According to Colliers International, an increase in mid-market housing would redefine Dubai’s real estate market.
In line with a report from Colliers International, evidence suggests that an affordability gap exists in the current Dubai housing market. Colliers International’s report, Addressing the Housing Gap, reveals a mismatch between the demand for and supply of appropriate mid-market property, highlighting the social and economic benefit of creating a diverse real estate market that meets the needs of all segments of society.
Ian Albert, Regional Director at Colliers International, explained, “When we talk about affordable housing in Dubai we are not referring to low-income housing, but rather housing that is affordable for a household in relation to its income. What this means in the Dubai market is mid-market properties that are suitable for young working families or professionals. Owing to the recent growth in rental and sales prices in Dubai, this market segment has chosen to live in neighbouring emirates such as Sharjah and Ajman where greater options are available to them. This is not only a missed opportunity for Dubai developers who should be looking to capture this sizeable market by creating affordable communities that cater to its needs, but it also directly affects the economy as productivity levels are lowered when a large percentage of the workforce suffers from a long commute.”
A commonly accepted guideline for housing affordability is when accommodation costs are within 30 per cent of a household’s gross income. Given that the total monthly income for 50 per cent of Dubai households (excluding those in labour/staff/shared accommodation) is between AED 9,000 – AED 15,000, to remain affordable expenditure on housing should not exceed AED 32,500 – AED 54,000 per annum.
Although this income bracket represents the majority of households in Dubai, it is presented with limited housing options in terms of product type and location in both the rental and freehold markets. Colliers International research not only highlights the lack of housing at this price level but also the lack of appropriate housing, with households in this income bracket restricted to studios or one bedroom units in International City, Deira, Al Qusais and Al Nahda.
Households earning between AED 15,000 and AED 25,000 a month can afford rentals ranging between AED 54,000 and AED 90,000 per annum. This market represents 35 per cent of total households in Dubai. The highest income bracket represented by households earning AED 25,000 and above per month is a limited 15 per cent of total households. Rental affordability at this top tier of the market starts at AED 90,000 per annum.
“Although the rate of growth in the sales market has slowed, the average 2 or 3 bedroom unit in Dubai is still beyond the reach of most working families. With home ownership no longer an option, these families have been pushed towards the rental market where prices remain high. This represents significant challenges for Dubai. As the cost of living and raising a family becomes untenable for your average family, at best they will look to a neighbouring emirate for accommodation and schooling, and at worst they will look to more attractive, affordable countries in the gulf or further afield,” continued Albert.
The report details the substantial net gains to be made by developing affordable communities as part of creating a layered economy, with each income bracket contributing towards the overall development of the economy and its real estate market. It also asserts that when developed effectively, affordable housing can provide high returns for investors; significant rental increases were witnessed in more affordable locations in Dubai and community facilities, such as healthcare and leisure services, can increase the developer’s overall returns on a midmarket housing project.
The gap between residential demand and supply is currently 13 per cent across Dubai. In a market where the majority of households are renters, and are highly mobile, achieving an 87 per cent occupancy level can be considered relatively healthy.
Colliers International estimates that an additional 51,000 housing units are due to enter the market during 2014 – 2020. Despite this significant increase in supply, high population growth rates of five per cent per annum are expected to move existing market fundamentals towards an undersupplied market.
An analysis of forthcoming residential supply by location suggests that approximately 50 per cent of these units are targeted towards the uppermid and higher-end of the market (Business Bay, Dubai Marina, Dubailand Villas, Culture Village, Legends, Palm Jumeirah).
While established residential developments such as Palm Jumeirah, Dubai Marina, Jumeirah Beach Residences (JBR) and Sheikh Zayed Road (SZR) continue to witness significant increases in rentals, more affordable housing locations such as Jumeirah Lake Towers (JLT), Discovery Gardens, International City and Deira have witnessed the highest increases in rental rates YOY (30 per cent – 35 per cent), highlighting the growing demand for affordable housing.
Rental levels that are affordable for 50 per cent of total households in Dubai (excluding those in company sponsored/ shared accommodation) are achieved in International City, Dubai Silicon Oasis, Discovery Gardens, Deira, Al Qusais and Al Nahda. Rental at this level, however, is limited to smaller units of studios and one bedroom apartments within these locations. Given that the average household size in Dubai consists of 4.2 members, which as a minimum require a 2 bedroom unit, research indicates that there are limited/no such units available in the market for this demographic. As a result tenants in this income bracket seek alternative accommodation in more affordable neighbouring emirates.
“Access to affordable housing is not an issue that Dubai alone faces. Every major city in the world faces the same challenge. It offers huge potential, however, to be achieved it is critical that developers are provided access to welllocated and serviced land. Only then will we see a policy for the development of mid-market housing come to fruition in Dubai,” concluded Albert.