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Discuss this article (13 Comments)Quality streets
by This email address is being protected from spam bots, you need Javascript enabled to view it on Monday, 21 September 2009
What is the “correct” price for property in the UAE? Is it based on affordability, in which case a multiple of average incomes should give some insight into average house price?
Is it based on supply and demand, and is that calculation related to buy-to-let landlords or by individuals looking to put a roof over the heads of themselves and their families? Is supply and demand more about access to mortgages than access to a desirable home?
Is price based on quality, and is quality dictated by the style and opulence of a building, by the relative merits of a city or country; or by the location within a city?
Is it based on average rents compared to average mortgage payments?
And how much does confidence in the market, the government and the legal system play a role?
Looking at affordability, and taking the United Kingdom as a benchmark market, there is a long term trend for average prices to rise and fall towards five times the average household income.
At the peak of the UK market in 2007, this had risen to 8.1x average household income, but has since dropped back to 6.4x.
The average household income for residents of the United Arab Emirates is AED18,248 per month – AED218,976 per year – according to statistics released by the Ministry of Economy in February this year.
If we assume a long term average of five times average household income, the average home in the UAE should cost around AED1.1 million. Let’s call it a round one million dirhams for the sake of simplicity (average household incomes have certainly fallen since February, but no new statistics have been released).
What does an “average” home in the UAE look like, when the bottom end of the market is eight to a room in a labour camp dormitory, and the top end is a palatial villa overlooking the Arabian Gulf?
It is impossible to calculate using official statistics, and it would also be largely meaningless in such a complex part of the world.
Perhaps it is a little simpler and slightly more meaningful to ask where an “average” family with access to the mortgage to buy a home might live? In the UAE, this is most likely to be a 2-bedroom apartment – the largest segment of the market by volume.
Of the 58 2-bedroom apartments listed on Arabianbusiness.com/property, the average price is AED2.7 million.
So, what makes an average home in the UAE worth AED1.7 million more than it ought to be if calculated at 5x average household incomes, and are these factors real and sustainable?
There have certainly been imbalances in supply and demand equations. When 40 percent of a country’s population is involved in building homes, there is guaranteed to be shortage in places to live. This sent rents soaring throughout the Emirates, and fuelled demand for buying properties to avoid throwing away huge sums on rents.
This calculation was the catalyst for the real estate boom that overwhelmed Dubai, and to a lesser extent the Northern Emirates and Abu Dhabi.
But with projects completing and the construction boom running out of steam, the supply and demand imbalance is being rapidly corrected. Fewer construction workers have a choice of more and more available property. This effect has been somewhat mitigated in the UAE as a whole because construction is shifting from Dubai to Abu Dhabi, but overall it has, and will continue to affect prices negatively.
Average household incomes are also down, which should also drive average house prices down.
Mortgages are harder to secure now than 2-3 years ago, another factor than should continue to depress house prices.
On the upside, the UAE, and Dubai in particular, is a location that will command a premium price over its competitors for the foreseeable future. It has secured a considerable lead across so many industries: aviation, shipping, tourism, warehousing, media, education, retail and more, and it is becoming an increasingly pleasant place to live thanks to recent improvements to its road network and the opening of the Metro.
Issues such as the environment, population density, good governance, community and a sense of belonging are subjective, and hard to compare between the UAE and other neighbouring locations including Mumbai, Doha and Cairo.
If the UAE is the premium location for the Middle and Near East, it ought to demand a premium on its property prices. London has average house prices of double the national average in the rest of the UK, and three times higher than the average in France.
Over the long term, so long as the UAE maintains its economic advantages across multiple industries, I expect its house prices to find a level considerably above other parts of the GCC. And the premium freehold locations: Palm Island, Downtown and DIFC, will be higher still.
Buying in these quality locations is probably the safest investment strategy in such a turbulent market, and the soundest course of action for families looking for a secure floor under the feet of their home ownership.
The question, then, is when to buy? As one Middle Eastern investor once said about buying property in luxury parts of London during a recession, “You can never pay too much for quality; you can only pay too soon.”
READERS' COMMENTS
Disclaimer: The views expressed here by our readers are not necessarily shared by ArabianBusiness.com or its employees.
Lies, lies & statistics
Posted by Jack, NYC on Thursday 24 September 2009 at 14:52 UAE time
Rob,
Where do you get your figures from? The government of the UAE? hmm...good source. Where did you cross-check this?
