Saturday, July 10, 2010

Ownership and the "Joy" of Maintenance Fees

The National points up one of the issues of the strata or condominium form of ownership of real property.

One is at the mercy of one's neighbors.  If they fail to pay the maintenance fee, the upkeep of the building suffers from cosmetic to more substantial matters.    The market value of one's apartment or villa then declines. 
Mr Aldendorff said: “How many owners have disappeared or are just not paying? And how viable is it to put a property on the market in an economy where nobody is buying? The legal process is so lengthy, we won’t be able to immediately recover the money.”

There's an even more serious question.  Who in their right mind is going to buy into a property - even in a good market - where there are substantial arrears?   Unless perhaps one is the buying the last defaulter's unit.

If there are projects with a 75% maintenance default rate, they are going to be hard pressed to recover.  And the 25% who do pay aren't going to be able to shoulder the defaulters' share - at least not without serious economic consequences.   One also expects that banks would (if they are alert, perhaps a questionable assumption) be highly concerned about deterioration in the physical condition of  their collateral on top of general market price levels.

There is a bright side.

As one of my local friends said:  "It's all part of the "Vision".  When the existing properties get run down enough, they'll have to be knocked down and new ones erected.  And there will be another boom."  At least perhaps from the demolition.

1 comment:

the real nick said...

Your local friend is pretty smart...

We had serious doubts about the strata law and see our worst fears come true. It is a fact that the majority of owners are not occupiers. They are so-called buy-to-let owners from across the GCC and Iran, as well as from Europe. Also a surprising number of locals...
Maintaining a property and understanding communal charges is painful enough when you live in it, let alone are abroad and/or ignorant about the responsibilities that come with ownership. Here in the UAE the pendulum has swung from lack of regulation to the opposite where laws are more sophisticated than the market participants.