to take full advantage.

But the marketplace does not want to see a return of speculators. Barriers are being erected that would lessen their impact.

Transaction fee

“The imposition of a sales transaction fee based on a time-dependent sliding scale should have the desired effect,” said Al Wadiya. “The transaction fee would work so that it is much more expensive for a seller to sell a property within one year [perhaps with a fee imposed by the Dubai Land Department of 15 per cent of the selling price] versus a property sold after five years [perhaps with a fee of 2 per cent of the selling price].

“This type of mechanism has been introduced in markets such as Hong Kong, Singapore and Thailand to discourage the “flipping” of properties.”

Thus, from a wider angle, the Lehman Brothers legacy has been one of positives for the UAE’s property market. Lessons were learnt so that the future investors need not be taken in by empty sales pitches from developers or estate agents. Contract clauses have to be followed by all stakeholders.

Lehman Brothers has done its part.

 

Source: http://gulfnews.com/business/property/uae/developers-get-back-into-sales-mode-1.1228680

Service charges do influence buying decisions

Owners associations have to engage in a tightrope act to keep rates steady

Dubai: Can local service charges keep staving off the inflationary pressure that has caught up with just about every other facet of the property market?

“Service charges have started playing an important role in the decision making process for end-users, which is why moving forward with the buildings getting older, the charge will be questioned if increases do not match the services,” said Niraj Masand, director at Banke International. “Many buyers could opt out of certain buildings due to the service charges.

“It could be the recessionary trends of the last three to four years that had service charges remain steady or in some cases even dropped. However, moving forward, due to increasing costs it is expected that service charges will increase.”

It is also for the future to tell what the presence of newly launched developments will have on the service charge regime. Will the new projects come in at a much higher tariff than the existing ones? If yes, can service charges at existing buildings remain impervious?

Only time will tell.

Source: gulfnews

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