hidden charges

More buyers get lawyers to read the fine print

Property owners are concerned over growing disputes and investment security.

The number of property dispute cases filed in Q1 2009 increased by 55 per cent compared to Q4 2008. (EB FILE)

Increasing real estate disputes and concerns over security of a property investment are prompting buyers to seek legal advice prior to making a transaction, according to agents.

“Clients have serious concerns over the security of their real estate investments. Further, increase in number of real estate disputes is a result of many prospective buyers seeking legal advice prior to making a transaction,” said Mohanad Alwadiya, Managing Director, Harbor Real Estate.

“This was not the case in previous years which also contributed greatly to the problems that clients were facing as proper due diligence was not conducted prior to the sale and purchase of property,” he said.

Speaking to Emirates Business in a round table, Shilpa Guruswamy, Head of Legal and Sales Coordination, Asteco Property Management; Charles Neil, CEO, Landmark Advisory & Landmark Properties and Liz O’Connor, Director – Residential Sales & Leasing, Better Homes, said they were ensuring all correct steps were followed within their companies and ensuring all documentations were in place before a transaction is completed.

Do you have a law firm that advises you on the authenticity of your real estate transactions?

Guruswamy: Yes, we have a legal department, which oversees our transaction details and is also responsible for the compliance and risk mitigation process.

Neil: We have law firms to draw up all our documentation which protects the rights of our clients. Our accounts are audited by one of the four big auditors in order to ensure there is a clear distinction between our funds and our clients’ funds.

Real estate agencies, however, should be careful using companies claiming to be trust companies as they are not regulated, and if they have doubts they should use a reputed company of lawyers instead.

O’Connor: Yes, we do have a lawyer on board who manages our legal procedures and contractual obligations on transactions. Through our in-house lawyer as well as our managers, we ensure that all correct steps are followed and documentation is in place before a transaction is completed.

Alwadiya: In 2009, we joined forces with Prestige Legal Consultants, an international law company, to provide counselling and representation to all our clients in all legal matters concerning real estate in Dubai.

This partnership was started to keep in line with our vision to evolve our services from traditional real estate brokerage of merely bringing buyers and sellers together to world-class end-to-end real estate services. The holistic real estate legal services will complement our diverse line of services and govern all the activities and transactions of our clients.

The combined real estate experience of our firms enable us to provide clear candid counsel and guidance to our clients at all times to ensure that their rights are always protected.

Is this a new trend due to the downturn in the real estate sector?

Guruswamy: Real estate transactions, whether sales, lease, or appointment of sub-agents, are all essentially structured through legal contracts. Therefore, all these underlying documents need to be verified to ensure compliance to statutes and contract laws.

It is not a new trend but as the market matures there is greater emphasis on regulation and transparency. Therefore, there is increased need to have people with necessary legal background and expertise to scrutinise or draft documents. It is in no way related to the downturn because we had a legal department in place and operational long before the onset of the downturn.

Neil: We feel there should be laws allowing the setting up of trust accounts, but in our case customers trust us as we have strong finances and strong shareholders.

O’Connor: No, for us this is not as a result of the downturn in the real estate sector. We created this position a number of years ago due to volume of transactions and to oversee our international operations.

Alwadiya: Real estate-related enquiries have increased since the 2008 financial downturn. Many of the clients have serious concerns about the security of their real estate investments.

It was estimated that the number of cases filed in the first quarter of 2009 increased by 55 per cent compared to the fourth quarter of 2008. This drastic increase in the number of real estate disputes is a result of many reasons ranging from investors not fulfilling their obligations, sale and purchase agreements containing provisions that contradict the law about developers not delivering projects on time, and many more.

Prospective buyers are also seeking legal advice prior to making a transaction. This was not the case in previous years and also contributed greatly to the problems that clients were facing as proper due diligence was not conducted prior to the sale and purchase of property.

Most of the current legal enquiries that our legal division receives are usually concerned with the real estate regulations and legislations.

The profound perception of the industry and the daily interface with real estate clientele have resulted in the espousal of a fresh innovative legal counselling scheme. According to a recent study conducted by Harbor research division, majority of people perceive legal counseling as an exhorbitant service which leaves them with no alternative other than staying unaided and frustrated.

