High service charges put pressure on rental yields
09-Jun-2010 - Emirates Business 24-7
High service charges put pressure on rental yields
Property owners are paying exorbitant fees for ‘barely adequate’ services, says realtor.
Newly launched Strata Law guideline will bring more transparency to the property market. Owners look for value for money while paying fees. (REUTERS)
The current service charges are putting a lot of pressure on the rental yields, especially on owners who bought units during the first three quarters of 2008, according to a realty consultant.
“But I am sure though that with the recently launched Strata Law guidelines, there will be more transparency and clarity, which will definitely have a positive effect on the market,” Mohanad Alwadiya, Managing Director, Harbor Real Estate, told Emirates Business.
In May, Real Estate Regulatory Agency CEO Marwan bin Ghalita told this newspaper that the new guidelines for implementation of the Strata Law for jointly owned properties will prevent developers from collecting any service charges unless they get clearance from the agency. “The guidance will give investors more confidence. This will make the market more mature and transparent,” he had said.
Alwadiya echoes the sentiment, saying the new guidelines will change of perception of owners and help improve the overall mood and performance of the market.
“It will enhance and promote transparency.” Asked if rental yields will continue to fall in Dubai, Alwadiya said prices have reached the bottom and as the global and local economies start emerging from the economic crisis, things are bound to get better in the property market.
“The unfortunate situation has arisen primarily due to the recession, but is compounded when a larger proportion of gross rental yields are being eaten up by service charges. Unfortunately, service charges have not come down in the same proportion as gross rental yields.”
Citing a case, the report said an owner of a two-bedroom apartment in 8 Boulevard Walk, Downtown, pays Dh43,000 per year in service charges for an area of just under 1,370 square foot, which means 36 per cent of the rent goes in paying the charges. “The problem gets a little more concerning when the ’services’ being provided are, at best, barely adequate.”
The main concern, he believes, of owners when it comes to service charges are “transparency” and “value for money”.
“Most of the owners stressed the need for better quality services and enhanced transparency so that they know exactly where their money is being spent or accrued.”
Asked if unit owners were informed about the service charges at the time of booking the apartments, Alwadiya said Harbor ensured that all buyers were informed about the service charges of the units they are considering to purchase.
“On the other hand, most developers request the new buyers to commit to the service charges at the time of transfer or ownership. Besides, buyers have become more informed and knowledgeable and often ask or know the service charges before committing to a specific property,” he added.
COMPONENTS
Following are the components of service charge budget
- Building replacement insurance
- Public liability insurance
- Dewa for common areas
- Chilled water for common areas
- Service contracts
- Building management fee
- Facility management fee
- Legal fees
- Audit fees