Call for making service charges more transparent in the UAE

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Interiors of a luxury Villa on Palm Jumeirah Island, Dubai.
Interiors of a luxury Villa on Palm Jumeira Island, Dubai. The High ratio of service charges to net rent of 25 per cent prevailing in Dubai, which is much higher than other global cities like New York and London, where rents are much higher than the UAE is becoming increasingly a critical issue for both occupiers and owners. Photo-DHV/Flickr

A new report has highlighted that several commercial property owners in the UAE are struggling to recoup operating costs through the service charges being levied to tenants.

The report suggested that service charges in the UAE were mainly driven by market forces rather than true operating costs. As usually these charges are below actual operating costs, owners have to bear the additional cost and face an operational deficit. On the other hand, when the charges become higher than the operating cost, tenants are forced to pay for untendered services.

Figures of the report show that the ratio of service charges to net rent in Dubai is 25 percent. This is higher than New York (24 percent), London (11 percent), Hong Kong (13 percent) and Tokyo (18 percent), where the rents are much higher than the UAE.

Jones Lang LaSalle, the real estate investment and advisory firm, believes that the matter is “becoming increasingly critical issues for both occupiers and owners. Unlike more mature markets, there is little correlation between the actual costs of operating buildings and the amount the owner can recover in service charges in the Dubai market. As a result, many owners are experiencing a shortfall between the level of costs incurred and their ability to recover these costs from occupiers.”

As the issue of operating costs and service charges is leading to a significant number of disputes, there is a need to ensure greater transparency in the process. By making the arrangement more transparent, building owners and tenants can develop greater trust and also help in boosting the long term value of the asset.

The report adds that the issue is likely to be tackled in future as real estate developers actively adopt global best practices and the UAE real estate market mature over the next few years.

 

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