For that reason, the legal solution introduced by Harbor & Prestige is viewed as a results-driven method. Customers who seek legal counselling will incur minimal fees and no extra charges will be required in case of not winning the case.

Real Estate Regulatory Agency (Rera) recently proposed a free legal advice service for buyers and sellers, an initiative that we applaud. We believe that this innovative policy will assist in boosting the confidence levels in the real estate industry.

Can you specify which particular transactions are scrutinised by your analysts and lawyers?

Guruswamy: The legal department is involved in overseeing all transactions not limited to primary sales, secondary sales, leases, registration at the Land Department verification of power of attorneys etc. Should a party to the transaction be a corporate body, incorporation documents of companies need also to be verified.

Neil: We do use lawyers for more complicated transactions and are working with one firm to do conveyance transactions.

O’Connor: We have standardised processes and procedures that govern every transaction. Our in-house legal advisor oversees all the legalities of these processes to ensure that all parties, wherever possible are secure.

Alwadiya: The legal services introduction is vital as the real estate market matures through the current economic crisis to become a more structured and regulated market. We obtain legal counselling for all our transactional activities in order to ensure providing our clients with a secured transactional experience. Needless to say, the more complex and high-end the transaction is, the more legal involvement we require.

Do you collect a deposit from a client in order to lock-in your clients?

Guruswamy: We generally do not encourage collection of deposits. However, should there be a delay in completion of transaction, a deposit may be collected by the agent to secure buyer’s interest and lock the seller to a commitment. In this case the agent takes up the role of an escrow agent.

In case of default, deposit maybe forfeited and returned to the aggrieved party. On successful closure of the deal, the deposit is adjusted towards the balance sale price of the transaction.

Neil: We only take deposits as part of a transaction and to secure the rights of the parties involved in a transaction, we don’t take it in to lock in a client. If the deal falls through, then the deposit is returned in the manner agreed upon by the parties at the time of signing the agreement. Sellers can no longer demand deposits and hold on to them.

O’Connor: We have now begun to encourage our customers to hold their deposit with a Rera-approved escrow facility, but in the absence of an escrow we take a deposit from the buyer as security for the seller.

Alwadiya: Accepting deposits from potential buyers or tenants is a common practice in the property market which is usually used as a closing technique or a gesture to test the seriousness of the potential client. More sellers and landlords are starting to ask for deposits as well in order to secure their interest in the transaction, especially when the closing date of the transaction is delayed for justified reasons such as releasing a property mortgage or finalising the transaction contracts or obtaining a date to conduct the transfer at the developer’s office or the Land Department.

We try to avoid retaining any deposits at our end as this is an added liability on us and it can place us in a conflict of interest situation as we usually represent only one part in the transaction. Having said that, we usually recommend that deposits are usually handed by a financial or legal third party entity with neutral position in relation to the parties involved in the transaction.

Do you maintain a separate account to receive agents’ commissions?

Guruswamy: Commission fees are payable to the agent by the parties involved and shall not form a part of the purchase consideration.

Normally, the purchase consideration is exchanged between the buyer and seller and the commission is paid to the agent. Therefore, there is no possibility of both of them being booked into the same account. However, should the agent be involved in collecting the booking deposit, it is booked separately into a designated account, which is distinct from all other operational accounts. Such payments are held on behalf of the buyer and seller and do not form part of the operational funds of the agent.

Neil: No comment.

O’Connor: We have an accounts department and we run a series of profit centres, most of which have commissions as the primary revenue source.

Alwadiya: Our company’s bank account is supervised by an independent certified accounting and auditing firm. Our internal accounting and finance resources follow the processes and guidelines set by this consultant/firm in order to ensure complete compliance with the best financial and accounting standards.

High service charges hit rental yields

Service charges for some properties in Dubai range between 18 per cent and 48 per cent of annual rents, according to a recent report by Investment Boutique (iB). Further, falling rents coupled with high service charges are contributing to lower rental yields for an investor in Dubai.

