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Breaking service charge myths…

 

 

Filed under
OA Corner
 
April 24 2020
 
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Breaking service charge myths…
 

A recent report from the Dubai Land Department stated that all penalties imposed on homeowners in Dubai for service charge violations are being waived off this year and homeowners can pay their service charges in installments. This is part of a joint initiative between RERA (Real Estate Regulatory Agency) and a grouping owners association management companies. While this move has been welcomed positively by the industry all over, the focus remains on Service Charge and the myths that surround them. In a recent interview, Yunusa Aminu, a Senior FM Consultant at Gregory & Jones Consultants, helps CM today break 3 myths surrounding Service Charge.

Myth 1. Service Charges can be determined from benchmarking similar properties

This is a very common conception which many Asset Managers have. I have come across Service Charge budgets built from inaccurate benchmark studies. You find Asset Managers sourcing Service Charge rates for projects considered as similar and estimating budgets based on these figures. Following this, Management Organizations and Service Providers struggle to provide the required level of services within the defined financial constraints. As it is with any datadriven exercise, benchmarking is an intricate concept. For Service Charges, many dependencies are ranging from the services provided, a spectrum of common facilities, reserve fund periods to the adoption of assets and infrastructure. An appropriate benchmark study should analyze all relevant elements to understand the buildup of costs. Benchmarking should only be used as a guide to understanding markets and stakeholder expectations not as a driver for defining Service Charge.

Myth 2. Service Charges should be applied to all user groups in a property

This is an absolute necessity. Service Charges should be applied to all user groups sharing common assets, facilities, and public realm components. But the application of Service Charge is as not straight forward as it is made out to be in some cases. Developers and asset owners have the responsibility of ensuring an objective view of the Service Charge application. Each user group must be considered independently with costs apportioned according to the most suitable methodology. This could mean traffic generation, beneficial use of facilities or assets, utility demand or consumption, proximity to key assets and other pertinent methodologies. Every contributing user should be identified and addressed uniquely to ensure fair and equitable Service Charge apportionment.

Myth 3. Service Charges are determined by FM service provider costs

This is indeed a myth. The clue is in the title. Service Providers are partners that play a significant part in the life of an asset. They don’t define the operational costs or positioning of a project. From the onset, the vision of a project will determine its positioning. It can be a high-end property, upper mid or lower mid. That is how the property is branded which in turn defines the Service Strategy and specifications. Now then, the Service Provider is already given a defined boundary and set of expectations which becomes the determining factor of costs. It is the responsibility of the Asset Manager or Management Organization to set out service requirements in line with the vision of the property or project. This ultimately defines the cost parameters for Service Provider to align with.

(Listen to the complete interview on our Podcast – Breakfast Bytes - on soundcloud)