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28 March 2024

Developers shouldn’t profit from FM services

More than 60 per cent of owners felt developers should be permitted to cover only their costs for providing services, but just above 30 per cent of the owners said developers should be allowed to include a degree of profit. (REUTERS)

Published
By Parag Deulgaonkar

Six in 10 Dubai landlords participating in a recent survey say property developers shouldn’t be allowed to profit from providing facilities management (FM) services.

More than 60 per cent of the 350 respondents to a survey on ‘Cost of owning a freehold property in Dubai’ felt developers should be permitted to cover only their costs for providing such services, while just above 30 per cent were in favour of developers including a certain degree of profit in the service fees.
Another key finding of the survey, conducted by law firm Hadef & Partners, is that a vast majority – nearly 80 per cent – of freehold property owners in Dubai believe that lowering the service fees charged by developers will expedite the recovery of the real estate market in the emirate.
The Dubai-based law firm, which released the report on Monday, said over 90 per cent of the respondents wanted Real Estate Regulatory Agency (Rera) to penalise developers who did not provide owners with annual audited accounts for service charges prior to the registration of home owners associations.
An equal number were in favour of service charges being subject to the approval of the interim home owners’ committee and the committee having a say in appointing the contractors employed to provide services within their developments.
“The survey confirms that many developers are not aware of or are wilfully ignoring the current regulations surrounding jointly owned property and the collection of service charges including administrative circulars issued by the Rera,” the report added.
According to the law firm, there is a real desire for owners to gain control of and understand how service charges are levied and to understand what services are supplied as part of these charges.
Under Article 11 of the Direction for JOP Declarations, developers were required to complete registration of interim owners association by October 13, 2010. In an interview with Emirates 24/7 last year, Rera CEO Marwan bin Ghalita had said that the deadline would not be extended and developers who failed to meet the deadline would be penalized. Later in January 2011, Ghalita said over 150 interim owners associations had been registered with the agency.
The survey further found that a majority of the respondents, about 98.6 per cent, want Dubai Land Department (DLD) to only maintain the land registry and most preferring their personal records to be maintained and managed by a government entity than a private developer. Besides, many owners also sought land records to be open for public inspection on payment of nominal fees.
Admin fee hurting owners
According to the report, “unexpected” administrative fees imposed on owners appear to be a widespread issue throughout Dubai.
During the real estate boom in 2004-2008, purchasers of freehold property were paying transfer fees of up to two per cent to developers in addition to fees for registering all other transactions. In 2006, when the DLD activated its freehold title registration system, developers were still charging such fees.
 “It is evident that purchasers who purchased property during the real estate boom were well aware of duplication in costs [but] chose to pay these costs due to the escalating real estate prices. To the detriment of investors and purchasers, now that markets have dipped, the duplication in costs, albeit even as a fixed or capped cost, appears to be pinching the pockets of investors and purchasers and does drive up the costs of owning freehold property in Dubai,” the report pointed out.
Communicate with authorities
The law firm also urged all market participants to report to the DLD and Rera any conduct that is contrary to the law as this will enable regulators to educate such persons or entities.
“… by continually promoting good practice and reporting bad practice the good developers in Dubai will be rewarded by longevity and good will, whereas the bad developers will slowly but surely be weeded out of the market through bad press and lack of good will,” the report said.