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Dubai: 'Affordable housing' still too expensive

by Ashleigh McGinley on Mar 29, 2016

'Affordable housing' in Dubai is still too expensive, according to a new study by Core, UAE associate of Savills.
'Affordable housing' in Dubai is still too expensive, according to a new study by Core, UAE associate of Savills.

Affordable housing in Dubai is still too expensive for low and middle-income earners, according to research by Core, UAE associate of Savills.

The latest study by the real estate consultancy says the term 'affordable housing' is being used in a very loose sense - despite work by the government to cater for low and mid-income earners in the Emirate.

David Godchaux, CEO of Core, UAE associate of Savills, said: "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, thus pushing occupiers to rent at penalising high yields instead of transition to own,"

The proposed law by Dubai Municipality for mandatory 15-20% affordable housing in future residential developments could help improve the situation.

The study noted that public private partnerships (PPP) could help to lower costs by offsetting high land acquisition prices.

However, finance options for lower income earners are limited as banks typically operate at an income threshold of AED15,000-AED20,000 per month for granting mortgages.

Some banks do provide mortgages for those earning as low as AED10,000 per month - but only with strict eligibility criteria, Core added.

Godchaux, 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."

Core's study found that there are also 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, "to perform well over time, and because it requires social stability and mature domestic demand", the Dubai market will need to directly address housing provision in the affordable segment in the coming years.