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Property investors hesitate in face of high fees
Exorbitant maintenance costs a factor causing investors to think twice.
July 5, 2010 3:07 by Ben Flanagan
The absence of sinking funds and exorbitant maintenance charges throughout Dubai could leave existing investors out of pocket and new ones thinking twice before buying, reports Gulf News.
The paper quotes Gary Bugden, executive chairman, PRDnationwide, who says, “Service charges have got to come down a bit more, the service fee levels are putting pressure on prices. The problem is that the returns at the current service charges don’t justify the investment.” Bugden also warned that developers should consider future designs more carefully, as certain features, like water fountains, are expensive to maintain.
But Mazen Falhout, general manager, MAGme Property Solutions, says existing owners only have themselves to blame if they find the cost of maintenance for their properties difficult to meet. “Prior to June 2008, investors did not care too much about service charges or operational costs, many were only speculating on the rising price,” he said. “Now that the party is over, owners have to be responsible for their investments.” He says they were too busy speculating to factor in any hidden capital investment that would be required.
He argues that some owners are now jeopardizing returns on investments by not adequately accounting for depreciation on mechanical, electrical and plumbing equipment. Higher maintenance costs are necessary, he says, particularly to build up sinking funds for properties. These are used to help make major repairs to a building when the time comes, for example when a chiller unit expires.
“If there is no ‘sinking’ fund, owners have to foot the entire bill at that point of time which could be substantial,” says Falhout. He points out that this means, “Many owners are now faced with fees that they cannot simply pass on to tenants if they want to remain competitive in the market.”