Real estate analysts also said that developers in Dubai were not necessarily following the service charges set out by the Real Estate Regulatory Agency (Rera). “We don’t see all the developers abiding by the service charges set out by Rera. For example, the rate for luxury-serviced apartments should be around Dh50 per square foot yet some luxury projects in Downtown Dubai are charging Dh63 per square foot,” said Mohanad Alwadiya, Managing Director, Harbor Real Estate.

Meanwhile, iB in its latest fourth-quarter report – Market Pulse – said developers of some properties in Dubai continue to charge high service fees despite the Rera regulating service charges in the emirate.

“A 1,000 square feet one-bedroom unit in Discovery Gardens at Dh24 per square foot amounted to service charges of around Dh24,000. Current average rents are Dh52,300, which means that service charges constitute an exorbitant 46 per cent of rents. What this does to an investor’s rental yield is but obvious,” said Heather Wipperman Amiji, CEO, Investment Boutique.

According to Alwadiya, high service charges coupled with falling rents can reduce the rental yields for an investor. “High service charges can burn up the capital appreciation and annual rental yields for end-users and investment buyers.”

Elaine Jones, CEO, Asteco Property Management said: “Currently Although we have seen rents stabilise over the past three months, it is also possible that as developments settle and the true level of maintenance and upkeep is determined that service charges will soften. Different owner occupiers also have varying levels of expectation with regards to security, common area cleaning, landscaping etc. and whilst initially the most cost effective route is chosen in the medium to long term a recognition of the added value that a well cared for and maintained property can bring or add to the sale or rent value is significant.”

She said that property in New Dubai is subject to master community charges in addition to local community service charges and property maintenance.

The impact of service charges has been felt throughout Dubai with developers facing concerns from property owners on the high service charges and perceived low quality of service.

In the case of apartments, service charges constituted between 15 per cent and 32 per cent of rents in the first quarter of 2008. Downtown Dubai and The Green Community charge the highest service fees in the apartment and villa category respectively, with Jumeirah Lake Tower (JLT), Arabian Ranches and Emirates Living being the cheapest.

According to the report, service charges also vary substantially from community to community with JLT currently the most attractive to investors as service charges are between 21 and 23 per cent of rents. Developments such as Dubai Marina, Palm Jumeirah and Burj Khalifa have relatively higher service charges.

With charges remaining more or less stable and rents declining substantially, service charges now constitute between 18 per cent and 48 per cent of annual rents.

Discovery Gardens, a mid-end development with modest facilities called into question the rationale behind high service charges. Owners organised themselves in an effort to force the master developer to reduce the charge. However, they met with limited success as the final rate was reduced by Dh5 per square foot.

Previously in 2008, there were increases across the board with Emaar’s Arabian Ranches doubling, Union Properties’ Green Community also witnessing a 50 per cent rise. The reasons cited included initially subsidised charges, rising labour costs, increasing costs of utilities, such as electricity and water, and inflationary pressures on raw materials.

In December 2008, Salwan, a subsidiary of Dubai Properties and the property management company for Jumeirah Beach Residence, upped service charges at the beachfront community by 129 per cent from Dh9.5 per square foot to Dh21.75 per square foot. In February 2009, Salwan reduced the service charges to Dh15.32 per square foot. Soon after this, owners of units in Nakheel’s Discovery Gardens also realised that their own service charges were well above market rates at Dh29 per square foot, almost double of Jumeirah Beach Residence, with fewer facilities.

Lack of clarity

According Investment Boutique, there continues to be a lack of clarity and solutions with respect to service charges in Dubai. The Strata Law has yet to be ratified, owners’ associations are slow to set up, developers and property management companies continue to charge unjustified rates even with Rera trying to control the increases. Owners and tenants continue to be dissatisfied with the level of service received.

The iB report said some MEP (mechanical, electrical and plumbing) and facilities management professionals speculate without reference to any specific project that the high service fees quoted may be the actual cost of the service provided, but they are unnecessarily high due to poor selection of equipment and materials at project inception as well as a poor maintenance programme.

FM consultants

Including facilities management (FM) consultants at the design stage helps save substantial costs over the life of a building. As the market begins to open to investors, more are interested in the rental yield than capital appreciation. These buyers should also invest in FM advisory services to ensure that running costs to date have not been kept artificially low.

