Bloomberg News

Nakheel Can’t Charge for Palm Island Beach, Regulator Says

January 04, 2012

(Adds reported comments from Nakheel chairman in sixth paragraph.)

Dec. 28 (Bloomberg) -- Nakheel PJSC, Dubai’s largest property developer by assets, doesn’t have the right to deny residents of a palm-shaped island access to communal facilities by turning them into exclusive clubs, according to the emirate’s property regulator.

Nakheel posted leaflets earlier this month telling residents at the Palm Jumeirah they were banned from using the property’s beach, swimming pools and gyms unless they pay an additional 5,000 dirhams ($1,360) per household.

“By law, no one can stop an owner or a registered tenant from using the communal areas once they have paid service fees,” Marwan bin Ghalita, chief executive officer of Dubai’s Real Estate Regulatory Agency, said in an interview yesterday. “If you bought something based on an agreement with a developer, he can’t change it.” A spokesman for Nakheel declined to comment.

Dubai developers are looking at new ways of generating income after the global credit crisis left many of them short of funding to complete projects across the emirate. Nakheel has incurred 78.6 billion dirhams in losses since the crisis began in the third quarter of 2008.

Nakheel’s staff distributed membership application forms showing that Palm Jumeirah’s residents will have to pay the additional fees from Jan. 1. Non-residents will be charged 12,000 dirhams, or as much as 200 dirhams a day.

“People want something which they are not entitled to,” Nakheel Chairman Ali Rashed Lootah was cited as saying in Arabian Business on Nov. 23, following protests over the fees. He told the newspaper that Nakheel had checked with the regulator before proceeding with its plans.

Clubhouses, Gyms

Nakheel, which owns the clubhouses between the shoreline buildings, can charge residents for the use of facilities and services that aren’t specified in their contracts such as poolside sun beds, towels, showers and changing rooms, bin Ghalita said. If the developer wants to block residents from entering the clubhouses where gyms are located, it would have to provide gyms inside the apartment buildings, bin Ghalita said.

Many homeowners haven’t yet paid their services charges and Nakheel required temporary security cards to prevent those who haven’t paid from accessing the facilities, RERA’s CEO said.

The developer and the Homeowners’ Association will soon reach an agreement that will resolve the standoff, according to bin Ghalita. Nakheel and other developers are in the process of submitting blueprints of their buildings to RERA to establish and define communal areas.

‘No Overpaying’

“We want to make sure that all non-communal areas aren’t included in the service charges, so owners won’t overpay,” bin Ghalita said. “That’s why we are taking our time to subdivide all of the buildings,” he said.

Nakheel charges residents service charges based on the size of their apartments, said Rakesh Sharma, a property consultant at RBA Real Estate, which manages properties on the shoreline. The fees amount to 25 dirhams per square foot.

At that rate, a 1,646 square-foot (153 square-meter) two- bedroom apartment currently advertised on Palm Jumeirah would command about 41,000 dirhams a year in service fees, according to Bloomberg calculations. A property of that size on the palm would typically cost about 110,000 dirhams a year to rent.

Some homeowners say that developers are inflating the fees and using the charges as an additional source of revenue. The formation of homeowners associations should resolve the issue as owners would be in charge of the accounts and could manage the costs, RERA’s CEO said.

Landlord’s Responsibility

Tenants who are barred from using the facilities at Palm Jumeirah because their landlords failed to pay service fees may be allowed to withhold their rent, bin Ghalita said. Instead, they could pay the developer directly after consulting RERA, he said.

“Tenants have contracts and paying service fees is the responsibility of the landlord,” bin Ghalita said.

Several members of the island’s homeowners association declined to comment when contacted by Bloomberg today.

In the past, Nakheel derived most of its income by selling properties before they were built. It also sold plots of land to smaller competitors after providing infrastructure such as roads, water, sewage and electricity. The company, which was forced to suspend work on two other man-made islands after the credit crisis, is trying to increase recurring income from rentals and shopping malls.

--Editors: Andrew Blackman, Claudia Maedler, Ross Larsen.

To contact the reporter on this story: Zainab Fattah in Dubai on zfattah@bloomberg.net.

To contact the editor responsible for this story: Andrew Blackman at ablackman@bloomberg.net.


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