By Courtney Trenwith
The increasing number of new affordable residential projects in Dubai have not come soon enough, says Courtney Trenwith
Could the days of grandiose designs and lavish launches be over for the Dubai property market? At least every second new development of late is substantially toned down compared to the past decade - and this is good news.
It is another sign of a maturing market — a description analysts and developers alike have been increasingly using to describe regulation and investor sentiment. Now it can also be applied to developers, who are becoming far more in touch with what buyers really want — an affordable home.
Last week alone, two new ‘affordable housing’ developments were announced: Dubai South is releasing apartments starting at $76,000 in its The Pulse development, while Shaikhani Group said it would build an entire residential block of studio apartments, starting at $109,000.
It is the continuation of a growing trend that started about 18 months ago.
Part of the reason is that the ‘buyers’ are changing. While during the first decade of Dubai’s open property market investors were typically either locals or wealthy businessmen who then rented out their properties, there has been an increasing number of end-users joining the market since it began recovering from the 2008-09 crash.
The increase in end-users initially coincided with a trend in expats calling Dubai home — home with a sense on longevity, not just their short-term shelter. And when people decide to stay long-term, they often want to plant some roots and invest in bricks and mortar.
The problem has been that the average apartment, let alone villa, costs at least half-a-million dollars. Coupled with tighter lending restrictions, including the requirement for a 20 percent deposit, buying in Dubai has not been easy for the middle income earner.
Nshama was among the first to react to the dearth of affordable housing. Its Town Square master development announced in March last year is planned to include more than 3,000 townhouses and 18,000 apartments aimed at first-home buyers. The cheapest, according to its website, are about $245,000, with either one or two bedrooms. The first apartments are due to be handed over next year.
Announcing the Zahra Apartments in April 2015, Nshama CEO Fred Durie said they “offer an unmatched value proposition for aspiring home-owners”.
Indeed they do, but some — perhaps now used to the average Dubai apartment — have complained that the homes are small overall, suggesting a compromise has been made on the size of bedrooms and/or living space.
But with plenty of amenities within the development — Town Square, for example, is designed to include retail, playgrounds, swimming pools and other facilities — there should be little reason to remain cooped up inside, if space is an issue for some residents. For others, just getting a foot on the property ladder is worth downsizing, even if only initially.
Commentators also have suggested that Dubai South’s close proximity to what will become the biggest airport in the world, Al Maktoum International, means it will have to offer attractive prices, with or without an affordability demand.
But when you consider that Danube Properties has sold out all of its six affordable housing developments, there is no question demand is strong.
Chairman Rizwan Sajan explained the trend succinctly in June when he said “almost everyone wants a home of their own”.
When monthly mortgage repayments that lead to a tangible asset compare to rent, which is the case in Dubai currently, anyone with savings would opt for the former. Developers that recognise this and meet the demand will not need to offer free cars or waterfalls in foyers to attract buyers.
The affordable housing model is going to offer both challenges and opportunities to the banks in regards to lending. Most banks will offer 25 year mortgages however they have lower mortgage limits, often at 500,000 AED which would equate to a 666k property price ($181,405) at 75% loan to value. Most bank mortgage advisors have monthly targets of 2.5M however a 4M target is typically the norm. This means that even if they could offer a 75% mortgage they would have to process between 12 - 19 mortgages a month based on a $76,000 purchase price, this simply isn't practical or possible. I suppose a more likely outcome would be a 280k AED ($76k) personal loan over 4 years which would be circa 6,650 AED pm at 6.5% APR. As long as the customer earned over 13,500 PM and had under 5k credit limit on their cards and no other UAE debt then the personal loan route may work.