Ask The Agent: Concern on mortgage, rental and service charges

Ask the agentMohanad Alwadiya

Question of the Week
I live in a freehold apartment and have some concerns regarding the service charges. We have an existing owners association. Should I direct my queries to them?

It is assumed that you have a fully operational and registered interim owners association (OA) that represents you and all apartment owners in your building. The first thing you should do is attend OA meetings, get involved and address your queries directly. The OA itself is composed of unit owners and is mandated to represent all the owners of the jointly-owned property development in question, i.e. your apartment building, and is registered as an official entity with RERA. An OA’s primary purpose is to manage, operate and maintain common areas such as hallways, lifts, stairwells, recreational areas, building systems – virtually all of the owner-shared elements of the building. It appoints contractors with the expertise to carry out the required tasks and sets a service charge that all owners must pay to cover the cost of the contractor services. The OA is a not-for-profit business entity which elects a board whose role is to action “motions” carried by the OA in addition to managing contractors, budgets and capital provisions, and enforcing rules for the common good. As a member, you can request and view the financial statements of the association to ensure the service charges are justified and correct.

In spite of market slowdown, rents in our building are said to have increased. Our contract renewal is due in the last quarter, will we also have an increase?
According to the law, your landlord needs to give you at least 90 days’ notice prior to the expiration of your current contract if he intends to increase your rent. It will also greatly help you if you familiarise yourself with Law No. 43 issued on 22 December 2013 which replaced Decree No. 2 of 2011. Law No. 43 introduced the following restrictions (summarised): There should not be any rent increase if the rent for the real estate unit is not more than 10 per cent below the average rent that a similar property commands within a neighbourhood; The annual rent increases, as specified by the decree, can range from 5 up to 20 per cent according to how much the current rent is less than the market average; The market average rates are to be determined by the RERA Rental Index (RERA Rent Calculator).

I have a mortgage on the flat I live in. Recently, I received an unexpected inheritance. Should I pay off my mortgage or invest elsewhere?
Congratulations on your financial windfall! Your decision will depend on what interest rate you are paying on your mortgage, and on the expected returns in the investment you are considering. If you can achieve a return greater than your mortgage interest rate, then you should invest the cash elsewhere and take advantage of your low mortgage rate. You may consider investing in an apartment which will yield you a net annual cash flow of 5 per cent and, over a period of five years, an annual capital appreciation of anywhere between 5 and 7 per cent. This would be a more lucrative allocation of your cash. If, however, you are not confident in achieving a return on your cash that exceeds your mortgage rate, then I suggest you pay down your mortgage outright to save interest costs.

I sent my tenant a one year’s notice through a courier company to vacate an apartment I own but he said it’s not valid. What is the correct procedure?
For the notice to hold up legally, you must have a valid reason for requesting the tenant to vacate the premises. Has the tenant committed any breach of the agreement? Has there been any illegal activity in the premises? Do you need the unit for yourself? Do you intend to sell the apartment? If your tenant is in breach of the tenancy agreement or has broken the law in some way, you must serve a 30-day notary public notice to the tenant. The notice must clearly state why the tenant is being given 30 days’ notice to fix the matter and the details of the matter itself. If you want to sell the property or use it yourself, you need to provide a 12 months’ notice to the tenant through the notary public stating your intentions. The notice must be delivered by courier. It is essential to keep a record of the delivery report as evidence of receipt (by the tenant) in case the tenant refutes receiving your notice.

There seems to be confusion about Dubai’s real estate (over) supply. Given the importance of supply and demand in determining values, how can such confusion exist?
Calculating optimal supply levels, particularly when emerging from a recessionary period when lots of projects were cancelled or delayed, is particularly challenging. It depends on an accurate estimation of construction timelines which are invariably fluid and demand for real estate assets which will emanate from population growth which, in Dubai’s case, will be largely driven by overall economic growth going forward. In addition, it needs to comprehend a lag effect from the time that conditions conducive to development are identified by developers and when properties are finally released into the market. Given that the economy of Dubai is expected to experience 5.5 per cent annual growth for the remainder of the decade, and initiatives are expected to generate more jobs, the demand for real estate is expected to grow.

Source: Mohanad Alwadiya, Special to Properties
CEO, Harbor Real Estate


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