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RERA index highlights service charge discrepancies

reraindexThe new Rera service charge index is focusing attention on the vast differences in the charges property owners in different areas of Dubai are being asked to pay for services.

The index, which was launched by the regulatory arm of the Dubai Land Department last week, compiles a list of itemised annual service charges for 300 individual buildings located in 22 major developments. According to calculations by The National using the Rera data, properties in the Burj Khalifa area paid the highest service charges, averaging Dh19.40 per square foot on annual charges for services, maintenance, property management and building insurance.

The area is also the most expensive in the city with apartment prices per sq ft reaching between Dh1,700 and Dh3,300, according to the latest available figures from Asteco, the property services company.

Second highest, according to the Rera data, was Dubai Marina, where property owners on average spent Dh15.08 per sq ft, where apartment prices stood at between Dh1,200 and Dh3,000 per sq ft.

At the other end of the spectrum, property owners at International City phase one spent on average Dh9.52 per sq ft on their service charges and owners at the International Media Production Zone spent Dh10.13 per sq ft.

“It is not surprising that there is a wide discrepancy between the service charges which are paid in different areas,” said Simon Townsend, the business development manager at the property services company DTZ’s Dubai office. “This is because some buildings come with a great deal more services than others such as swimming pools, private beaches and private security while others do not. All of these services are eventually paid for by the property owners.”

The Rera index, which is ultimately intended to provide an up-to-date and comprehensive list of service charges paid in buildings across Dubai’s freehold areas, at the moment provides information only about current service charges.

Eventually it is hoped that the index will provide information about whether the charges are increasing or falling over time as owners in various buildings across the city perennially complain about what they describe as excessive hikes aimed at lining developers’ pockets.

Developers counter that they are passing on the costs of maintaining the buildings correctly and to scrimp would cause damage to the properties over the longer term.

The issue has caused huge controversy in the past with master developers cutting off air conditioning, draining swimming pools and shutting gyms in an attempt to force owners to pay up.

According to documents seen by The National, service charges at Al Basri and Al Dabas apartments on the Palm Jumeirah shoreline rose 30 per cent over the past year from Dh9.11 to Dh12.06 per sq ft.

Detailed breakdowns show that the increase has been partly fuelled by an increase in the wages paid to security guards at the developments which rose from Dh338,315 in 2013 to Dh568,800 this year.

In January 2013, Dubai Police announced that it would implement unified employment contracts for the 27,000 security guards working in the emirate’s 300 private security firms, stipulating a minimum wage of Dh1,200 a month. It is understood that the new stipulation has pushed up security charges in a number of developments.

“Service charges are reviewed and approved annually by the relevant authorities,” said a spokesman for Nakheel, the master developer which has built and administrates the apartments on the Palm. “Any changes are related to variations to scopes of work, frequency of services, government policies or other immediate and long-term maintenance requirements. Our service charges remain among the lowest in Dubai.”

Craig Plumb, the head of research at JLL’s Dubai office, said: “Over the past couple of years we have seen a number of steep increases in service charges for property owners. Often this has been due to the fact that previously developers just weren’t covering their costs. Some developers were swallowing the costs of maintaining their buildings rather than passing them on to owners in an attempt to attract buyers, which was unsustainable in the long term.”

MPM Properties, the property division of Dubai Islamic Bank, which manages about 7,000 properties in Dubai and Sharjah, reported that its service charges had increased only between 2 and 5 per cent over the year.

“We have only seen inflation- linked increases on property management costs as we continue to improve efficiencies due to the size of our portfolio.” said Paul Maisfield, the chief executive at MPM Properties.

Owners complain that owners’ associations which were introduced under Dubai’s strata law in 2007 to take control of property maintenance and costs from their residential building developers are still unable to function properly and hold developers accountable for the high service charges.

“There is no question that owners associations legally exist,” said David Nunn, a commercial real estate partner at Berwin Leighton Paisner. “The problem is still that although the law has been passed, it has yet to be implemented so they can’t actually do very much.”-The National