More than 60 per cent of owners in some apartment buildings in Dubai are not paying their service fees, creating havoc for cash-strapped homeowner's associations.
Tenants put at risk from fee defaults in Dubai
More than 60 per cent of owners in some Dubai buildings are not paying their service fees, forcing homeowner associations to make tough choices.
In Yacht Bay, a Dubai Marina complex where 85 of the 175 owners are up to date on their fees, the association is replacing only half of the broken light bulbs in the communal hallways. Painting, replacing broken ceiling tiles and exterior cleaning have been put on hold, and the association is delaying payments to many of its service providers.
But the board recently approved the installation of a back-up generator for the lifts, emergency lighting for exits and the repair of air conditioning.
"We may not have enough to pay the next Dewa [Dubai Electricity and Water Authority] bill because we authorised these payments," said Michael Burke, a member of the board. "We approved these because they are critical items."
The situation is reaching a crucial state in many buildings around Dubai, building managers say. Health and safety networks will be compromised if owners are unable to afford maintenance.
"More dangerous things will start to happen," said Alastair McCracken, the chief executive of Novus Community Management. "The systems that keep people alive and comfortable in buildings will be affected."
Most buildings in Dubai have only recently formed homeowner associations, under the guidelines of the strata law that went into effect last year. Hundreds have been registered with Dubai's Real Estate Regulatory Authority (Rera) and are taking over day-to-day operations.
But developers are still responsible for the buildings.
"There is still a lot of confusion about how all this is going to work," said Brent Baldwin, an attorney with Hadef & Partners.
While 90 per cent of owners in some buildings are paying their fees, in others 60 to 70 per cent are in default, management companies say. In some buildings almost all the owners are not paying their fees, said Graham Yeates, the head of owners association management for Cluttons, a property firm.
Many are absentee owners who bought the homes as investments and now live outside the country. In some cases they cannot afford to pay the service fees, with rental income far less than expected after declines in the market.
Other owners are not paying to protest against what they see as exorbitant fees charged by the developers, managers say.
"Many owners are not paying because they feel they are not given a say in the composition of the budget," Mr Yeates said. "They are resigned to the developer running the building in the short term and they are resisting payment of service charges as long as they can."
Newly-minted associations are taking a variety of actions to try to force payment, including listing defaulters' names in buildings' lobbies. But the so-called "shame" campaigns may be illegal under the UAE's defamation laws.
Associations are attempting to restrict defaulting owners from using their pass cards to access communal pools, parking and other public areas. But this often hurts tenants more than the absentee landlords.
Ultimately, the associations will be able to place a lien on the property and force payment if the owner tries to sell the unit.
"That is happening," Mr Baldwin said. "But they can wait a long time to sell a unit in this market."
In Yacht Bay, the association is owed more than Dh1 million (US$272,227) in fees from owners. The board is hoping an education campaign will help convince people to pay.
"Many owners don't realise the negative impact non-payment has," Mr Burke said. "If we were in a position to collect two-thirds we could bring the building up to the high standards and sustain it for a long period of time."