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Real estate in the UAE is up to 50 percent more expensive than in Europe if comparisons are based on median income estimates rather than GDP per capita, Al Mal Capital’s head of equity research has said.
Based on calculations using the gross domestic product (GDP) per capita as a key indicator of wealth, house prices in the UAE are roughly on par with those in Europe.
But when looking at the median income, the average price of a home in the country becomes up to 50 percent higher than in Europe, Robert McKinnon said.
The median household income is the number that splits income distribution into two equal parts, with one half of the cases falling below the median and one half ending up above it.
“If you take a GDP per capita number and assume that everybody is earning that money, it distorts [projections] when roughly around 80 percent of the wealth is in the top 10 percent of the population, and you only need one home,” said McKinnon.
At current price levels, the typical home owner in the UAE would still pay around 50 percent of his or her salary in mortgage costs, he said.
“If you assume a median income in the UAE of AED25,000 a month, and this is very generous, and you look at a medium, two bedroom place, it’s roughly AED1.5m. That is going to cost you somewhere around AED12,000 a month in mortgage payments.”
The median income is likely to be lower than AED25,000 given the high number of labour workers in the country, he added.
On a positive note, McKinnon said that a limited population decline may not necessarily be bad news for real estate developers.
“There is a bit of a misconception that population is demand. That is not necessarily the case. In reality, demand is the number of people that are willing and able to buy a home.
“They’re willing at a certain price, and as prices go up that takes people out of the demand equation, and that’s exactly what happened in Dubai last summer and a little later in Abu Dhabi.”
Al Mal Capital is forecasting UAE real estate prices to fall by another 10 to 15 percent before bottoming out, with a slightly larger decline in the Dubai market than in Abu Dhabi.
