Dubai home owners to sink under charges

MAGme Property Solutions General manager Mazen Falhout says maintenance charges must be accounted for.

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Dubai property owners could be hit by heavy maintenance charges if they have not budgeted for ‘sinking funds’ prior to purchase.

Landlords will now have to pay premiums to cover complete building insurance as well as an emergency reserve or ‘sinking’ fund to take care of replacement of essential equipment, the new Jointly Owned Property Law regulations state.

MAGme Property Solutions General manager Mazen Falhout said that it is important that buyers verify whether service charges have been accounted for before deciding to purchase a home.

“When considering a real estate investment, prospective owners should always seek advice from professionals who can evaluate all potential operational costs, as well calculating depreciation or the appropriate deposits for a ‘sinking’ fund.”

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“For example, to replace a chiller in an average tower building costs around AED2 -3 million, that amount must be built-in over ten years when it reaches the end of its working life. If there is no ‘sinking’ fund, owners have to foot the entire bill at that point of time which could be substantial,” he added.

As there is no conformity with common areas, each building or community must be assessed on a case by case basis, by professionals who understand maintenance of the complex engineering in these developments.

“In tower buildings it could be something as simple as electricity supply for lifts, air conditioning, pool chillers, lighting and even car park barriers. With rents falling at least 40% over the last 12 months, many owners are now faced with fees that they cannot simply pass on to tenants if they want to remain competitive in the market,” explained Falhout.

“What might seem on the surface to be a good sales price may not be cost-effective over time, when the so called hidden capital and their respective operational expenses have been factored in.”