As a sign that the real estate market is closing in on full recovery, annual service fee collections from property owners in Dubai have “improved significantly” since September. Despite the backlog of service fee collections, re-payments have hit 50-60 percent levels from around 30 percent through 2020, according to industry sources.
Increasing – and on-time – payments reflect the increased number of secondary market deals for existing apartments and villas in the city. When a new owner takes over, the odds are that much of the dues on service fees will have been cleared as well.
After the Dubai Land Department has cleared homeowner associations (HOA) to collect service fees, homeowner associations set and collect service fees on an annual basis. After the collections are made, these funds are spent on the maintenance of properties within the building or community by HOA management companies.
“Yes, service charge collections are seeing marked improvements from what’s been the situation in recent years,” said Saeed Al Fahim, CEO of Stratum, one of the biggest OA property management companies in the country. “There is plenty of cause for optimism now that property prices have rebounded. We believe 2022 will see all outstanding issues between property owners and OA companies being resolved to the satisfaction of all parties.”
The market is improving across the board
In Dubai, most of the companies managing some of the larger towers and communities have been able to “secure their budgets” for this year. “The optimism is there that rents too will start picking up in 2022 the way that sales improved this year,” said an industry source. “There will be no reason why property owners should delay or not pay their dues. These payments are going for the upkeep of their properties – and that means better value for them in the future.”
Management companies also offer installment plans to encourage owners to pay their dues. Sources say this also helped increase collections.
RERA’s help
In addition to the Land Department, RERA (Real Estate Regulatory Agency) also had a direct role to play in getting property owners to pay up. The Rental Dispute Settlement Centre was established last year to handle non-payment of service charges. In the past, direct negotiations or local courts were the only alternatives for resolving such issues.
Additionally, RERA made it mandatory that after repeated nonpayments, property owners would not be able to register their apartment or villa for sale or for ‘Ejari’ (the rental contract). As another option, properties, where payment has not been received for several years, have been put up for auction. (To make the owner pay, power and water services have been cut off to the offending unit in some cases.)
“In the auction process, we have been working with the authorities to ensure that there is some mechanism where service fees are also recovered from the sale,” said Al Fahim. “We are confident that the authorities will weigh in favourably on this issue soon.
“From the service fee collections’ standpoint, the argument property owners have used is that rents have fallen. But that’s never been the factual position as the service provided – which is the upkeep of the property and building – is not linked to rents.”
Turned the corner?
Dubai’s property management business is optimistic heading into the New Year. In the past two to three years, non-payment issues have had a domino effect on the industry. As a result, there was less money for property maintenance, which meant less time spent on non-essential tasks.
Initial feedback indicates that service charges will remain at current levels in 2022. Authorities have repeatedly warned OAs not to make unilateral increases. According to the rate plans for next year, this mood is well-reflected.
OA companies should not face any issues as long as collections keep improving.