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Dubai owners to be hit with huge maintenance charges? - 12 July 2010

Property owners in the freehold areas of Dubai could be hit by major maintenance charges which should have been identified prior to purchase, according to the property management arm of a leading real estate developer.

‘Some owners are jeopardising the return on their investments by not adequately accounting for depreciation on MEP equipment,’ said Mazen Falhout, General Manager, MAGme Property Solutions, a division of the MAG Group.

Dubai property owners now have the opportunity to play an active role in the management of their properties as the new owners’ association management regulations, implemented by Dubai’s Real Estate Regulatory Authority (RERA) come into effect.

But full implementation of the regulations means that as well as routine maintenance and upkeep charges, owners will have to pay premiums to cover complete building insurance as well as an emergency reserve or ‘sinking’ fund to take care of larger maintenance work or replacement of essential equipment.

These funds are essential to accumulate a reserve fund over time which helps to enhance not only the value of property for the current owner, but makes it more attractive for prospective buyers and the secondary market. It is also important that buyers verify whether such allocations have been made in the service fee budget before deciding to buy, the company points out.

‘When considering a real estate investment, prospective owners should always seek advice from professionals who can evaluate all potential operational costs, as well calculating depreciation or the appropriate deposits for a sinking fund,’ explained Falhout.

He says that for example, to replace a chiller in an average tower building costs around AED2 to 3 million and that amount must be built-in over ten years when it reaches the end of its working life. If there is no sinking’ fund, owners have to foot the entire bill at that point of time which could be substantial.

As there is no conformity with common areas, each building or community must be assessed on a case by case basis, by professionals who understand maintenance of the complex engineering in these developments.

‘In tower buildings it could be something as simple as electricity supply for lifts, air conditioning, pool chillers, lighting and even car park barriers. With rents falling at least 40% over the last 12 months, many owners are now faced with fees that they cannot simply pass on to tenants if they want to remain competitive in the market,’ said Falhout.

‘What might seem on the surface to be a good sales price may not be cost effective over time, when the so called hidden capital and their respective operational expenses have been factored in,’ he added.

Prior to June 2008, investors did not care too much about service charges or operational costs, many were only speculating on the rising price. ‘Now that party is over and owners now have to be responsible for their investments,’ he pointed out.

MAGme was specifically set up to provide an array of real estate management services from sales and marketing to property management and owners’ association management. With so much stock to be completed over the next five years, Falhout believes that the property management sector will grow substantially over that period.


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