Dubai: Property owners in Dubai will be paying less on their service charges this year, as key locations in Dubai record 10-15 per cent cuts on FM (facilities management) costs. These reductions will be, in most cases, be passed on to the property owners.
The Dubai Land Department and RERA (Real Estate Regulatory Agency) have been instilling in developers since 2019-20 to bring down the annual service fees, collected by OA (owner association) management companies. There were buildings that had seen significant increases on what their OAs were charging property owners.
The 2022 cuts mean that buildings at Dubai Marina are averaging Dh14-Dh28 a square foot, while those at JLT are now at Dh13-Dh17 per square foot on average, and in Jumeirah Village Circle at Dh13-Dh22. At villa communities, the service charges are at Dh2-Dh6 a square foot.
All these charges exclude those for chiller services. So, what has happened is that developers have trimmed FM side of the service fees. These are the fees generated directly for the upkeep of the common area of communities and buildings.
“Private sector developers have worked under the direction of RERA to bring down service charges by reducing FM rates whilst maintaining - and in certain cases - improving the quality of services,” said Saeed Al Fahim, CEO of Stratum, one of the biggest privately owned FM companies here. “We have seen 2022 operating budget costs go down in the range of 10-15 per cent.”
We have seen 2022 operating budget costs go down in the range of 10-15 per cent
Better clarity on dues
The increased confidence stems from a marked improvement in the collection of dues dating back years. 2020 was a watershed year, when collections dropped drastically and brought FM companies to the brink. It was at the time that RERA stepped in to bring about some rapprochement between homeowners who were complaining about “excessive” service charges and OA/FM companies who were saying that their collections were not enough to sustain the properties.
In the last year, matters have improved. RERA maintains tight control on annual budget setting – monitored by external auditors - and the way the collections are being used. It also helped that the wider sentiments in the Dubai property market has improved, and with rent increases showing up in more residential areas.
The regulator has been extremely proactive in assisting OA management companies. Markets have certainly done their part too with property prices moving higher and that has also been a factor in increased collections
Carrot and stick
Another factor was the tough measures initiated to get property owners to clear their dues. Repeat offenders were denied issuing of Ejari certificates, which are necessary to rent the properties. Dubai’s Rental Disputes Settlement Court – under the Land Department – also weighed in on non-payments by homeowners.
According to Al Fahim, “Unpaid dues have come down, but this will not apply to retrospective dues for budgets that have been approved. Where needed, easy instalment plans on the dues have been offered. There has also been a concerted effort to isolate the non-paying members from the ones that are meeting their revised obligations. We expect that this thrust will continue.”
Property investors who had been concerned about the drop in yields – after the rental declines between 2017-21 - should feel more confident about returns in 2022
Benefits end-users
The average 10-15 per cent drop in 2022 service charges will be a hook for private developers to win new end-user buyers. This is particularly true for mid-market communities that are likely to see renewed buying attention. According to Sameer Lakhani, Managing Director at Global Capital Market, a consultancy, “Areas like Dubailand, JVC, JLT, Sports City and the like have seen reductions. “Rates have also dropped in upmarket areas like Dubai Marina. Investors who had been concerned about the drop in yields – after the rental declines between 2017-21 - should feel more confident about returns in 2022.”
