Why do service charges rise, and by how much? A reading through the JBR example

The service charge is the most underestimated item in an investment decision. It is assumed to be fixed, yet it is variable; it is assumed to be small, yet it can cost up to a point of net yield.

What is a service charge, and what does it cover?

The service charge is the annual cost, per square foot, of a building's shared-area expenses. It includes security, cleaning, lift maintenance, pool and gym operation, landscaping, building insurance and a reserve fund set aside for future major maintenance. In Dubai the service charge is paid by the owner — it is not passed on to the tenant.

The JBR example: AED 12 → 18/sqft

In JBR the service charge rose from AED 12/sqft to AED 18/sqft within two years. Let's turn the figure into an apartment:

If this apartment is worth AED 1.5 million, the increase alone pulls net yield down by 0.4 points. Over a ten-year holding period the compounded effect is much larger.

Why do service charges rise?

• The building ages: items covered by warranty in the early years move into the maintenance budget over time.
• The reserve fund is topped up: the annual contribution for major renewals such as facade, lifts and roof is increased.
• Energy, water and labour costs rise.
• Insurance premiums change.
• The scope of services grows: when a new shared facility opens, its operating cost comes with it.

Where are you in the AED 8-25/sqft band?

In Dubai the service charge typically ranges from AED 8-25/sqft in the mid segment; in premium towers such as Downtown it can exceed AED 40/sqft. The low end of the band is usually simply specified, low-rise projects; the high end is towers with extensive services such as a pool, concierge and fitness centre. A high service charge is not bad on its own — service quality also pushes rent up. What matters is not the absolute size of the service charge but its ratio to rental income.

Three documents to ask for before buying

• The current service charge schedule — in AED/sqft, together with the unit's size.
• The schedule for the last two years — shows how fast it is rising. One year's figure is a snapshot; two years' figures are a direction.
• Budget items — what is inside the service charge? Is the reserve fund contribution shown separately?

On off-plan, none of these three documents exist yet; all you have is the developer's projected schedule. We record this schedule but don't use it as a real figure — the second year after handover is when the real operating budget emerges.

How we model service charge increases in projections

We don't treat the service charge as fixed in our yield projections. We write the current schedule, add an increase scenario on top, and show as a separate line where net yield falls under that scenario. If a project's service charge schedule doesn't reach us in writing, we don't give a net yield figure for that project — which is also why our cards have no net yield line.

In practice we put two columns in the table: today's schedule and the increase scenario. If the investment decision still stands in the second column, it is sound. A calculation that only works in the first column is, at best, optimistic.

Sources: the AED 12 → 18/sqft trend in JBR and the mid-segment AED 8-25/sqft band — service charge schedules are RERA-approved and published project by project in the Dubai Land Department's Service Charge Index — searchable in the Dubai REST app. The band here is the range observed in mid-segment projects and is not binding; at the offer stage the project's own schedule is given in writing. The 1,000 sqft apartment and AED 1.5M value example are indicative.