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Seabee
Joined: 27 Jul 2005
Posts: 32
Location: Australia/Dubai
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 Posted: Sun Nov 20, 2005 8:09 am Post subject: Maintenance Fee & Sinking Funds |
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I'm trying to do some research to get an idea of fees and charges. Anyone have any information especially about Sinking Funds?
From newspaper reports, Emaar is charging owners of Marina Phase 1 about Dh9 sq.ft. for maintenance and only Dh1.75 for Sinking Fund.
At Belvedere the developer ETA is charging Dh4 sq.ft. for mainenance, fixed for 2 years, but are asking for an incredible Dh25 sq.ft. for the Sinking Fund.
Some other building developers and real estate agents seem to not understand about sinking funds because they say they don't have one. This includes Dubai Park, Dubai Pearl and Al Majara.
Anyone have any factual information?
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ChrisO
Site Admin
Joined: 11 Feb 2005
Posts: 535
Location: World citizen
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| Posted: Sun Nov 20, 2005 11:00 am Post subject: |
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I am not sure what the term "Sinking Fund" means exactly.
Is this a fund to collect money from the owners which is spent later to do repairs and renovations on the building structure and the collectively owned areas? |
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dubai freak
Joined: 03 Mar 2005
Posts: 881
Location: UK
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| Posted: Sun Nov 20, 2005 1:56 pm Post subject: Sinking Funds? |
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Good question Seabee, I had not heard of this term until now. I've done a quick search & ChrisO is right, it appears to be collection of monies for future maintenance etc. Surely developers should be telling investors what to expect expect with respect to the likes of this payment, I know the maintenance fee's quoted are relatively cheap, but I thought this covered basic & future maintenace as well?
This is what I found:
What are sinking funds?
Sinking funds are nothing more than savings to pay for a future expense. They are used by responsible organizations and individuals to even out the ups and downs of occasionally occurring large expenses. A private swimming association can use a sinking fund to prepare for the replacement of their filter system. A church may use it to prepare for a furnace replacement. A family can use it to prepare for college costs. These funds can be used by local government to reduce the need for sudden large tax increases. Suppose a township has a truck and plow. It is assumed the truck will last 10 years and cost $50,000 to replace. If the township is able to invest money at 4%, $4,165 per year will have to be saved to allow for the replacement of the truck and plow. A sketch showing the sinking fund is below. The arrows going down represent payments into the fund. The arrow going up represents the money withdrawn to replace the truck. |
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ChrisO
Site Admin
Joined: 11 Feb 2005
Posts: 535
Location: World citizen
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| Posted: Sun Nov 20, 2005 4:28 pm Post subject: |
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| My understanding is that the sinking fund and the amount will be the main business of the owners association in each building. The maintenance fee is for the monthly costs for janitors and such and the sinking fund will be used to big expenses like replacing the lifts in 20 years or something like that. At least this a how its typically done in Germany in case of appartment buildings with many unit owners. |
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MarinaFan
Joined: 14 Oct 2005
Posts: 7
Location: Abu Dhabi
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| Posted: Fri Nov 25, 2005 8:20 am Post subject: |
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Higher maintenance fund (should) = lower reserve fund
As pointed out above, a sinking fund is primarily a reserve fund to pay for high-cost repair and replacement jobs which inevitably come up over time. What might be useful to consider is that if good maintenance is in place all along the need for costly repairs and replacements will be reduced. Therefore, there should probably be some corelation between maintenance/service fees and any sinking fund. If higher maintenance fees lead to better facility maintenance then a smaller sinking fund should be required.
The Emaar/Belvedere contrast appears to be a good example of this. If Emaar takes relatively high maintenance fees (and actually uses the money to maintain the property) then a low sinking fund fee seeems appropriate. If Belvedere puts in place such low-maintenance fees then the higher sinking fund fee can meet the high cost of repairing poorly maintained property and equipment later on. Of course, the result of low maintenance expenditure is much higher costs for repair and replacement later on. Therefore, if one can insure that collected maintenance funds do in deed go for maintenance, then it makes sense to keep these fees high while collecting much less for the sinking fund.
