Homeowners default on service fees CORONAVIRUS PANDEMIC
DUBAI PROPERTY MANAGEMENT COMPANIES SAY COLLECTIONS HAVE DROPPED BY 70-75%
Many property owners in Dubai are skipping payments of service charges, using the cover of Covid-19 as an excuse. Payment collections since February have dropped by even 70-75 per cent of what they should be, industry sources say.
If the situation is allowed to continue, it will see owner associations and their management companies with fewer funds for the upkeep of the buildings.
Sources say most of the defaults now are happening because homeowners are using the “cover” provided by Dubai’s recent waiver of fines for non-payment or delays in paying off service charges.
“But the Real Estate Regulatory Authority (Rera) had clearly said the waiver only extends to 2019 fines,” said the head of an owners association (OA). “So, far, there has been no extension of this to service charges due for this year.”
As the payment backlog piles up, owner association management companies are sending out distress signals. These businesses are overly dependent on these collections for their dayto-day services in the upkeep of the properties.
“There are many homeowners taking advantage of the pandemic by giving excuses of non-payment — even if they have not faced a blow to their business or salary cuts in their jobs,” said Saeed Al Fahim, CEO of Stratum, one of the biggest names in the local facilities management business.
Rising dues
“There has been tremendous increase in outstanding service charges across all communities in Dubai. The reality is each community suffers when service charges are not paid timely.
“Sadly, these homeowners don’t realise this and the entire burden comes on us — as OA managers — to pay the service providers and keep the community functioning.”
This arrangement won’t make for a sustainable business.
It was in April that Rera made its announcement about exemptions for all fines related
The entire burden comes on us — as OA managers — to pay the service providers and keep the community functioning.”
Saeed Al Fahim |
to service charges in 2019. At the time, the government entity also said it was working to bring down services charges for this year after consultations with all stakeholders, including owner associations and the property management companies acting on their behalf.
“Rera directs [OA] management companies to review all expenses to cut down service charges,” a statement at the time said.
This was in response to the crisis faced by individuals on the professional front after the outbreak of Covid-19, which led to organisations initiating job and salary cuts.
The 2020 owner association budgets are still awaiting approval — “Rera has made an exception to submit provisional approvals until June and property owners can expect to get a final word on this soon,” said Sameer Lakhani, Managing Director at Global Capital Partners.
“Rera has told all OA management companies to try to lower the 2020 budgets, which would, in turn, lower service
CEO of Stratum
Rera has told all OA management companies to try to lower the 2020 budgets, which would, in turn, lower service charges as well.”
Sameer Lakhani | Managing Director at Global Capital Partners
charges as well. It’s definitely a plus for homeowners — but this has adversely affected property management firms. Homeowners have started asking for a discount on service charges and not paying until the discount is given.
“Which is not possible, as the amount approved by Rera has to be paid.”
Calling Rera
Once the 2020 OA budget approvals are done with, Rera would address the thorny issue of non-payments this year. OA management companies need Rera approval to issue notices and follow up legally against errant homeowners refusing to pay up.
Sources in the FM industry confirm that the next six months will prove extremely tricky on the operational side. Clients, both in the residential and commercial space, will insist on FM companies dropping their rates … or cancelling the contract and going to another one for even lower charges.
And everyone will keep pointing to Covid-19 as the reason for the current distress … and difficulty in non-payment.
“Notices will be issued immediately once Rera gives us a green signal,” said Al Fahim. “All guidelines with regards to number of notices any one homeowner can receive, the penalties for non-compliance, payment timelines etc will be laid down by Rera and which will be followed by OA management companies.”