Analysts outlined the various reasons for service charges for villas to be higher than those of the apartments. According to Harbor, service charges for villas are low mainly due to the fact that service charges for villas are calculated based on the plot area of the villa. “In addition, villa communities have less MEP and other common elements in villas compared to apartments,” said Alwadiya.

Jones said: “District cooling, housing tax and Dubai Electricity & Water Authority (Dewa) costs are usually borne by the occupier. Traditional Dubai property that we have managed as full block management will have cost between 20 per cent to 30 per cent of rent income, dependent on air-conditioning, age of building etc. New Dubai property is a little higher due the additional Master Community Charge.”

“Rera reviews and approves the service charge assessed by the home owners association. Rera is also involved in the apportionment of area charges where there is a mixed-use development. The costs that make up the service charges are transparent and the home owners association will usually collect three quotes for each service line so as to ensure that the most competitive rate is secured – bearing in mind always that cheapest is not always best.”

Utility costs will be estimated in the first year based on advice from consultants. The second year’s service charge may well be more accurate than the first as the level of service required and the actual consumable costs are defined. “Service charges are for the common areas of which villas have far less of. Most villa plot and property maintenance costs are individual costs and not shared. The roads, street lighting, landscaping, garbage collection are the only shared amounts,” said Jones.

In case of villas, the service charges are charged on the basis of the plot size. The case of villa service charges differ completely from the fees, accounting for between three and nine per cent of rents, except for The Green Community, which is relatively more expensive. The huge difference in the service charges between apartments and villas is due to a typical building budget.

Villa service charges are substantially lower when compared to apartments as there are fewer common areas to maintain. Security, landscaping and the upkeep of pools and lakes are covered by the service charges, but municipality fees are paid separately and maintenance of the individual villa is the owner’s responsibility.

Chilled water for common areas accounts for a third of maintenance costs, other utilities account for one-sixth and the master community charge accounts for one-tenth for the average property.

A typical breakdown of other costs includes soft services such as pest control, façade cleaning and swimming pool cleaning and treatment, while subcontractor services and repairs cover the emergency lighting system, aviation warning lights, water tank cleaning, automated doors, building management unit (cradle) and its certification, building management system (BMS), fire alarm system, fire protection system, generator, CCTV, access control system, apartment intercom, public address system, lighting control system and gym equipment.

Majority of expenses are specific to apartment blocks and not to villas, which explains the difference. Variations in service charges needs to be taken into consideration by investors choosing between apartments and villas as this could impact both rental yields and capital appreciation. The report also called for more clarity from the developers and property management companies with respect to the manner in which funds are used. It is hoped that once the Strata Law is introduced, owners’ associations will have a say in the matter and the resulting transparency will only benefit the Dubai property sector.

The last quarter of 2009 was when the optimists had predicted that recovery would happen.

“According to our analysis of the market, we still have some time to go before we see recovery in the UAE property sector, especially in Dubai,” said Amiji.

Transactional activity

The majority of transactional activity in 2009 occurred in the completed property sector. The off-plan market has seen very little transactional activity at all during this time period and as such has not effectively been re-priced.

If off-plan projects are completed and enter the market en masse there will need to be an asset re-pricing in terms of rental values and capital values, which will also have an impact on the local market. However, by the end of 2010, we expect some stabilisation as there will likely be more certainty in global markets and local exposure to bad loans. Over the course of the year, project stakeholders are likely to take stock of their situation and either cancel projects with little economic value in the new market of 2010 and absorb the write-offs or allow the supply to come on stream and let the market adjust accordingly.

Residential affordability is key

While rents and sale prices have suffered considerably in Dubai, declining by more than 50 per cent, Abu Dhabi has proven more resilient with rents estimated to have fallen by 23 per cent between the first and last quarters of 2009. Even though Abu Dhabi faces an undersupply, rents have fallen due to factors such as redundancies and job insecurity, the substitution effect of Dubai’s more affordable housing market, and limited selection of high quality or easily accessible units due to the abundance of construction and infrastructure activity.

While sale prices have also been moving downward, properties close to completion on Al Raha Beach and on Al Reem Island have managed to trade at premiums to opening prices although these have fallen between 30 per cent and 46 per cent respectively from their 2008 peaks.

