x Abu Dhabi, UAESaturday 20 January 2018

Dubai homeowner groups struggle to flip switch

As the strata law giving landlords control over building maintenance gets off the ground, some developers have been reluctant to relinquish power.

Dubai homeowners in areas such as the Palm Jumeirah are increasingly taking over their buildings’ maintenance issues.
Dubai homeowners in areas such as the Palm Jumeirah are increasingly taking over their buildings’ maintenance issues.

Leonid Chystiakov is a family man with a vibrant business and cash to spend. When he moved to Dubai, he purchased a home on the Palm Jumeirah in the hopes of settling down and quietly raising his children.

But as he tours the building where he lives, he points to the reasons why he is concerned about the future: exposed wiring near playgrounds, burnt-out lights and mounds of rubbish in the underground car park.

"Sometimes I walk out in the morning and the beach umbrellas and chairs are floating in the ocean," he says.

"This is not the place I wanted to raise my children. This is the Palm Jumeirah. It's supposed to be the eighth wonder of the world."

Mr Chystiakov, a trader who hails from Russia, is part of a growing group of residents that want to take control of maintenance.

With many buildings in poor repair, residents across Dubai are in the early stages of organising interim homeowner associations to take on the responsibility.

Empowered by the strata law, which was issued in 2007 to shift power from developers to homeowners, they hope to both improve the upkeep of their buildings and cut down on costs.

While the law was issued before the downturn, the regulations needed to enact it were only released in April last year.

So far, the entire process has been delayed. Most developers have failed to meet deadlines set by the regulators.

The Real Estate Regulatory Agency and Dubai Land Department have not laid down fines to force them into compliance.

An initial deadline for developers to make filings to the agencies has passed. Another deadline will arrive on Thursday, when developers are expected to provide owners with all the necessary documentation on their buildings.

Developers argue that the regulations are onerous and threaten their businesses at a time when they need to preserve cash most.

Meanwhile, homeowners who have formed associations have experienced poor results. Last week, one maintenance company in Dubai Marina posted a bulletin in the elevators that threatened to cut off electricity to common areas of the building if remiss landlords didn't immediately pay more than Dh300,000 in overdue fees. Indeed, the much-anticipated stata law is riddled with growing pains.

Yet, the rise of small groups like that of Mr Chystiakov's is a sign that something big is underway in Dubai's property market.

Once beholden to developers and their decisions on the fates of buildings, homeowners are emerging as the main drivers.

Their tastes and preferences will dictate whether a building sells properties or commands a high rent, estate agents say.

Many of the problems between owners and developers have arisen from a disagreement about pricing, which has been exacerbated by the opacity of fees. Annual bills have not traditionally been broken down or explained to residents, and the fees themselves have differed wildly even at similar developments.

Some developers, including Emaar Properties, have taken the initiative with the strata law in a bid to win clients over to their developments. The 40 dedicated staff at Emaar have set up 39 of the 56 interim owners' associations planned as of Nov 12, a representative said at the time.

In major property markets in New York, Hong Kong and London, jointly owned property laws are so enmeshed in the buying and selling that they barely need mentioning. Buying a home in these markets requires a prospective owner to read through thick documents explaining their responsibilities as a joint owner of a building.

Nader Alizadeh, another owner on the Palm Jumeirah and the head of interim owner associations in two buildings, plans to go beyond the strata law to challenge other setups that he says hurt residents.

These include high-cost district-cooling connections that charge both a user fee and a "capacity" charge just for the luxury of having a connection.

"Why are we being charged for the construction of the district-cooling stations as well as the air-conditioning?" Mr Alizadeh says. "You pay for it once, you pay for it twice, but you still don't own it. It is unprecedented for a private company to have a monopoly on what I see as a public good."

He has even studied the possibility of severing connections with the company and setting up private chillers in the building. Costs could be cut significantly, he says.

Another target is the gymnasiums in clubhouses that were supposed to be included in the purchase of some apartments.

Instead, in Mr Alizadeh's building, they have been charged more than Dh4,500 a year.

"We will fight for everything that we were supposed to have but didn't get," Mr Alizadeh says. "We'll go to court if we have to. We are going to negotiate new deals across the board." Lawyers call the current moment in Dubai a "transitional" period. It could take years before the system is fully operational. No matter the complaints, it is apparent that the successful implementation of the system will likely be the catalyst of confidence in the market.

The homeowner associations will have serious challenges to deal with, largely consequences of the delays in implementing the laws over the years.

When it comes to lobbies, hallways, elevators and other common space, homeowner associations will be responsible for not only upkeep but also the power bills.

In Dubai Marina, some owners have neglected to pay their fees for years. In some buildings, developers say up to 20 per cent had not paid their maintenance fees. While one building has an outstanding balance of more than Dh300,000, another has surpassed Dh800,000, one developer adds.

Brent Baldwin, an associate at the law firm Hadef & Partners, says that until homeowner associations are fully up and running, developers will be responsible for collecting fees and making payments. And developers will not have an easy time forcing them to pay.

"It is quite a murky area," he adds. Without the strata law, it might come down to "what the developer is allowed to do under the contract". The strata law provides for this by allowing homeowner associations to target non-paying owners and even take over their homes if they refuse to pay.

Manuela Reis, the manager of residential sales and leasing at the Marina office of Better Homes, says the situation is causing some buildings to empty out as residents chose not to renew their leases.

"If these issues are not addressed in a timely and proper manner, it will have an increasingly negative impact on the market," Ms Reis says. "But I believe that the new strata law will act as a deterrent to this happening, since it will provide guidelines and ways to address these situations."