The fixing of service charges and their payments could do with more transparency. Everyone with an interest in the real estate market gets to benefit from such an outcome. Image Credit: Gulf News Archive

What I would like to share is not my personal opinion or concern but a collective problem for almost every homeowner or investor in Dubai.

I can share the case of one project where all the property owners and investors decided to not make any payments collectively unless RERA and the facility management company addressed their concerns… and this has been pending for the past nine months.

There are a few concerns that are common across every freehold community in UAE under the new ‘Molak’ system implemented last year. Though it brings about greater transparency, it has not helped find a common ground for investors to address their concerns with RERA.

One issue is how additional charges are billed separately in service invoices for projects having district cooling facilities. This is a major discrepancy for the simple reason that most owners across various projects decided to withhold service fee payments to facility management companies.

Only a promise of future repayment

Since the owners have direct contact with utility service providers, it becomes a duplication of such charges and subject to later adjustments. No owner or investor wishes to make advance payment and then have to wait in anticipation for a later date reconciliation. This could even take a year.

This is a major issue as the fees charged - called “Additional AC Charges” - is substantial and can range up to 30 per cent of the invoice value. The other concern is the parameter to reconcile as no such mechanism is explained or shared with any homeowner, either by the Molak system or by the facility management company.

According to the latter, such charges are defined by RERA, whereas the Molak invoice mentions clearly that it has nothing to do with the charges except review and approval as proposed by the facility management company.

Now, the additional service charge factor applied in the service invoice does not explain how the factor is defined and later reconciled with the actual consumption of a unit owner. This brings us to the issue where owners decided not to pay unless such invoices are corrected, thereby delaying settlements.

Need for a rational explanation

The second major reason for most homeowners to not pay service charges or withholding them is the serious escalation in provisional charges applied by these facility management companies from first quarter to the second of this year.

I can share with you those of my properties with Emaar and Damac, which have seen a jump of 12-25 per cent in the service charges billing from the Q1-20 to Q2-20 without any explanation until date. Surprisingly, the system approved them without verifying the reasons for such changes.

Such charges are not increased in one category but to the entire service invoices and categories. Where Emaar Community Management choose to use a multiplying factor of 1.12 (12 per cent) in their service invoice for Q2-20 from Q1-20, LOAMS of Damac used a multiple of 1.25 (25 per cent).

An endless wait

Now the simple explanation provided is that these are provisional charges and will be adjusted in future invoices. But does that sound reasonable for thousands of homeowners and investors in the UAE, whereby unnecessary additional charges are passed on to these facility management firms for reconciliation at a future date. Especially so at a time when people are affected by the financial crisis arising out of COVID-19.

Every facility management has a provision for reserve funds to cover for any unexpected expenses, but surprisingly none have used the same. Instead, they have used a separate route to bill it under the service charges, which also incur additional VAT.

Again, there is no provision to explain how it will be refunded to home owners if charged in excess in the first place.

I am sure if someone tries to speak with the homeowners or investors, there may be more concerns or grievances, which could very well explain any reason for delayed service charge payments.

It is important that an equal mechanism should be set up to address investors and homeowners’ concerns, same as those mandated in a landlord and tenant relationship. If due importance is not given to investor grievances and all the attention is only focused on developers, it will only lead to market distortions.

- Rishi Tayal is a homeowner in Dubai.