Property | UAE

Ask the agent: High service charges

Halcon Real Estate's Gassan Ghellal answers your questions

  • By Gassan Ghellal for Property magazine
  • Published: 00:00 November 15, 2011
  • Property

Sulafa Tower, Dubai Marina
  • Image Credit: Supplied pictures
  • A tower that offers a wide range of facilities is more likely to have a higher service charge.

Why am I paying a higher service charge for my apartment than owners in other towers in the same area? If labour is cheap in Dubai, why am I paying such high fees?

The service charge you pay towards any building is not simply related to the size of the work force required to keep the tower in a clean and presentable condition. The first thing that determines the price of the service charge is the ratio of common areas compared to the saleable areas of any tower. A tower that offers a wide range of facilities, large shared spaces and wide spacious corridors is more likely to have a higher service charge.

Secondly, there is a fair amount of money that is spent on the electricity and cooling of all the common areas. If the tower is designed with low energy use in mind, this can drastically reduce the power consumption and so lower the service charge. Buildings that operate with LED lights rather than standard light bulbs have lower energy consumption, for example.

In any service charge, there is a sum of money that goes towards the sinking fund, which is a portion of money saved each year to be used for a rainy day. Many of the new towers avoid putting any money towards the sinking fund in the first year as all equipment in the tower is under a one-year warranty. However with time, a tower that hasn't contributed a sufficient amount of money towards the sinking fund may have volatile service charge rates determined by the varying levels of maintenance and part-replacement needing to be carried out each year.

Facilities management companies and owners' association managers are currently competing to satisfy the requirements of tower owners' associations, which is causing a reduction in the service charges across Dubai. However, towers in Dubai do offer a higher standard of facilities than other cities across the world. It's almost unimaginable to live in a tower without a swimming pool and gym, and this will naturally keep service charges higher than in many other cities.

I am a UK citizen. I have accepted a job offer in Dubai. I prefer to live in my own home rather than a rented house. Is it possible for me to get a mortgage as soon as I land there or should I make a cash payment? I am looking for a two or three-bedroom apartment in the new Dubai area. Could you please advise?

Until you obtain a visa in Dubai, the mortgage department of any bank will see you as a non-resident and your mortgage approval will depend on your bank statement history in the UK along with your financial position and company of employment. It is always preferable to spend your money on a home of your own rather than a rented home.

However, you should not rush your choice. Take the time to look around and decide what type of home and area you want to purchase. You should consider the option of rent- to-own properties offered by a few developers, or simply rent a furnished home for a few months until you find that perfect property.

I am living in a rented apartment. I have been planning to buy a home for quite some time but I am confused about whether to buy or continue to rent, especially after reading conflicting reports by various research agencies. What is your take on this — should I wait or buy?

This collective thinking that prices will decline further causes assets to be undervalued and presents a good opportunity for risk-takers to make a profit. Fool-proof risk-free purchase of any investment doesn't exist. However, loan rates are 30 per cent lower than in 2008 and mortgage financing is being aggressively promoted by all banks.

Today, the annual mortgage payments for most properties in Dubai would work out as the same as what you would be paying to rent it. Should you continue to wait till the market collectively agrees that prices can only go up, the chances are that by then the property would probably be overvalued. Should you decide to go ahead with your purchase, ensure the location is good, that you are not overstretching yourself to pay your mortgage and you are going for the purchase with a long-term outlook.

Buying now and seeing the market drop a further 5 to 10 per cent over the next six months should not put you off. At the end of the day, the only two figures that matter are the purchase price and the sale price. The time in between, as long as you are getting a healthy return on your investment from the rent, should be satisfying enough.

Gassan Ghellal is business development manager at Halcon Real Estate

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