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Dubai property market: Flight towards affordability

Dubai property market: Flight towards affordability

Affordable housing has become the new buzzword in Dubai’s property scene. Why?

Dubai’s property market is rarely out of the news. Be it booming or in the middle of a bust. In the last six months, the market has been fairly stable with prices remaining steady throughout the emirate.

What has picked up momentum in the industry, however, is a focus on affordability. Several new launches, billed as being affordable, have flooded the market and are reporting strong demand and sales.

Dubai Municipality also revealed plans earlier this year to introduce mandatory affordable housing quotas for all new residential developments.

It has also allocated over 100 hectares of land in Muhaisnah 4 and Al Quoz 3, and 4, to developers to build houses for rent for those earning between Dhs 3,000 and Dhs 10,000 per month.

The reason for this shift is fairly obvious. Residential sale and rental rates have increased rapidly over the last three years, outpacing salaries and making affordability a key concern for many residents, explains CBRE Middle East senior consultant Erik Volkers.

“Existing ‘affordable’ houses in freehold areas such as International City, Discovery Gardens and Dubailand have experienced sustained demand growth in recent years, pushing rates up to levels beyond the reach of many within low to mid income households,” he says.

Most of the projects delivered to date have also been targeted at the higher end of the market, creating a shortage of housing for those families earning salaries around the United Arab Emirates average, adds JLL MENA head of research Craig Plumb.

“It is important that this sector of the market is catered for. It threatens the commercial competitiveness of Dubai and is also resulting in excessive commute times as many people employed in Dubai are being forced to seek accommodation in Sharjah and the northern emirates where prices and rentals are somewhat lower.”

A recent report from research firm Colliers International noted that there is a sizeable market for affordable housing. The report showed that almost 50 per cent of households earn between Dhs 9,000 to Dhs 15,000 per month and can only afford rents ranging from Dhs 32,500 to Dhs 54,000 per annum.

Developers have begun to take notice. The massive Town Square project, launched this year by new developer Nshama, has received robust investor interest. Its modestly priced townhouses sold out soon after launch. Other developers such as Danube and GGICO have also revealed projects catering to the affordable segment, reporting strong sales.

But Volkers warns that not all the news about units being sold out should be taken at face value.

“We should be slightly cautious in our interpretation of such successes, when in reality perhaps only small phases of a project are being sold rather than an entire development,” he says.

“From experience in the local market, it is very common for developers to hold back units for future leasing purposes, with properties entered into income generating portfolios upon completion.”

Agents also suggest the concept of affordability has been vague and ambiguous in the market. Plumb admits that many projects have previously claimed to be affordable when in reality they are beyond the reach of many families.

“It will always be the case that some families will not be able to afford to rent or buy properties in the open market and these will be taken care of either by their employer or by the government. It has been the case in Dubai that other families are falling into the gap between employer housing and that provided by the market,” he adds.

Set to stay?

The trend towards more affordable housing is anticipated to remain one of the major features of the residential market over the next few years. Strong demand is expected from low to mid income households, say experts.

“At this stage the demand for low cost housing is surpassing the current supply with significant population growth in the low to mid income brackets. This will drive more and more developers into the affordable market,” states Volkers.

One of the main challenges he highlights is for the market to actually ensure that properties remain affordable in a market often driven by speculation.

“The affordable housing issue will not be solved by simply selling off cheaper freehold properties. There is also a requirement to develop and deliver suitable leasehold options for those who simply cannot afford home ownership.

“This process could be made easier by the setting up of a dedicated housing body that can help to manage the rentals of those properties specifically targeted towards low to mid income groups. This would help to ensure that rates remain at levels that are in line with realistic affordability levels,” he adds.

Agents also point to two issues that need to be addressed before the affordable housing market in Dubai is positioned for the long term.

The first is financial. Affordable housing may not be possible without government support since the land values are high but offer relatively low financial returns compared to other residential sectors.

“This could be in the form of lower land prices or preferably gifted/granted land in locations suitable for affordable housing,” says Volkers.

The second issue relates to regulation. “There may need to be consideration given to public private partnership agreements between developers and the government, which could help to facilitate more widespread development of affordable housing.”

As Dubai’s real estate market aims to move towards greater maturity, its handling of the affordable housing segment is bound to make a big difference.

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