Dubai ‘affordable’ housing still too pricey: Savills
Affordable housing in Dubai is still too expensive for low and middle-income earners, according to a study by real estate consultancy Savills.
The latest research paper from Core (the UAE affiliate of Savills) says the term ‘affordable housing’ is being used in “a very loose sense” in Dubai – despite steps being taken by the government to increase supply of this type of housing, reported by arabianbusiness.
In its study, Core notes that a proposed law by Dubai Municipality for mandatory 15-20 percent affordable housing in future residential developments across the emirate could help improve the situation.
Meanwhile, public private partnerships (PPP) – facilitated by the government under another new law earlier this year – could help to lower costs by offsetting high land acquisition prices.
However, finance options for lower income earners are limited, Core adds, as banks typically require at an income threshold of AED15,000 to AED20,000 per month for granting mortgages.
Some banks do provide mortgages for those on incomes as low as AED10,000 per month but only with strict eligibility criteria.
David Godchaux, CEO of Core, said: “We are witnessing a surge of off-plan properties which are being marketed as ‘affordable’ options. Some of these projects have tried to achieve the intent through innovative construction, marketing strategies and flexible payment plans, yet many don’t fit the economics of a lower income end user.
“[However], buyers would be subject to higher down payment in the case of an off-plan property in addition to their current rent. With delayed project deliveries, they cannot risk this scenario and hence continue to rent.”
He added: “The current new supply is catering largely to the middle income segment and affordable living is yet out of reach for the lower income members of society, pushing occupiers to rent at penalising high yields instead of transitioning to own.”
Core’s report also said there were issues surrounding construction costs and the extreme heat of Dubai, and argued that the salt and sand content in the air will affect the depreciation speed and cost of maintenance even in prime buildings.
“Lower level of total returns in affordable housing over time are typically due to higher recurring costs in the life cycle of this type of development in contrast to prime residential,” Godchaux said.
“Across the world, to build affordable housing, builders largely resort to cheaper materials and specifications to reduce their construction costs leading to lower quality of construction.”
Despite this, the report said, the Dubai real estate market will need to directly address housing provision in the affordable segment in the coming years, in order to “perform well over time, and because [Dubai] requires social stability and mature domestic demand”.