Service charge

In Dubai, 2021 property service fee recoveries are at a dismal 25%, triggering a new crisis

Dubai: Service charge recoveries in Dubai’s freehold property market have fallen to around 25% of what they are expected to be in the first four months of 2021, triggering another major crisis involving landlords and their companies property management.

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

Worse still, service charge recoveries for the year 2020 have only reached the 50% mark despite persistent – ​​and tough – efforts by Dubai property regulators to get landlords to pay.

Last year, the authorities banned all transactions – sale and rental – on properties whose owners have not paid their dues. Sources at the property management company say the decline in collections for this year suggests tougher measures are needed.

The latter situation could see more forceful interventions by the authorities to resolve the brewing crisis. Several cases have been brought to the Dubai Land Department’s Rental Dispute Center as landlords and Homeowners Association (OA) companies fight over arrears.

What happens in a prestige tower

Collection of service fees at a prominent skyscraper in Dubai showed a shortfall of nearly 1.5 million dirhams out of the 3 million dirhams budgeted at the end of last year. According to a senior source at property management company OA, there was about enough to pay the electricity bills.

This despite a reduction offered to owners on their service fees for the year.

Review for maintenance

Service fee collections are essential for the upkeep of a freehold designated building or community. Each year the Property Regulatory Agency gives permissions on what the fees should be, and the homeowners association management companies collect and which is used for general maintenance.

Interestingly, authorities have, for most locations, not allowed any major service fee increases in 2021.

Triggered by the pandemic

Landlords not paying their service fees on time have been a problem for years, but it was last year that things hit a major slump. After the COVID-19 hit, property management companies reported an immediate escalation in the number of non-paying landlords.

According to Saeed Al Fahim, CEO of Stratum, one of the biggest names in the real estate services industry, the crisis has already reached a breaking point. “Arrears in payment have a direct impact on the upkeep of the property,” he said. “It has long-term consequences for the particular property – and even for the building or the community of which it is a part.

“RERA sets the service fee for each location – and it is essential that everyone pays. It cannot be selective.

Saeed Al Fahim is CEO of Stratum, one of the largest private property management companies in the United Arab Emirates. He says that unless something drastic happens to the collection of service fees, maintenance of properties will be jeopardized for lack of sufficient funds.
Image credit: Clint Egbert/Gulf News

Non-issuance of ‘Ejari’

It was at the end of last year that the authorities stopped issuing Ejari certificates for properties that had not yet paid their dues. (An Ejari authorization is essential for all rental offers.)

This was supposed to have a deterrent effect on landowners, and to some extent it worked. According to OA sources, service fee recovery actually improved in the last three months of last year.

But as trends in the first four months of 2021 show, that didn’t last long enough. Property management companies have started issuing notices to landlords advising them that they face legal action if dues are not paid.

According to Al Fahim, this should not be a problem for OA companies and authorities alone. Members of homeowners associations should also take responsibility for ensuring that other homeowners pay.

“The legal burden of collecting and executing charges should rest with the OA committees,” Al Fahim said. “These committees should ideally include not only owners, but also members of facility management, including the developer. This way, all stakeholders are on the same page. »

And I hope they pay…on time.