The existing affordable housing options in Dubai only cater to the middle-income market and remain overpriced for the lower-income segment in the emirate, a new report has found.
The term ‘affordable housing’ is being used in a very loose sense when it comes to Dubai, the report by Core – the United Arab Emirates associate of Savills – stated.
Chief executive officer of Core David Godchaux said: “The current new supply is catering largely to the middle income segment and affordable living is yet out of reach for the lower income members of society, thus pushing occupiers to rent at penalising high yields instead of transitioning to own.”
Affordable housing typically indicates market-quality accommodation that can cater to the society’s bottom income quartile with their housing expenses not exceeding 30-35 per cent of the household income.
Also, such properties must not make their inhabitants feel second class, or have any stigma attached to them, the report said.
According to the Dubai Municipality, affordable housing in the emirate must provide living space for households whose income is between Dhs 3,000-10,000 per month.
The proposed law by the Dubai Municipality for mandatory 15-20 per cent affordable housing in future residential developments may help the segment when implemented, the report said.
Public private partnerships may also help negate high land acquisition costs.
However, finance options to the lower income segment are limited as banks tend to offer mortgages for an income threshold starting at Dhs 15,000 to Dhs 20,000 per month.
While certain lenders do provide mortgages for monthly income levels of Dhs 10,000 for select properties, they have strict eligibility criteria.
“We are witnessing a surge of off-plan properties which are being marketed as ‘affordable’ options. Some of these projects have tried to achieve the intent through innovative construction, marketing strategies and flexible payment plans, yet many don’t fit the economics of a lower income end user,” said Godchaux.
“Buyers would be subject to higher down-payment in the case of an off-plan property in addition to their current rent. With delayed project deliveries, they cannot risk this scenario and hence continue to rent.”
Investors in such projects also face the possibility of low-yields and faster depreciation rates because of the use of cheaper materials to reduce construction costs.
However, the report stressed that the Dubai market must focus on the affordable segment to achieve social stability and address maturing domestic demand.
“The Dubai market will indirectly need the affordable segment to be successful in addressing properly the emerging demand of the lower income classes, both in terms of non-prohibitive rental levels and reasonable acquisition prices, coupled with realistic lending regulations,” said Godchaux.
“It is only natural as a relatively new concept that the definition of affordable has not yet met its target market as regulations are still to define more precisely the rules of the game.
“But we are fairly confident that the Dubai government will be able to find/follow the right solutions to develop this market to a mature level,” he added.