Service charges – unjustified or necessary?

Investors and end-users are now seriously considering the kind of service charges being levied before making a decision to buy a property in Dubai, or not.

Also, an increasing number of owners are unhappy with the high service charges they have to pay as it is eating into the rental yield, which has come down considerably after the price correction in the property market.

“Service charges vary considerably - with Sky Courts charging Dh10,000 per year to the Address at Dh55,000 and Burj Khalifa at Dh70,000. These charges vary for a number of reasons. Sky Courts charges are low but it has many units to share the cost and Discovery Gardens for instance has the District Cooling charges included. Others like Burj Khalifa are paying high charges because of the quality of service, it is a prestigious building and because of its height, is more costly to maintain and operate,” Charles Neil, CEO of Landmark Properties told this website.

According to  Tareq Gouda, Senior Residential Consultant, Head Office, Better Homes “Communities such as Downtown and The Palm have high service fees because of their high construction quality, amenities, facilities and common areas that are available across the properties within this development. Communities such as International City and Discovery Gardens have the lowest due to the lack of parking, facilities and amenities; however, properties such as The Greens and buildings in Dubai Marina and JLT tend to charge high service fees without the support services to justify the figures.”

According to real estate companies, some communities/developments charge a lot more than they deliver, with apartments losing out to villas in this area. 

Villas are looked into by both investors and end-user as the maintenance is much lower than the buildings and the returns are around 6-7 per cent.

For the end-user the EMI + maintenance is affordable. This is the reason why the villa market is rising rapidly as compared to apartments.

According to market sources, for example, Saheel Type 7, 3-bedroom+maid villa with a BUA of 3324 sqft was selling for Dh2,300,000-2,500,000 during Jan-March 2011, but jumped to Dh2,650,000-2,800,000 in July-October 2011.

“The selling prices have jumped more than 10 per cent due to this positive aspect. The same has happened to all villa communities,” says Rushiraj Mehta of Legacy Real Estate. 

He believes that apartment maintenance has to be lowered drastically in order to support a positive market towards these units.

“The best way would be getting in strata communities, handing over the buildings to the owners and letting them manage, enabling them to choose contractors and maintenance companies, which would be much lower than the amount charged by respective developers. Thus, lowering maintenance amounts increasing the ROI and also helps in paying less for the end user,” Mehta says.

Elaborating on the respective communities, he points out that the new rule of applying maintenance charges on the total area is hindering the sale of apartments with courtyards in areas like Dubai Marina, The Greens and Old Town.

“In areas like JLT, Marina, Greens and Business Bay, it depends on the individual building to levy the charges, but the maintenance and the rent factor go hand-in-hand, thus, making investors comfortable with a return of 6-7 per cent minimum [on their investments] and the end users with a comfort of EMI + maintenance equal to the amount they are ready to pay per year,” Mehta adds.

Maintenance fees

Highest

Downtown Properties – Burj Views, South Ridge, Burj Residence, Lofts, 8 Boulevard, Old Town. Maintenance – Dh22-24/sq ft (this includes maintenance fees + chiller fees) Burj Khalifa, Burj Dubai Lake Hotel, Burj Dubai Mall Hotel Maintenance – Dh52/sq ft Palm Jumeirah Properties - Shoreline Apartments, Marina Residence, Oceana, Tiara, Maintenance – Dh15-20/sq ft (this includes only maintenance fees) + palm district cooling capacity and consumption charges are over and above.

Medium to Low

JLT, Dubai Marina, Greens, Business Bay (among others) These communities have individual towers with individual developers and the maintenance fees vary from building to building 

How high maintenance charges affect the market?

For the end user

The high maintenance cost adds to the EMI. Although there is a section of the market, which still continues to purchase in communities with high charges, the volume is so low that it is not driving the market.

For investors

Investing money in Dubai is directly related to the return on investment as it is in any other market. The rents have dropped and high maintenance in these communities leave investors with nothing more than 4-5 per cent returns. Although there are investors who believe the price of particular communities will appreciate as they are the iconic projects, again they are few in number.

– By Legacy Real Estate

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