By Jumana Abdel Razzaq & Bernd Debusmann
Dubai's approval of a low-income housing policy was an important moment. But questions remain about what constitutes affordable housing and how the policy will be implemented
For well over a decade now, Dubai has been synonymous with luxury villas, upmarket apartments and property prices comparable to the most expensive cities in Europe, Asia and North America – a playground, essentially, for the conspicuously wealthy and the unapologetically aspirational. But now, the emirate is embracing the concept of affordable housing.
Statistics show that the shift is already well underway. According to the Affordable Housing Institute, 82 percent of transactions in 2017 were below AED2m, and almost half – 47 percent – were below AED1 million. The overwhelming majority of transactions – 85 percent – were for apartments, a clear choice for budget conscious residents and market-savvy investors.
The affordable housing sector, experts say, was given a significant boost in March 2017 by the approval of a low-income housing policy. In its December 2017 Dubai Property Market Outlook report, international real estate consultancy Cluttons noted that the move will help Dubai avoid many of the mistakes made by other cities around the world, particularly by helping curtail the emergence of poorly connected low-income neighborhoods that are segregated from the rest of the city.
Speaking to Arabian Business, Faisal Durrani, the head of research at Cluttons, says that Dubai’s affordable housing policy comes at critical time for the emirate, just before a massive influx of new residents arrive in to Dubai to take up jobs related to the delivery of Expo 2020.
“When we talk about the Expo, we are talking about 300,000 new jobs over the next three years. Of the jobs that are created, the vast majority will be low- to middle-income households,” he says. “We’re looking at circa 80,000 units to be delivered by the end of 2020, and a population growth of 500,000 new households.”
According to some experts, the increase in affordable housing is already leading to what Mahmoud Al Burai, CEO of the Dubai government’s Real Estate Institute has termed as a “reverse migration” from other parts of the UAE.
“Dubai is more affordable and we have a reverse migration from other emirates to Dubai,” he says. “A lot of people are coming back and investing in Dubai. The prices are a little bit down, but this is good for us because we want to bring more people to the city. This is part of our economic growth.”
The continued decline of rents and property prices, Al Burai adds, are a sign of “trust” in Dubai’s government and real-estate sector. He notes that while in 2008 few believed that Dubai would have a strong off-plan market [referring to property purchased with only plans available for inspection], last year “the off-plan market was very attractive and people actually invested more in off-plan [properties]… this shows how much trust they investors have in the system, the economy and the vision of the government.
“We have a long-term vision. Real estate is not about the short term, real estate is about long term, and this is the culture we want to promote in this city,” he adds. “This shows how much more mature and resilient this market became, and I’m very optimistic and excited about 2018 and 2019 and looking forward to Expo and beyond.”
In Durrani’s view, “reverse migration” is a natural part of local economic cycles. “Right now, about a million commuters come into Dubai every day. They live there in the northern emirates because housing is cheaper, and some of them actually prefer it,” he says. “It’s largely due to affordability. That is a trend that isn’t something new. Every time the market in Dubai recedes, it draws people in. When prices go up, people depart for the northern emirates.”
While Dubai’s affordable housing policy has been universally praised by real estate professionals and experts, questions remain as to what the policy will entail. High on the list of questions: what is a workable definition of “affordable”.
“When we talk about affordable housing, we have to distinguish between social housing, which requires government subsidies, and housing that is affordable for a specific income bracket,” Cian Farah, the CEO of UAE-based Aurora Real Estate Development tells Arabian Business sister publication Construction Week. “When discussing affordable housing in the UAE, we typically refer to the latter. However, if we look at the UAE housing market, we find that the majority of houses available to rent do not fall into the ‘affordable’ bracket.”
One way to define affordability, according to Farah, is through the globally accepted standard that housing should account for only 30 percent of one’s income. Sole earners seeking independent units, he adds, generally struggle to find affordable ones, but demand from this segment is likely to increase as more jobs are created.
“If you analyse the monthly wage groups as divided by the Dubai Statistics Centre, a single person earning less than $2,700 (AED10,000) will spend roughly 33 percent on the least expensive studios in the city,” he says. “If you start looking at joint earners in the same earning bracket, then the amount spent on rent drops to between 20 percent and 30 percent.”
Language appears to be a decisive factor in the affordable housing sector, and many industry experts agree with Farah’s view that the term “affordable” is sometimes used for developments that may not provide adequate residential options for lower wage earners.
In Durrani’s view, it is the government – rather than the industry – that should and will provide a clear regulatory definition. “Undoubtedly, affordable housing is going to be a key trend. We haven’t received any further clarity as to what the government plans to do,” he says. “The last time it was discussed the proposal was ‘to legislate through planning.’ It was as vague as that… I don’t think it’s for the industry to define what an affordable home is. We are in an emerging market, and the more guidance we get from the government, the better.”
Until the anticipated changes in government policy are clarified and implemented, experts point to a number of challenges the affordable housing sector faces. They include prohibitively high land costs, planning policies that impose high costs on developers with respect to parking and other requirements, and the need for more public transport facilities to service lower-income families that do not have access to private vehicles.
“At the moment, developers are focused on unique, iconic property development in most of the city,” Durrani says. “They could, however, be given incentives. But whether it’s tax breaks on VAT or more favourable lending terms and financing, I’m not sure.
“From the purchaser’s side as well, most households in the UAE are low to middle income, and for these individuals to feel comfortable enough to purchase, they need more favourable lending terms, and perhaps, down the line, the added incentive of a sense of permanency. If people are here on a temporary basis, the appeal may not be very strong.”
Durrani, however, expresses optimism that Dubai’s affordable housing regulations will provide a boon for buyers and tenants alike. “We expect to see a balanced approach between the presumed establishment of quotas around the provision of affordable housing that is both built-to-rent and built-to-sell, so that both aspiring buyers and tenants, priced out of city centre locations, can benefit,” he says.
“We believe that Dubai’s government initiative to focus on affordable housing is extremely positive and is a watershed moment for the emirate.”
In March 2017, Dubai Crown Prince Sheikh Hamdan Bin Mohammed Bin Rashid Al Maktoum approved Dubai’s new housing policy, designed to provide homes for low-income working people and renovating certain areas of the city.
The policy will classify low-income people into Emiratis and non-Emiratis, including expats and workers, in strategic sectors in Dubai. It will also include families’ income levels, place of residence and public benefits and compare them with requirements at the time and the extent of challenges the families are facing. The statement added that the new policy will cooperate with developers to provide more housing units catering to this segment, while also refurbishing some older areas in Dubai.
“We all have a shared responsibility to spread happiness among society through providing them and their families with decent lives,” Sheikh Hamdan said.
Among the most prominent local developers working to deliver affordable housing options in Dubai is Danube Properties, which in late March handed announced the delivery of 354 residential units including studios and one- and two-bedroom apartments at Glitz Residences 3 in Dubai Studio City.
Earlier in the month, the company launched its tenth project, Jewelz, a AED300 million project with 463 residential units, ranging from studio to one and two bedroom apartments.
“We don’t see demand slowing for affordable housing,” Danube Group founder and chairman Rizwan Sajan told Arabian Business in 2017. “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 from renters. Those who have decent jobs and have lived here for four to five years can buy our properties.”