The recently announced revamp of Dubai’s JOP (jointly owned property) Law promises to upend the handling of service charges and how OA (owners association) companies will conduct their behavior going forward.
Given that there have been innumerable instances whereby building assets have not been properly maintained, service charges have increased against the backdrop of declining rental rates. This has deterred potential investments in the sector, and has led to existing investors suffering - sometimes even being held hostage - to the rising charges of their units.
Radical reforms that include oversight and segregation of “sinking fund” amounts, a separate escrow account for service charges through the MOollak system, and stringent overview and questioning of budgets make it likely that there will be downward pressure being applied on service charges. With the oversight being equivalent in many cases to the regulatory regime enforced by DIFC, there is no doubt that there will be consolidation among the smaller players in the industry.
Even the larger ones will be forced to rationalize. These conversations, long overdue, are proving to be difficult, as OA and facilities management companies scramble to comply with the auditing and filing requirements being put into place.
Need regulator’s help
However, the industry, still in its early stages, can do with assistance from the regulator in the establishment of oversight committees as it seeks to enforce each clause of the JOP Law in letter and spirit. The devil is always in the details, and it is these details that will matter the most in a rapidly changing industry.
For example, in a building that has some apartments with balconies and some without, the service charges and fees can be disproportionately allocated to the ones without the balconies, unless a more accurate metric is arrived at. A more recent example where industry input is required is when the actual expenditure does not meet the budgeted documents after the coronavirus outbreak, which led to a significant rise in need for cleaning materials and services in each building.
Let’s not nitpick now
This by definition will lead to an increase in overheads, which is prudent, insofar as it leads to actual usage. It defies common sense for these items to not be approved. These are realities on the ground, and to deny these claims would be a disservice not only to the owner-occupant, but to the entire community at large.
There can be no excuse for the improper upkeep of a building, especially when there have been sinking funds that have been set aside for the asset. This too however can be broken down on a case-by-case basis. We all are aware of buildings that were built in the first property boom cycle that have been of variable quality.
In some cases, there is a legitimate case for raising fees temporarily so as to get the building in proper condition, rather than adopt a drip=feed mechanism that will only serve to further deteriorate the asset because the symptoms, rather than the cure, are being addressed.
Stakeholders - which should include owners, occupants, facilities management companies, contractors and OA representatives - should coalesce in community after community to shed light on specific examples of the issues they are facing.
Only then will there be specific responses that can be put forth, rather than a one-size-fits-all approach.
It is no secret that OA and FM companies have come under pressure and even demonized in some instances. There are enough instances where this criticism is justified.
The regulation is timely for the industry, especially for the investor and end-user. However, it would serve all stakeholders well if a “townhall” approach would be adopted whereby all voices are heard and more effective, nuanced, and specific solutions are arrived at such that everyone benefit.
- Saeed Al Fahim is CEO of Stratum.