Stock property management
A majority of property owners are turning reluctant to be up to date with their 2021 service charge payments. This could well negate some of the gains made on collections towards the end of last year. Image Credit: Shutterstock

Dubai: Service charge collections in Dubai’s freehold property market are down to about 25 per cent of where they should be in the first four months of 2021, setting off another major crisis involving property owners and their property management companies.

“Typically, year-to-date collections should be in the 60-70 per cent range, but a majority of property owners don’t seem to be in the mood to pay their service fees,” said a senior industry source.

Making matters worse is that full-year 2020 service charge collections have only reached the 50 per cent mark despite persistent – and stern – efforts by Dubai’s real estate regulators to get owners to pay up.

Last year, the authorities banned all transactions – sale and rental – on properties where owners have not cleared their dues. Property management company sources say that the decline in collections for this year suggest more stringent measures are needed.

The latest situation could see more forceful interventions by the authorities to resolve the brewing crisis. There are several cases brought before the Dubai Land Department’s Rental Disputes Centre as property owners and Owners Association (OA) companies fight it over arrear payments.

What's happening at one prestige tower
Service charge collections at a prominent high-rise in Dubai was running at a deficit of nearly Dh1.5 million out of the budgeted Dh3 million at the end of last year. According to a senior source at the OA property management firm, there was just about enough to pay off the electricity bills.

This was despite a cut offered to property owners on their service charge fees for the year.

Critical for upkeep

Service charge collections are vital for the upkeep of a freehold designated building or community. Each year, the Real Estate Regulatory Agency gives clearances on what the fees should be, and homeowner association management companies do the collection and which get used for the general maintenance.

Interestingly, the authorities have, for most locations, not allowed any major hikes on 2021 service charges.

Set off by pandemic

Property owners not paying up their service fees on time has been an issue for years, but it was last year that things reached a full-blown crisis. After COVID-19 hit, property management companies reported an immediate escalation in owners not paying up.

According to Saeed Al Fahim, CEO of Stratum, one of the biggest names in the property services business, the crisis has already reached a breaking point. “The payment arrears are directly impacting on the maintenance of the property,” he said. “This comes with long-term consequences for the particular property – and even of the building or community that it’s a part of.

“RERA sets the service charges for each location – and it’s vital that everyone pays up. It cannot be selective.”

Saeed Al Fahim
Saeed Al Fahim is CEO of Stratum, one of the biggest privately owned property management companies in the UAE. He says unless something drastic happens on service charge collections, the upkeep of properties will get compromised for lack of sufficient funds. Image Credit: Clint Egbert/Gulf News

Non-issuance of ‘Ejari’

It was late last year that the authorities stopped issuing Ejari certificates for properties that had yet to clear their dues. (An Ejari clearance is vital for all rental deals.)

This was supposed to have a deterrent effect on property owners, and to an extent it did work. According to OA sources, service charge collections actually improved in the final three months of last year.

But as trends for the first four months of 2021 show, it didn’t last long enough. Property management companies have started issuing notices to owners saying they are liable for legal action if dues are not settled.

According to Al Fahim, this should not be a problem for OA companies and the authorities alone. The members of the homeowners associations should also bear responsibility to ensure other property owners pay up.

“The legal onus of collection and enforcement of charges should be on the OA committees,” said Al Fahim. “These committees should ideally comprise not just the property owners, but members of the facilities management, including the developer. This way, all stakeholders get to be on the same page.”

And hopefully, for them to pay up… on time.