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Is downsizing the answer to Dubai's affordable housing needs?

The development of affordable housing is a priority in Dubai, and industry experts say realistic expectations about unit size are necessary if low-cost homes are to become a reality

Cluttons says Dubais mandates to promote affordable homes are a watershed moment for the emirate.
Cluttons says Dubais mandates to promote affordable homes are a watershed moment for the emirate.

Now that luxury homes have firmly established their roots in the region, affordable housing are a hot topic in the Gulf’s real estate and construction sectors.

The last few years have seen increased demand for cost-effective homes in key regional property markets such as the UAE.

It would be fair to assume that regional demand for affordable homes echoes the concerns of a segment that feels left behind as developers pursue extravagant projects offering lush amenities. However, experts say that defining – and demystifying – the parameters of ‘affordable’ homes is necessary in order to satiate the appetite for low-cost units, particularly in Dubai.

Chief executive officer of UAE-based Aurora Real Estate Development, Cian Farah, explains why this distinction is necessary. “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,” he tells 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 unfortunately, the majority of the houses available to rent do not fall into the ‘affordable’ bracket.”

Farah explains that one way to define affordability is through a globally accepted standard that states only 30% of one’s income should be spent on housing and utilities. Sole earners seeking independent units typically struggle the most to find affordable units, but demand from this segment is likely to increase as more jobs are created in both Dubai and the UAE.

“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% on the least-expensive studios in the city. If you start looking at joint earners in the same earning bracket, then the amount spent on rent drops to between 20% and 30%.”

Language appears to be a decisive factor in the affordable housing sector, and industry experts agree with Farah’s view that the term ‘affordable’ is sometimes used for developments that may not provide adequate low-cost residential options.

The major factors causing this trend, according to CEO of UAE-based contractor Beaver Gulf Group, Rajesh Krishna, are the high price and low availability of land. “What is being built right now is not actually affordable. [Cheaply priced] land to develop affordable housing is scarce,” he tells Construction Week.

One way to overcome this hurdle, and develop low-cost properties, is to downsize homes, Krishna says, adding that developers must be realistic about apartment sizes. According to the contractor, unit sizes must be brought down to less than 750sqft (69.7m2), and “ideally to under 400sqft (37.2m2)”, to develop affordable homes.

While these numbers may surprise some of Dubai’s real estate professionals and investors, Krishna says that these sizes are common around the world, especially in places such as India and Hong Kong. He adds that the only realistic way for tenants to pay less is for developers to build smaller.

He explains: “Essentially, these units would be built for the middle to lower-middle class, or small families, who often have very hectic lives, numerous work obligations, and spend very little time at home.”

According to Aurora’s Farah, his company is ahead of the curve, and is developing a residential project in Dubai’s Jebal Ali neighbourhood that will tick these boxes. The project’s units start at around 28m2, and are aimed at the temporary tenant segment.

While downsizing is an effective – and perhaps even easy – way to build affordable units, the road ahead for their developers is not without challenges, says head of research at JLL  Middle East and North Africa (MENA), Craig Plumb. He tells Construction Week that the list of challenges surrounding affordable housing development includes the “prohibitively high” land costs, and “restrictive planning policies that impose high costs on developers with respect to parking and other requirements”. Plumb also points out the need for more public transport facilities, as “many lower-income families do not have access to private cars”.

Despite a decline in sale prices and rental values in Dubai in the past year, developers can still achieve high financial return from developing units that would not count as affordable homes, Plumb explains: “[As long as] this is the case, the market will continue to deliver units that are not affordable to many families, [especially if] the government does not intervene to stimulate the delivery of lower-cost units,” he adds.

Government regulations may well be on their way. Aurora’s Farah says Dubai Government is aware of the difficulties faced by players in the affordable housing sector, and is expected to actively introduce changes this year.

“In March 2017, a low-income housing policy was approved in Dubai, with the expectation that it would require developers to dedicate a certain percentage of their developments to low-cost homes,” Farah says.

“Discussions are also underway to incentivise building low-income housing in central locations, a concept similar to the density bonuses provided in California in the US.”

Plumb says Dubai’s low-income housing policy will address the needs of both low-income Emiratis and non-Emiratis in the city. While additional details about the legislation are yet to be provided, Plumb believes that headway will be made on the policy in the city this year.

Moreover, in December 2017, Dubai’s plans to legislate the provision of affordable homes in the city’s core locations were revealed in the Dubai Property Market Outlook Winter 2017 report by international real estate consultancy Cluttons.

The report said the move would help Dubai avoid some of the mistakes made by other cities around the world, especially with regards to curtailing the emergence of poorly connected low-income neighbourhoods that tend to be segregated from the rest of a city. Commenting on the policies, head of research at Cluttons, Faisal Durrani, said: “While exact details around the legislation are yet to be confirmed, 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 continued: “We believe that Dubai Government’s initiative to focus on affordable housing is extremely positive and is a watershed moment for the emirate.”

Beaver Gulf’s Krishna and his contemporaries view the implementation of these policies as beneficial, if not crucial, for economic prosperity and market growth in the emirate. For instance, many of Dubai’s professionals travel between the city – a hub for commercial activity – and Sharjah, its neighbouring emirate that offers economical residential options. Krishna says that stronger and more affordability-oriented housing policies would help to cut such costs and expenses.

“As contractors, we have also seen a decline in contract awards within the luxury property sector of late,” Krishna continues, alluding to a concurrent waning of the appetite for high-cost units in the market.

It appears that policy developments are driving market reforms and natural price corrections. For investors in affordable units, the good news is that this trend may well continue as new legislation is unveiled in Dubai.

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