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Smart Ways for Owner Association Firms to Reduce Service Charges

With the rising impact of Covid-19 on the job market, remuneration, and businesses, property owners in UAE are demanding a reduction in service charges. There has already been a huge payment backlog of service charges, and owner association management firms are navigating the ways to overcome the situation.

A Massive 75% Decline in the Collection of Service Charges:

According to Gulf News – a leading daily English language newspaper published from Dubai – since February 2020, the payment collection of service charges has declined by almost 75% with the majority of the tenants holding Coronavirus responsible for the non-payment. As per the notice issued by Dubai real estate regulator, Real Estate Regulatory Agency (RERA), all such payments should be paid by the tenants to ensure the upkeep and well-being of the community. However, residents have different views altogether. 

Several residents interviewed by Gulf News stated that service charges should be reduced as most of the facilities they pay for under service charges such as gym, pool, tennis or squash courts, sauna, clubs, etc. have been closed due to Covid and not been used. Thus, they should not pay for them. Other tenants stated that the service charges should be reduced on the grounds of an exponential decline in property value. 

Can OAs Reduce the Service Charges?

Technically, It is not feasible for the OAs (owner’s association’s) to reduce the service charges. They are in the stage of distress as the payment backlog piles up. Service charges are an operational cost and have nothing to do with the fluctuations in the prices of property or rental value. The top head honchos of OA firms believe that it is not possible to reduce or waive the service charges as that is the amount that goes towards the upkeep of the properties and cannot be escaped. For instance – the cost of maintaining a swimming pool will remain the same as the quantity and the price for chemicals, cleaning, daily maintenance, labor cost, etc. will remain standard. The same is the case with other facilities. In fact, the Coronavirus pandemic has increased the operational cost for the OAs as their utility bills surged several-fold due to a rise in demand from the residents for increased sanitization and disinfection in a building. 

Thus, OAs are under the impression that they are entitled to collect service charges even if the services are not used by the residents as maintenance and operational cost for them remain fixed.

Best Practices OAs Can Adopt to Reduce Service Charges:

Here are the top ways for owner’s association firms to curtail their service charges:

Focus on Sustainability:

The owner’s association firms must invest significantly in introducing newfangled sustainability programs and energy efficiency initiatives to reduce the overall cost of operations. They can also organize a formal review of the real estate portfolio every year to identify unique ideas for cost savings.

Leveraging Govt. Schemes:

There has been a list of schemes and economic incentives launched by the UAE government on new facilities, space renewal, and capital expenditure. The owner’s association should make the best use of these schemes to minimize the overall operational expenditure.

Releasing Guidelines for Vendors:

OA firms should design and release their guidelines for all vendors that align with their sourcing strategy. This will not only reduce the cost but also add value to the operational process. 

Identifying the ‘Dark Space’:

Owner association firms should identify space in the current portfolio that is not used or under-used, also called ‘dark space’, and work towards eliminating it. This will reduce the operational cost by several folds for the OAs and they can pass the benefit to tenants by reducing their service charges. To achieve this it is of paramount importance for the owners association firms to conduct an energy assessment of each individual site and identify the areas to improve efficiency.

Making the Best Use of Technology:

Owner’s association firms can take advantage of facility technology such as – computer-based maintenance and predictive maintenance techniques to prevent any possibility of equipment damage which involves expensive repairs. They can also use novel software and dashboards to analyze the current usage of existing lighting systems and retrofit lighting fixtures to minimize the cost of energy. Automation of the dashboard will allow OAs in keeping a birds-eye control of the cost incurred and saved and will remove the need for manual reporting.

Effective Benchmarking:

The owner’s association must benchmark their operational cost against their closest competitors to find out the areas of improvement. They must also implement cost benchmarking and competitive bidding techniques to cut down the costs of renovations or fit-outs.

Govt. Initiatives to Reduce Service Charges:

The UAE government has taken a list of measures to minimize the financial burden on tenants and homeowners of properties due to the adverse situation caused by a coronavirus. These initiatives are as follows:

Reduction in Service Charges:

With a core objective to cut down the cost of owning a house in UAE, the Dubai Land Department (DLD) has instructed the Owner Association (OA) firms to closely review all expenses and cut down service charges in Dubai. Furthermore, DLD has decided that any fines on non-paid overdue charges on service fees in Dubai between 2019 to 2020 will also be waived off as part of the plan. Property owners will also be eligible to pay off their service charges via installments.

Reducing the DEWA Utility Bills:

As a part of the AED 1.5 Billion stimulus package to support businesses during the Covid 19 pandemic, the Crown Prince of Dubai, His Highness Sheikh Hamdan bin Mohammed Al Maktoum has launched an initiative to reduce DEWA utility bills in Dubai. Under the initiative, the Dubai Supreme Council of Energy has issued a directive to reduce the fuel surcharge for electricity and water. The reductions will be applied to electricity and water bills with effect from December 1, 2020. Fuel surcharge for electricity will be reduced by 23% reduction and for water, the surcharge will be reduced by almost 33 %.

Rent Relief in Dubai:

The developers and landlords have announced rent relief packages in Dubai for their commercial and residential tenants which are adversely impacted by the restrictions from the Covid-19 outbreak. Due to the shutdown of several UAE venues due to the pandemic, landlords of retail and commercial tenants across Dubai have announced rent relief of up to three months for eligible tenants. The initiative was led by Meraas with an AED 1 billion package for commercial tenants at their developments such as City Walk, Bluewaters Island, and La Mer, among others. Al-Futtaim Group also implemented this initiative and unveiled rent relief of up to three months for retailers at Dubai Festival City Mall.