The pre-handover service charge estimate is the number the developer hopes you will quote in your rental projections. The post-handover actual charge is the number that lands in your bank account two years later, and it is rarely the same.
A service charge estimate is the developer’s projected annual per-square-foot cost for maintaining the building’s common areas, facilities, security, cleaning, and reserve fund. It is published in the sales brochure and included in the SPA. After handover, the building transitions to an Owners Association, RERA publishes an approved service charge index for the community, and actual figures are set annually. Estimates skew low, actuals skew higher.
Some Business Bay towers currently push AED 18-22/sqft in actual service charges, against pre-handover estimates that were quoted at AED 12-14. On a 1,000 sqft apartment that is an AED 8,000-10,000 annual surprise that the investment case did not include.
Always stress-test your net yield projection using service charges 30-40% above the developer estimate. If the investment still works at the stressed number, the deal is probably sound. If it only works at the quoted estimate, you are one RERA index update away from margin compression.
Related: Service Charge, Common Area, Net Yield, Master Developer.
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