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dubai freak
Joined: 03 Mar 2005
Posts: 881
Location: UK
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| Posted: Fri Nov 25, 2005 4:01 pm Post subject: Property Maintenance |
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I agree with you Marina Fan, I am from an engineering/maintenance background & believe firmly in adequate maintenance to protect your assets. It would appear that most businesses (incl my industry) in general, are moving away from planned/preventative maintenance or extending the maintenace periods so as to save money, unfortunately for some it an expensive decision when the equipment has total failure & questions are asked. 
I would like to think residential property in Dubai will be covered by regulations to ensure correct maintenance e.g. lifts, swimming pool cleanliness etc, it's the associated costs which worry me . . .
You wrote:
| Quote: | | Therefore, if one can insure that collected maintenance funds do in deed go for maintenance, |
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This is one of my concerns, ensuring the collected funds are used effectively & provide value for money  |
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Guest
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| Posted: Fri Nov 25, 2005 5:17 pm Post subject: |
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| Quote: | | This is one of my concerns, ensuring the collected funds are used effectively & provide value for money |
On this point I wonder, isn't it in the hands of the buyers to determine this--once they take over the project under the authority of the owner's association? Now I suppose they could be remiss by contracting a management agency without closely supervising the activities of that agency. If lucky the contracted agency will do its job properly. To be prudent, however, I believe the owner's association has to be continually proactive. A burdensome task perhaps but essential if they really want to protect their assets.
All this being said I sort of wonder what's really going on with Nakheel and Emaar buyers. On the one hand they seem to be dealing with construction issues that have nothing to do with post-construction management issues. Then, there is the fuss over maintenance fees. In the MAG 218 the contract states the developer will maintain the property for only the first year post construction. This being the case, it shouldn't matter so much what the developer want's to charge for that single year as the owner's can decide on something different soon after. With Emaar and Nakheel, however, it looks like they are making decisions on this for at least two or more years, effectively limiting owner input. This seems wrong, unless their contracts specify otherwise.
Further, just to respond to my own point, I imagine it is possible for the developer to sign a contract for management services which extend beyond the first year post construction, as long as owner's don't object. If the owner's association is not properly organized early on then it is possble that owner's would unwittingly tie themselves up for a number of years with the developer's chosen mangagement agency. This, of course, is not necessarily a bad thing--as the developer may be in a better position to determine who is or isn't a good management agency--but it risks cutting the owners out of what ought to be one of their most critical responsibilities
The way I read things in the media the owner's associations are having a hard time challenging Emaar's and Nakheel's decisions. Again I have to say it doesn't seem that this is right. Do you (or any reader) have any detail regarding developers they work with, whether the developer has any say in the project's management beyond the first year after completion? I posed this question specifically to the MAG 218 developer's GM and his answer was basically that the developer has no rights in this regard beyond the first year and is ready to work with owners within the first year to make whatever arrangements are necessary. Beyond this, I as a buyer would push the developer to start this process even before construction work is completed. |
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Seabee
Joined: 27 Jul 2005
Posts: 32
Location: Australia/Dubai
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| Posted: Sun Nov 27, 2005 1:11 pm Post subject: |
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Yep, sinking fund is for future repairs, replacement of equipment etc. It's normal in the UK & Australia (and elsewhere I guess) for apartment blocks.
On the management point, with our developer ETA Star the contract gives them two years as manager, then the Residents Association (membership is automatic for all owners) can decide whether to re-appoint them or appoint someone else.
I think a large part of the prblem at the moment is that residents Associations have no legal status. This should all be part opf the property laws being prepared and hopefully Residents Associations will have the force of the law behinnd them. At the moment the developer can simply ignore them and put up with the bad publicity it generates.
Anyway, back to my original question - does anyone hav e
any firm info about the sinking fund fees on any buildings in Dubai?
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