Downward pressure on rents

The greatest contributing factor to the downward pressure on rents in the Abu Dhabi market has been the mismatch between Abu Dhabi income levels and rental values.

There is a lack of affordable property for the majority of people in the emirate. Prices and rents will continue to fall until they reach the level at which the average middle income or upper income end-user can comfortably rent property, assuming an international benchmark of 25 per cent of income on housing expense, or comfortably purchase property assuming a benchmark of 30-40 per cent of income spent on mortgage payments.

As such, excluding the last two categories, which account for 29 per cent of Abu Dhabi’s population, rents in Abu Dhabi are not affordable to the majority 71 per cent of the population, and thus there is a downward pressure on rents in Abu Dhabi given Dubai’s substitution effect.

According to the analysis, affordable unit prices average around the Dh1,000 mark. While prices were reduced substantially in 2009, a further decline is required to bring prices in line with income levels, especially given the fact that average prices in the neighbouring Dubai are currently lower than the Dh1,000 mark.

Developers will need to keep this in mind while pricing new productsbest non gamstop casinos uk

Rent caps set to be maintained at 2009 levels

Dubai-His Highness Shaikh Mohammad Bin Rashid Al Moaktoum, Vice President and Prime Minister of the UAE and Ruler of Dubai, has announced that the rent increase caps for 2010 remain at the same rates as 2009.

Endorsed by the Real Estate Regulatory Authority (RERA), the rent cap states the maximum increase in rent landlords can impose each year.
The 2010 figures have been formed following the trends shown in RERA’s latest rental index. It states that increases can only occur if the property is more than 25 per cent below the average index price.

If the rent is 26 per cent to 35 per cent less than the average rent for a similar property, the maximum increase will be equivalent to 5 per cent of the rent value of the year 2009.

Pattern

If the rent is 36 per cent to 45 per cent less than the average rent for a similar property, the maximum increase will be equivalent to 10 per cent of rent value of the year 2009.

If the rent is 46 per cent to 55 per cent less than the average rent for a similar property, the maximum increase will be equivalent to 15 per cent of rent value of the year 2009.

If the rent is less by a percentage that is more than 55 per cent of the average rent rate, a 20 per cent increase is permissible.
‘Positive move’

“I think the decision to keep the rental cap the same as 2009 is good as it keeps the market in the same condition and doesn’t have that much of an impact as of now.” Sudhir Kumar, managing director of Realtors International told Gulf News.

The decree was implemented to curb the sky-rocketing rents and to regulate relations between landlords and tenants.

“It’s a positive move because it shows that regulatory operations are taking charge. However, there should be more enforcement on the individual landlords who are still breaking the values of the caps and are not abiding to the decree. A closer eye should also be kept on the fluctuating prices with the rent cap keeping up to speed.” said Mohanad Al Wadiya, managing director of Harbor Real Estate.

Making owners pay service charges a major challenge

A lack of transparency over the cost of maintaining a building, low quality standards and services and confusion over what is covered by service charges have angered owners and led to many refusing to pay the charges, say industry sources.

Adrian Quinn, Chairman of Dubai-based strata management firm Essential Community Management, said that if a building has service fee arrears of 40 per cent, it would not be possible to continue maintaining it internally or externally.

The available funds would have to be used to make payments to the Dubai Electricity and Water Authority, insurance companies, master developers and district cooling suppliers.

Essential Community provide strata management services to more than 40 developers in Dubai and has worked with master developers Emaar and Nakheel.

Quinn said the major challenge for the strata sector in Dubai is making owners pay the building service fees.

“The delay in the enforcement of the strata law is allowing many owners to avoid paying their strata service fees,” he added. “This is due to many developers not wanting to – or not knowing how to – recover the outstanding service fees via the terms and conditions of their contracts of sale.

“Most contracts allow for the developer to sell the apartment or villa in the event of non-payment and also recover all the legal costs and penalties.”

According to a recent survey by Dubai-based real estate broker Harbor Real Estate, the average annual service charges for buildings across Dubai are Dh16 per square foot.

“The highest service charges recorded were in and around Downtown Burj Dubai at about Dh22 per sq ft, while the lowest were in the Greens at Dh11 per sq ft,” said Harbor Managing Director, Mohanad Alwadiya.

