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The Real Estate Regulatory Authority (RERA) sets specific guidelines and legislation concerning the management of jointly owned properties in Dubai. Defined as ‘the whole or part of a building or land, divided into units intended for separate ownership’1, jointly owned properties include apartments, villas, and whole communities sharing common areas. The overall building or land is typically managed by a firm appointed by the Owners Association (OA) to administer and operate the day to day tasks of maintenance, security, cleaning, finance and the like. RERA requires the OA or the OA manager to set budgets and establish two separate funds; the general fund and the building reserve fund, both contributed to by the owners through the service charge.
One of RERA’s requirements for service charge budget approval is a formal real estate reserve fund study. Further details on the actual methodology or composition of the real estate reserve fund study are not included however, the consultants carrying out the study must hold the ‘Property Observer’ trade license, signaling that they have sufficient experience in building construction and condition to understand the basics of the built environment being considered.
It should not be assumed that all firms with the license can undertake a building reserve fund study. It should be carried out by competent chartered surveying consultants with sufficient local experience, in accordance with international standards of practice, and tailored to suit the proclivities of Dubai. Use of foreign cost data is not recommended.
The building reserve fund study is generally used for future budgeting by property managers, and forms the cornerstone of forecasting of capital replacement costs. Overlooking its importance can lead to a deficit in capital for vital asset replacements.
In order to work out how much money needs to be saved to pay for building as their serviceable life expires in the future, a surveyor will gather all relevant data on the property via a two tier approach and assess the current condition of each asset. They will complete a comprehensive examination of factors including the asset type, its location and exposure, how well it was fitted, how well it has been maintained, and how these factors have affected the remaining useful life of the asset. This will then identify the year in which the asset should be replaced.
This forecast of life expectancy allows the surveyor to formulate a bespoke financial model, taking into account the current replacement cost and expected future cost, the effect of inflation and how this is offset by account interest accrued in the savings account. The objective is to reveal a forecast of expenditure over a time horizon of around 60 years and to show this as a 10 or 20- year window.
It is important that the clients FM team is involved in the process in order that an accurate statement of maintenance procedures and previous replacements are obtained. The FM and building management team also needs to understand how the model is established and used going forward. It should be understood that the cost model will be a forecast- albeit as accurate a forecast as can be established.
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Julian Roche
MA (Oxon), MPhil, PhD
Chief Economist
Julian joined Cavendish Maxwell as Chief Economist in January 2019. Coming from an old real estate family in Ireland, his career as an economist began with a first-class honours degree in philosophy, politics and economics at the age of 19, following which Julian was an analyst with the UK Government. He later helped develop and launch the UK’s residential forecasting service with the firms that merged to become Global Insight. Julian subsequently developed derivatives in the City of London and established real estate futures contracts for what is now the International Commodity Exchange. He also ran a property development and management firm, before eventually serving as an international consultant and trainer to governments, central banks and notable firms including AXA, Citibank, DBS, Deloitte and Thomson Reuters.
Julian fills his work-free time with academic pursuits; he holds several postgraduate degrees, including a PhD in International Risk Management Policy, and also the Licensed Conveyancer qualification. Julian has published many business and academic texts and articles, and is also a keen walker – especially fond of the Scottish Highlands.
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Sarah-Jane Carter
BA (Hons) DipM
Head of Marketing
Sarah-Jane joined Cavendish Maxwell in January 2020 as Head of Marketing and is responsible for the development of the marketing strategy and execution across the Middle East region. An energetic and results driven marketer, Sarah-Jane possesses a wealth of multi-channel marketing experience, within both B2B and B2C environments which she has gained over a 25 year career. Prior to joining Cavendish Maxwell, Sarah-Jane held senior marketing positions for major developers in Dubai including Emaar, Dubai Properties and Dubai Sports City. She also worked for IWG as the Regional Marketing Director responsible for the MEA and APAC regions. Before relocating to the UAE in 2005, Sarah-Jane held various management roles in public and private sector companies in the UK including ten years at Royal Mail and seven years at the Bank of America.
Sarah-Jane is a member of the Chartered Institute of Marketing and has a BA(Hons) Degree in Business and Marketing
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