Maintenance costs favour villas over apartments in Dubai
Posted on 05 July 2010 with no comments from readers
The high service charges on Dubai apartments are hitting rental yields for investors, while villa maintenance costs are more controllable, argue property consultants in Gulf News today.
As ArabianMoney reported last week the new strata law is going to make a major difference to the way maintenance is administered on apartments and for villa communities with the responsibility passing to new Owners Associations (click here). But whether this will work in practice is anybody’s guess.
Strata law
For the moment the reality for investors is that building infrastructure is very expensive to maintain. This is particularly true for high-rise apartments. Lift systems are expensive and essential maintenance. A chiller unit for a tower may cost more than an apartment.
This kind of longer term maintenance cost is exactly what the new strata law addresses with its legal obligation for a separate capital fund. Otherwise owners will eventually be hit with a huge one-off payment in a single year.
Investors in Dubai apartments right now might be getting a much better price than two years ago but they are wary of high maintenance fees, especially because if an apartment remains empty owners will still have to pay up. Thus high fees are also a factor depressing apartment sales’ volumes as well as prices.
Villas look a better proposition all round. First, the oversupply of villas is far less than apartments. Secondly, they are inherently cheaper to maintain, and owners take direct control of this process. Thirdly, community fees are lower on villas: a five-bedroom villa in The Meadows actually has a maintenance fee similar to a one-bedroom flat in The Greens.
Villas beat apartments
Therefore the actual return-on-investment to the landlord is going to be higher for villas than apartments, and logically that ought to push the price of villas up until the point at which the rental yield is similar to an apartment.
It is not the first time that the advantages of buying villas over apartments has been noted. In the early days of Dubai property villas sold for similar prices to apartments, due to their cheaper construction costs, despite the fact that villas sat on a valuable plot of land.
Over time this pricing anomaly has been gradually corrected, and if nothing else villas will be better protected from further capital losses than apartments over the next couple of years.