“Consumers are no longer able to ignore the pinch of the economic downturn and investors and owner-occupiers alike are starting to evaluate very carefully the impact of service charges on the financial performance of their property and their own personal wealth.”

The survey, shared exclusively with Emirate Business, reveals that the overall average charge for villa communities is Dh2.5 per sq ft calculated on the overall plot size. Charges for villas are highest on The Palm Jumeirah, where the highest are between Dh4 and Dh5 per sq ft. “The lowest price is about Dh1.16 per sq ft for some of the villas in the Meadows community. This is broken down into Dh1.03 per sq ft for the general fund, Dh0.05 per sq ft for the capital reserve fund and Dh0.08 per sq ft for the master community levy,” said Alwadiya.

He said many developers who sold off-plan properties had not calculated the service charges at the time of sale, leaving many investors not knowing what the fees would be until the buildings were handed over.

“This makes it difficult for investors to determine the yield estimates on potential investments and adds a further element of uncertainty in an already uncertain environment. When buyers are considering purchasing properties, a unit that is complete with fees already apparent is more appealing than an off-plan transaction,” said Alwadiya.

“The majority of developers of projects that are still under construction do not provide service charge figures until the building is completed. On the other hand, most buyers and sellers, and even brokers, will not mention this important subject until the final stages of the negotiation process.”

Walid Jaafar, a partner at the Dubai-based Fichte & Co Legal Consultancy, said the official gazette announcement of Law No27 of 2007 on Ownership of Jointly Owned Properties in Dubai – the strata law – was published on December 31, 2007. Article 33 of the law says the legislation will come into effect within three months of the date of publication – ie on April 1, 2008.

“However, the law has still to be implemented,” said Jaafar. “The law does not address the issue of tenants. The law is intended to regularise the relationship between the owners of units in a specific development.

“This matter is usually left to the owner and the tenant to agree on. However, in practice, unless agreed otherwise between the parties in a tenancy agreement, the service fees should be covered by the owner.”

Fichte & Co has not yet seen any cases involving disputes over unpaid service fees, but does not exclude the possibility that a few are being reviewed by courts.

“In the absence of a regulatory law and the absence of any owners’ associations, the only possibility to file such cases lies in the hands of the master-developers or the sub-developers,” said Jaafar. “The claims in such a case would be based on the sale and purchase agreements and the master declarations attached to them.”

Quinn said that, once implemented, the strata law would create more transparency within owners’ associations. “If a building does not use all the budgeted funds in a year, the owners at the annual general assembly would have the right to decrease the next year’s budget or transfer the funds into the sinking fund,” he added.

The law makes it mandatory for every strata to have a 10-year sinking fund to ensure that money is set aside to pay for long-term capital expenditure.

“We at Essential Community automatically create a 20- or 25-year sinking fund to ensure all major plant and equipment are properly budgeted for on normal lifecycle cost structures.”

A strata general manager is appointed by the landlords of the building to create a draft budget, which is then reviewed by a board.

“After it has been approved by the board it is sent to all owners before the annual general assembly and is then approved there,” said Quinn. “After the meeting has approved all the agenda items it is then up to the strata general manager to enact all the motions and ensure they are carried out.”

Quinn said the most important duties of a strata manager are to oversee the facilities management companies to ensure they and their sub-contractors carry out the jobs they are contracted to do.

“There is a major conflict of interest if a strata management company has its own facilities management company,” he added.

Landlords will control what the owners’ association does and how it spends funds through the elected board.

“This means that the individual landlords will have some power in what the service fees will be and be able to rectify things. The enforcement of the strata law will make it possible to split buildings into multiple cost structures,” said Quinn.

“The first is the master cost structure, which would pay the master community service fees, buildings insurance, essential service costs, the managers’ fees, the facilities managers’ fees, district cooling charges, etc.

“The second cost structure would be the residential component of the building, so it would pay all the costs for the specifically residential component, for example lifts, foyers, gyms, pools and car parks. The third cost structure could be then the commercial portion of the building and cover all the commercial areas.”

Jaafar said: “When the owners have control of their buildings they will, through their board, review complaints of tenants and issues to ensure a good relationship is maintained.

