Construction Week Newsletter 5th March 2005

Following the revelation that service charges in Dubai are set to almost double (Issue 60), wherever I go, people walk up to me and ask what is happening. I tell them that their guess is as good as mine.

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By  Eudore Chand Published  March 8, 2005

Editorial Leader|~||~||~|

Is there anybody out there watching out for me?

Following the revelation that service charges in Dubai are set to almost double (Issue 60), wherever I go, people walk up to me and ask what is happening. I tell them that their guess is as good as mine. Both of us know very well that the fee is on the way up. The surprising thing is that the questions are coming not only from house owners or prospective homebuyers, or even just the ‘ordinarily’ interested, but facility managers are some of those that are the keenest to know. And rightly so. They, I am sure, do know how to calculate the service charge or annual maintenance fee that developers are charging homeowners for upkeep of common facilities. And it is only natural and innocent that they want to know what their rivals are charging or plan to charge to stay in step. But somehow, I get the impression through their questions that they would like to know how much more the market could get away with. This sneaky suspicion is a bit worrying. The markets of the Gulf are young; the countries are still on a learning curve. There is no true and fair competition, and in a sellers’ market there is always the danger of unfair practices creeping in. It has happened before in various sectors and, unfortunately, it will happen again. Growing markets almost always attract the best, with some not entirely on the right side of the line. I remember the time when the Gulf Co-operation Council member countries decided to standardise import duty under the customs tariffs union. Consequently, the UAE had to raise the levy from 1% to 4%. Following in the wake of my wife on one of her shopping expeditions, I personally heard some shopkeepers in the souks explaining to bewildered customers that prices had gone up by 40% because of the duty hike. That too on existing stocks? The alternatives were simple — I could take it or leave it. But no, I could not go to any consumer watchdog to complain, because there wasn’t any with any enforceable powers. That brings me back full circle. I do not deny the justification of an annual service charge. The developer constructs a development or an apartment building and sells the units at a profit. They then have a couple of choices: they can take care of the building’s or the development’s overall upkeep in perpetuity; they can appoint a third party facilities management firm; or they can transfer the responsibility of the regular upkeep to a residents’ association. The last is yet to show its face in the Gulf markets. The second is in practice, but it is the first option that appears to be the most popular. Ideally, I would like to see professional facilities management firms take over upkeep of buildings through an open bidding process, or ultimately tenants themselves managing their buildings. However, I have to live with the fact that the firm that built my home will look after the common areas, and charge me for it. But, there are a few things that I would like from my developer. Firstly, that they use good quality materials. Since all buildings are of “highest quality”, surely I am right to anticipate the cost of future maintenance will be reasonable? And if the building is of the highest quality, why are my annual maintenance charges high and destined to be even higher? Secondly, I do not want to get a shock in the mail. Many people budget close to their upper limits when they buy property on mortgage. A hike of 87.5% or more within one year of purchase surely gets the pulse racing. Thirdly, if my developer has made a mistake in incorrectly assessing the fee the first time around, I would like them to pay for their mistake. Fourthly, in case of force majeur, I would like to be consulted on any hike rather than be just told about it. I know that when the yen goes up, Japanese principals and their distributors in the Gulf absorb part or the full appreciation in the local values. This is called caring for the customer, and it is appreciated. Fifthly, I want the complicated process of service charge calculation to be made simple and transparent to me; I want to know exactly what I am paying for and whether it is justified. The justification of service charges, if it comes from an authority like the municipality, would be much more assuring. And lastly, I would like to have recourse to a third party — preferably with binding powers — in case I am not satisfied. The final option, of course, remains that I cut my losses, angrily pack my bags and go to where I am more comfortable.||**||

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