For 2023, will Dubai’s property service charges remain unchanged? Landlords hope so

Dubai: Property owners in Dubai are unlikely to see sharp rises on their 2023 service charge payments as Dubai Land Department and the various owners association (OA) management companies work on the numbers. If at all there are any increases, those will be related to the inflation costs, industry sources say.

Service charges across most freehold locations in Dubai have remained within range in the last two years, even as the property market recorded sharp spikes in rentals and property values. The authorities have during this period made it clear that every attention will be paid to keeping property owners’ costs in check.

But homeowners may soon need to get their accounts right if they have service charge dues to pay off. Continued failure to do so could impact defaulting homeowners’ credit scores, in the same way that any missed payment deadlines on bank loans or even telephone/utility bills. OA management companies and the Etihad Credit Bureau have been in talks to get non-payment of service charges too to be included when computing a UAE resident’s credit ratings. (A decision either way is imminent, according to property market and OA sources.)

There are mixed reports on where service charge collections stand. Some in the industry say there was significant improvements in the first-half but that payments of dues tailed off from October onwards. According to Saeed Al Fahim, CEO of Stratum, one of the biggest OA management firms in the UAE, “With regards to collections, litigation processes in place have allowed for greater due paybacks. We are hopeful that with oversight from the Dubai courts and - hopefully - with reporting by the Etihad Credit Bureau, that collections increase further. The property management industry is moving towards normalization after consolidation in 2022 where some mid-sized OAE managers were bought out.”

Service charges in prime locations

Though there were reports of some OA companies raising services charges unilaterally, across most locations, any changes during 2022 were kept to a tight range by the Land Department. Under recent rule changes, the Land Department along with third-party audit committees set the service charges for a particular building or community at the start of each year. They do take feedback from the concerned OA companies, by the final word belongs to the DLD.

This way, the authorities have sought to reduce the influence of developers and their associated OA companies from setting service fees. To a great extent, this has worked well.

“Service charges on a per square foot (psf) basis are only higher for newly handed over developments at the time of submission of the first budget,” said Sameer Lakhani, Managing Director at Global Capital Partners. “For existing developments, 2023 budgets are to be strictly monitored by RERA, and can only be amended if OA board members change and/or through the introduction of new services in managing the property.

“For older mid-income communities that have not seen the price gains witnessed in the luxury sector, this has been somewhat of a relief for landlords. Given the spate of property developments being handed over in 2023, facilities management (FM) companies should be able to get a reprieve. But the challenge will remain to maintain the integrity of the asset in older developments.”

Higher FM costs, lower collection

By end 2022, the OA industry had managed to get a partial handle on the collection situation. Through 2020 and 2021, the mounting dues from property owners was the biggest issue OA companies were dealing with. Tougher measures through the Rental Dispute Settlement Court under DLD managed to tilt the balance slightly towards OA companies. But the real punch will come as and when non-payment of service fees end up impacting property owners' credit scores.

According to Ali Tumbi, CEO of Aqua Properties, homeowners too - at least a good number of them - have realised payments need to be made for the upkeep of their properties and community. And that doing so adds value to the property. "Generally, homeowners have definitely got more say overall now, as there is more awareness and in communities which have been occupied by end-users," said Tumbi. "Developers have transitioned out and don’t need to be involved once the community is fully occupied."

On 2023 trends, "For new buildings, there is definitely an increase of new OA management companies prospecting to the get the business. There is always room for new people to join and grow. We see a gradual increase in service charges' cost to continue from inflation - but not a drastic increase."