“At present a tenant may have problems and issues with the building he is in, but the developer does not want to know about it or does not understand what they need to do to rectify them. There are some developers that are doing a good job in running their buildings, but everyone still has problems with conflicts of interest issues on maintenance items.”

Jaafar said according to Article 25 (2) of the strata law, if a unit owner fails to pay the service fees, the manager of the owner’s association would take action against the owner three months after notifying him through the notary public, enforceable by the execution judge in any competent court.

“However, the unit owner may object to this decision within the three-month period. In such a case, the execution shall be withheld until a decision in the subject of the objection has been reached.” Meanwhile, analysts called for the strata law to be enforced as soon as possible.

Nicole Betts, Senior Manager of Asteco Association Management, said that while Dubai awaited the regulations that supported the jointly-owned property law, Asteco had been working for several years with a number of high-profile clients well ahead of the implementation of the law.

“We have been helping companies establish informal owner associations, set up service charge and budgeting models, set community rules as well as facility management and service provider selection procedures based on best international practices,” she said.

“Some companies are actively encouraging owners to take control for themselves – albeit at this stage this has to be done under the developer’s name.

“A good example is the MAG Group which is dedicated to transparency. We have worked with them from conception of their MAG 214 Jumeirah Lakes Towers project through to delivering onsite management services to an informal owners’ association. Our team works closely with the owners’ management board to assist them to preserve, maintain and enhance the tower.”

Mohammed Nimer, Chief Executive Officer of MAG Group Property Development, said: “We have always operated in an environment of transparency, so it was natural for our company to introduce best practice in property management to enable owners to truly run their own buildings.”

Asteco has also been working with another developer for the V3 Tower, also located at Jumeirah Lakes, where handover to owners commenced recently.

“Our role is to administer day-to-day operations and assist in the formation of an informal owners’ association and a management board,” added Betts.

Ask the experts

Every week, we invite you to have your property questions answered by an expert. This week, Mohanad Alwadiya* tackles the task.

Q.. With banks willing to offer financing for apartments, I’m thinking of buying somewhere like The Residence in Downtown Burj Dubai. Do you think this a good ove? Can I expect a decent appreciation over, say, a five year period?

A.. I would say it’s definitely a good move. The Residence, Downtown Burj Dubai represents fantastic value at this time and with the market approaching the ‘bottom’,
the opportunity to make solid capital gains, particularly with a five-year investment horizon is very strong. In addition, with the Burj Dubai approaching completion, your
capital gain in the short-term will be accelerated. Remember that your future capital gain, regardless of property, will be heavily influenced by the decisions you make today. The fundamentals still apply and considerations such as the view, location, fit and finish, configuration and overall quality will have a big bearing on your ability to command a premium when you decide to resell in the future.

Q.. I’m thinking of buying an apartment in a reasonably priced new development, maybe Discovery Gardens. I’m just wondering if there are any hidden charges should I be aware of?

A.. First of all, you need to consider the charges associated with the transaction itself. If you purchase an apartment through a real estate agent, you will normally need to pay a 2% agency commission at the time of purchase. In addition to this amount, transfer fees of 2% will be payable to the Land Department and registration fees of Dh5,000 will apply. If you are financing your purchase, there are additional charges payable to your finance provider. These will vary between 1% and 1.5% of the total loan amount. Once you have moved into your new Discovery Gardens apartment, you will then need to pay an annual maintenance fee, which is currently about Dh30/ft², and includes your central cooling charges. However, this amount is currently under review and is expected to reduce significantly according to April 2009 press reports. Additionally, a further reduction is expected once the Owners Association is formed in accordance with the new strata title legislation. Alhough they’re not really‘hidden charges’, don’t forget that you will need to budget for property and contents insurance and, unless you want to live in the dark, you will need to account for DEWA (Dubai Electricity and Water Authority) expenses as well.

Q.. I’ve been told prime investment properties such as villas on Palm Jumeirah have suddenly become difficult to buy, as prices have dropped and sellers are withdrawing their properties from the market. Do you think prices have bottomed out there?

A.. By and large, yes. I think prices for villas have reached a bottom on Palm Jumeirah and it is extremely difficult to breach this floor.