Mopping up in a crisis

Property management firms will buck current market trends and grow at least 15 per cent in 2009, the region's leading companies told Emirates Business.

Growth in sector will be fuelled by the handover of more completed projects this year, making 2009 their biggest year yet. In addition, business will see a 15 per cent rise in staff.

Andrew Chambers, Managing Director of property services firm Asteco, said: "We're planning a new big office, we're growing and recruiting in this area.

"New projects need advanced facilities and property management. We expect to double our staff from 130 to 260 in the next 18 months. Across the market, over the next two years, there will be double the business that exists today. Some of the older, better managed buildings will also move to external management."

John Stevens, Director of Property Management at Asteco, said the group's portfolio had doubled every two years since 2004.

"With contracts in hand, we're expecting 2009 to be biggest ever," he said. "We're currently managing 3,500 buildings with 40,000 individuals leases across UAE. Of these contracts, 80 per cent is pure residential, 10 per cent is a mix of residential and commercial, five per cent is pure commercial and the balance is short-term furnished accommodation, labour accommodation and individual properties."

Asteco's property management arm covers, among others, Emirates Towers' commercial wing, Capricorn Tower, Habtoor's property portfolio and Abu Dhabi Commercial Bank's portfolio.

Lesley Preston, Head of Property Management at Cluttons, said: "We are optimistic this year. We have projects that are in final stages of completion and would like to see an increase of 20 per cent in our business. As the new projects come online, we will be recruiting. We can't expect the existing staff to service new projects and foresee a 10 per cent growth in staff." Property management currently contributes 35 per cent of Cluttons' total revenue.

Salwan Property Management, an arm of Dubai Properties, predicts a near 50 per cent rise in its business from 18,000 units to 26,000 units by the end of this year.

The company currently employs 120 people and will add up to 20 per cent more staff this year.

Saeed Bushalat, Chief Executive Officer, Salwan Property Management, said: "As property managers this is our time – 2009 is the year of Salwan. This year will set everything in motion.

"In 2010, we expect to add another 20,000 units and our five year aim is 100,000 units," he said. The company will add new projects in Al Quoz, Dubailand, Executive Towers in Business Bay and Mirdiff this year, and draws 90 per cent of its revenue from residential projects. Of these, only Jumeirah Beach Residence is a freehold project, while the rest are leasing properties.

Legalities surrounding the handover of freehold projects to its owners fall under the Strata Law and its regulations are due to be announced today, Marwan Bin Galaita of Dubai's Real Estate Regulatory Agency (Rera) told Emirates Business.

These regulations will spark the rise of strata management, an avenue that firms will bank on this year.

Asteco's John Stevens said the firm will position itself in strata management. "When the regulation is passed today, multi-owned freehold towers will be able to set up their own associations for their buildings. Buildings will be able to serve as legal entities and enter into agreements for insurance, management contracts and service provider contracts," he said.

Property managers attended a training course organised by Rera on Strata Law late last year to understand the new law. "For now, the law is applicable only in Dubai. The ideas are good and we need the legal backing to pursue absentee landlords. We need the mechanism to pursue non payers of bills to chase them down," Preston said.

Salwan's Bushalat added Rera would need to work on increasing awareness on the law and its regulations. He said the firm was involved the Rera's efforts to set up the Strata Law and its mechanism since inception. "We were the first to implement the law at Jumeirah Beach Residence and have been working with Rera since the beginning. People need to learn more about Strata Law and what they can and cannot do with the law," he said.

Property management firms charge between four per cent to five per cent of the total expenses a building incurs. This includes utilities such as electricity and water, maintenance fees for common areas, security et al. Maintenance fees are designed to be non-profit and are charged by calculating the total expense incurred by a building and dividing it by the number of square feet being occupied. This gives tenants a rate per square foot.

While the fees vary drastically from project to project, and is based on the facilities and amenities each project provides, an average 40-storey residential tower would pay an estimated Dh20 per sq ft per year as its maintenance fee, if it had central district cooling but no valet parking, Asteco said.

At JBR, Salwan increased the maintenance fees to Dh21.75 last year. However, Bushalat warned that the Dh20 to Dh22 range should not be made the benchmark.

"JBR is a huge project with 40 towers, 6,000 units and 11,000 car parking spots. That's a lot of common areas. It will be different for other projects. I cannot speak for other developers, but some projects in the Marina are at Dh28, some others are at Dh24, so there's a huge variance."

Property management expenses are audited every year, and any surplus stays with the building being managed, in its own bank account. Accounts for 2008 showed that maintenance fees rose rapidly mainly due to an increase in Dubai Electricity and Water Authority (Dewa) charges. "We've seen operational expenses increase since the cost of utilities went up. There was an increase of 10 to 15 per cent in total expenditure last year," Stevens said.

The current economic climate has meant stringent budgets and hard negotiations of contracts, the firms said. "They are asking for cost cutting, to be more efficient, to squeeze more out of the money," said Bushalat.

"We continuously do this; we don't need to be told to do this. We strive to offer the best quality at a minimum price. The extent of caution being exercised, depends on the developer we are negotiating with. Some want minimum services, some still want the best. Since ours is a very flexible and customisable offering, it depends entirely on the tenants and owners of that tower."


Q&A with Andrew Chambers

What is strata?

Strata can be referred to as the way in which land and/or buildings are divided into units and common areas. In Dubai, this is known as jointly owned property, in accordance with Law No 27 of 2007 regarding Jointly Owned Property in the Emirate of Dubai. A property that is defined as "jointly owned" consists of multi-unit dwellings where each unit is individually owned and the common areas are collectively owned by all the unit owners in the building. These jointly owned property, can be in the form of high rise apartments, retail buildings, commercial towers or low rise communities.

What is an owners' association and how is it formed?

All owners collectively within a jointly owned property make up the owners' association. The owners' association is a legal entity formed upon registration of the first sale of a unit within a jointly owned property. It is the association's responsibility to maintain and manage common areas and facilities within a jointly-owned development. It is also associations' responsibility to ensure rules are being adhered to by residents allowing harmony within the community.

What is strata management?

Strata management incorporates both owners' association management and facility management and refers to the day-to day-management and up-keep of a jointly-owned property and its shared common areas and facilities. Strata management includes the administrative and financial duties of the owners' association, such as the preparation of financial budgets and forecasting, arranging comprehensive property insurance, appointing and managing facility managers, etc. In other words, acting as owners' liaison managers to ensure that their investment is protected and requirements are adequately attended to with respect to the Jointly Owned Property Law, regulations and community rules.

What is a property service charge?

A property service charge is a fee paid in advance for the cost of the maintenance and management of the common areas, facilities and services. It is usually paid quarterly or annually and it includes such things as insurance, utility services such as water and electricity, cleaning, security, preventative maintenance and administration of the owners association, including recovery of service fee, management of the bank accounts and payment of creditors. There are two types of service charges – one for the "general" fund, which pays for the day to day management and maintenance and one for the "reserve" fund that is specifically for capital improvements and lifecycle replacements. The developer has to pay a share with respect to unsold units or those designated for future development.

What are the key benefits of strata management?

The Dubai Jointly Owned Property Law came into effect on April 1, 2008. Professionally executed strata and facilities management is widely expected to enhance quality of life and investor confidence in the UAE providing more consistency to its property market.

The author is Managing Director of Asteco