The big question of Dubai real estate is not oversupply - it's about the right kind of supply for the market
A few weeks ago, I drove to Damac Hills to interview Damac founder Hussain Sajwani. Not having cause to travel out that way too often, the many new developments came as a surprise, begging the perennial question: surely this will lead to massive oversupply in the future?
Of course, having witnessed the ability of the city to attract new waves of residents and tourists over the years, I should know better. Nevertheless, like many others, I have never quite comprehended the ability of developers to trust in those six sacred words: build it and they will come.
But they do have faith, and it is based on a few assumptions restated in this issue. Dubai’s massive catchment area (over a third of the world’s population lives within a four-hour flight from Dubai) is one such mantra.
Replying to a question of why he is building hotels in a sector already served by 100,000 rooms, RSG founder Raj Sahni says on page 36: “Look at where we are: India, Iran and Saudi are all next to us, all with huge populations... It’s much nearer than Europe and you don’t need visas.”
When I asked Sajwani if he is comfortable with the 40,000 units that Damac has planned or in development, he used a simple, back-of-the napkin calculation to explain. “Dubai has 500,000 freehold units and the city is growing at an average of four or five percent per year… So if you assume four percent growth then you need 20,000 units on top of the current stock. And we’re delivering, as a city, between 10,000 and 12,000 units per year.”
Sajwani also bats away concerns over dips in sale and rental prices by referring to the natural cycles of the market; a long-term perspective echoed by Sahni. “These things are always in waves,” he tells us. “You’ll probably see 50,000 people arriving from India or wherever and all of a sudden, there’ll be no apartments.”
These are valid points made by people who do this for a living, but they tend to contradict personal experience. When we laypeople try to make sense of the market, it’s all too easy to rely on personal knowledge of people we know who are leaving, or the sight of more to-let signs appearing around the city. We forget that this is a market cycle, and that there are more people arriving every year – we just don’t know who they are because, well, they’re newbies.
So a more relevant question to ask is this: are developers building the right stock? Does the city require villas or apartments? At what sort of price range? Do they need to be near Downtown or further afield?
This is where the market has become more interesting. While the pre-2008 boom focused on the top end, there is now more diversity. The evolution has been encouraged by the government with its affordable housing policy announced in March 2017 – examined on page 40 in “Room for Everyone?”
Faisal Durrani, head of research at Cluttons, says the policy comes at critical time as Dubai gears up for Expo 2020. “We are talking about 300,000 new jobs over the next three years, and the vast majority will be low to middle-income households,” he says. “We’re looking at 80,000 units to be delivered by the end of 2020, and a population growth of 500,000 new households.”
“We don’t see demand slowing for affordable housing,” Danube Group founder Rizwan Sajan told Arabian Business. “This market will never die as there are plenty of people living in rented apartments across the UAE and we are seeing them convert into owners.”
To that end, Danube last month delivered 354 units including studios, one- and two-bedroom apartments in Dubai Studio City, hoping to capitalise on that underserved segment.
The conclusion, then, is obvious: developers are right to be bold. The city would not be where it is today without their belief in continued growth. But they must also recalibrate at every step to ensure they fulfil market needs.
To paraphrase the title of a well-known business book: what got us here won’t get us there. And in this case, there is still work to do in providing plentiful housing options – for everyone.