by Paul Hillier
23 October 2008
The booming private residential market in the UAE is set to experience a revolution in how FM services will be provided to building developments following the adoption of the new Strata Title law. With the FM sector in the Gulf Co-operation Council (GCC) region predicted to reach $10 billion by 2012, according to a recent survey by Arab Business Review, the law's introduction will have a considerable impact on the way FM providers and consultants structure their services.
The law sets out who is responsible for what in terms of FM in a multi-ownership situation (such as a block of private apartments). The system creates greater transparency than has been the case to date in the UAE and is similar to those operating successfully in Australia and Singapore.
Tried and tested
Until now, in the midst of a residential-building boom in major centres such as Dubai and Abu Dhabi, there has been a lack of clarity and consistency in terms of the legal rights held by owners and buyers of apartments, their rights defining how an owner may sell, lease or mortgage their unit, and which FM supplier should provide them with property management services. The new law introduces a tried and tested world class legal formula to bring clarity and good sense to everyday property management, a key issue in the UAE.
Prior to the introduction of the law, owners and tenants were virtually powerless to challenge existing FM service providers, often provided by or through the developer, especially where sub-standard services may have previously been provided at a high cost. The law reflects a desire on the part of UAE legislators to pass greater certainty and control to owners and tenants of units in apartment buildings in terms of their rights of ownership, exercised through their residents' association or society. The law was passed in 2007. However there is currently an ongoing consultation process to address various issues and it is anticipated that the law will come into effect imminently.
Effects on the market
Implementation will have a significant impact on how properties are managed, and will combine with conventional market forces to put pressure on many developers to raise their game and not look at possibly inflated FM charges as just another revenue source, which the owner or tenant has no choice but to pay. Definition of rights and responsibilities with regards to the modern private housing sector will be a crucial area addressed by the law.
Greater competition and higher investor expectations should have a positive market impact. Owners have lobbied for some time for greater transparency in FM and associate charges. The Strata Title law creates real opportunities for developers to differentiate their product by engaging experienced consultants to help create an FM structure that complies not only with legal requirements, but also demonstrates real value to clients. Although the actual cost of FM services will always prove to be an issue, people will now be able to place a greater emphasis on the value for money that they receive, based on the real longer-term gains of owning and selling a property that is very well maintained.
Buildings that are maintained effectively, where repairs are carried out promptly and to a high standard and where a strong and positive relationship exists between the service provider, owner and future buyer, are clearly more desirable to future investors than a poorly maintained building.
Quality service provision
With the implementation of the law, more developers may be encouraged to bring in FM expertise at a much earlier stage. If a developer brings in an experienced FM provider at an early stage, he will be making a wise investment. The FM adviser can help identify efficiencies during the design and construction phases, often immediately reducing initial capital construction costs, as well as having a positive effect on the ongoing maintenance costs during the whole life of that building, nominally set at 25-30 years.
In more developed markets, FM experts are often brought in to look at efficient value management, life-cycle costing and design of a building long before any concrete is poured. By doing this, developers are minimising total construction costs, as well as future FM operational costs. For example, inefficient design almost invariably means higher running costs - a source of contention for developer and investor, especially when all other costs are under greater pressure. One typical problem resulting from inefficient design is higher-than-expected energy costs. Proper maintenance on the whole-life costing principle means that it will usually cost at least four times the initial capital cost of a building just to maintain it during its lifetime. Badly maintained buildings will cost even more in the long run.
Paul Hillier is Divisional Director, Dubai, for Currie & Brown
Establishing the association of owners
The Strata Title Law establishes a legal entity that is effectively an owners' association, which can come into existence as soon as the developer sells his first property. The association is a non-profit entity with an independent incorporated body. It has the right to sue and be sued and the right of owning transferable funds. All owners should pay their agreed service fees to the owners' association who then manages the funds. The association holds the responsibility of management, operation and maintenance of common use areas, and must acquire a license from the department for this purpose.
The owners' association can hold a tender in order to appoint an FM service provider, as well as terminating an existing FM contractor for sub-standard service delivery, or simply due to expiry of the FM contract term, pending renewal or re-tender.