Did you pass your Maths GCSE or O-level? You quote an average price of AED2.7m, yet in the next sentence you quote an average price of AED1.7m...either you have not explained yourself properly, your editor has not bothered reading your copy, or house prices are falling a lot quicker in Dubai than has been reported in (real) media.
Where did you get the 18k+ average salary from? Surely you don't believe that? It wasn't that high even in the heyday.
I haven't been to Dubai for a few months, but I talk to people on the ground every day and they tell me its still a catastrophe.
Please don't try to kid a kidder - this is an atrocious piece of PR - but what more should we expect from AB?
Posted by Jack, NYC on Thursday 24 September 2009 at 14:52 UAE time
Rob,
Where do you get your figures from? The government of the UAE? hmm...good source. Where did you cross-check this?
Did you pass your Maths GCSE or O-level? You quote an average price of AED2.7m, yet in the next sentence you quote an average price of AED1.7m...either you have not explained yourself properly, your editor has not bothered reading your copy, or house prices are falling a lot quicker in Dubai than has been reported in (real) media.
Where did you get the 18k+ average salary from? Surely you don't believe that? It wasn't that high even in the heyday.
I haven't been to Dubai for a few months, but I talk to people on the ground every day and they tell me its still a catastrophe.
Please don't try to kid a kidder - this is an atrocious piece of PR - but what more should we expect from AB?
words of wisdom
Posted by Sama, dubai, UAE on Thursday 24 September 2009 at 13:18 UAE time
PRICES ARE UNAFFORDABLE AND NONSENSICAL. DUBAI'S PERCEPTION IS SEVERELY DAMAGED BECAUSE OF THE WAY THINGS WERE HANDLED. SOLVE THE TWO ISSUES ABOVE AND SEE THE BOOM START. START BY COPY PASTING PROPERTY AND PERSONAL FINANCE LAWS FROM THE U.S, NO NEED TO HIRE USELESS EXPENSIVE CONSULTANTS, NO NEED TO REINVENT THE WHEEL.
Posted by Sama, dubai, UAE on Thursday 24 September 2009 at 13:18 UAE time
PRICES ARE UNAFFORDABLE AND NONSENSICAL. DUBAI'S PERCEPTION IS SEVERELY DAMAGED BECAUSE OF THE WAY THINGS WERE HANDLED. SOLVE THE TWO ISSUES ABOVE AND SEE THE BOOM START. START BY COPY PASTING PROPERTY AND PERSONAL FINANCE LAWS FROM THE U.S, NO NEED TO HIRE USELESS EXPENSIVE CONSULTANTS, NO NEED TO REINVENT THE WHEEL.
it would help...
Posted by Denny, Dubai, UAE on Thursday 24 September 2009 at 09:02 UAE time
....if they have laws which actually give purchasers some rights, that don't leave all the power in the hands of the developers who can hike charges at will, and delay projects for years without doling out compensation. That can get away with changing master plans without any consultation.
...if mortgage lenders started lending people money, and more importantly if mortgage rates weren't in double figures when the official base rate was almost zero.
Every person I know who ever considered buying here will not until it is a safe place to do so.
Many have had their fingers burned here and found when the going gets tough, the developers close rank and try and milk an extra few dirhams out of its customer base...
Posted by Denny, Dubai, UAE on Thursday 24 September 2009 at 09:02 UAE time
....if they have laws which actually give purchasers some rights, that don't leave all the power in the hands of the developers who can hike charges at will, and delay projects for years without doling out compensation. That can get away with changing master plans without any consultation.
...if mortgage lenders started lending people money, and more importantly if mortgage rates weren't in double figures when the official base rate was almost zero.
Every person I know who ever considered buying here will not until it is a safe place to do so.
Many have had their fingers burned here and found when the going gets tough, the developers close rank and try and milk an extra few dirhams out of its customer base...
Great article
Posted by UAEHOME.COM, London, UK on Thursday 24 September 2009 at 02:44 UAE time
Great article, its important to note that there are not many(if any) places in the world where a city has been built with such a speed, this in itself has added to the problem of under supply and over pricing.
Posted by UAEHOME.COM, London, UK on Thursday 24 September 2009 at 02:44 UAE time
Great article, its important to note that there are not many(if any) places in the world where a city has been built with such a speed, this in itself has added to the problem of under supply and over pricing.
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