High property service charges along with falling rental values is impacting yields and putting off real estate investors in Dubai, it is claimed.

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High property service charges need to be addressed in Dubai market

Authorities in Dubai need to address problem of high property service charges, consultants warn such charges that are imposed by developers are a major talking point and need to be addressed by the Real Estate Regulatory Authority (RERA) to help confidence in the market, according to a report from international consultants CB Richard Ellis.

Its MarketView report for the first quarter of 2010 says that service charges across freehold locations remain a concern for both current and would-be investors. ‘Falling lease rates have served to accentuate excessive service charge rates set by developers during the peak,’ said Mat Green, associate director of research and consultancy at CB Richard Ellis.

‘It is something that will need the proper attention of the Real Estate Regulatory Agency to help further transparency and in order to stimulate and encourage greater investment activity moving forward,’ he added.

The report also says that Dubai’s residential leasing market saw rates slip only marginally. However, apartment rents on average were still about 23% down on levels in the first quarter of 2009, the report added. While villa rents also fell, they have only dropped by 13% year on year.

Dubai’s real estate outlook had been buoyed by the government’s recent announcement of the Dubai World debt restructuring, specifically the news that developer Nakheel would receive substantial funds to help it restart building work on projects, the report also says.

But it added that ‘a number of major obstacles remain before any real recovery can be expected’. Its latest report on Abu Dhabi shows that apartment rents fell between 5 and 10% while villa rents were down 8 to 15% in the first quarter of the year. It predicts further rent falls for the emirate.

‘Short-term softening of rents for both offices and residential units seems inescapable, with past rates artificially fuelled by product scarcity and robust economic growth,’ the report says, adding that a return to rental growth could be seen later in 2010 and into 2011.

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