With a chronic shortage of affordable housing across the region, moves are finally being made to meet the demand
In 2012, as UAE property prices began to recover from their 2008 crash, Ana Haida and her husband bought a two-bedroom penthouse apartment in Abu Dhabi’s Al Bandar development. Paying 2 million dirhams ($540,000) to an owner who wanted a quick sale, Haida says they got a good deal. Now, the couple want to sell to recoup their investment. At current market value, they expect to make 1.5 million dirhams profit; they also expect to spend all of this profit on buying another property. “The prices are so high,” Haida says. “We want to buy, but where do we go? We will have to buy something for the same price.” Haida, who is from Italy, says there is little value for money in the UAE property market. “If you compare it to Europe, for the same price you can get a villa on the beach in Tuscany with five bedrooms and a huge garden.”
While Haida and her husband at least have a foot on the property ladder, many in the MENA region are priced out of the market. According to a 2011 report by Jones Lang LaSalle, the region was in need of 3.5 million affordable homes. A 2015 update by JLL said that “this shortage has in all likelihood increased since then.” In Saudi Arabia, JLL estimated the shortage in 2011 to be around 400,000 homes, which has resulted from a rapidly growing population, a limited supply of completed developments and a lack of access to housing finance for middle-income earners, it said. For other Gulf markets, the roots of the problem are in the ground. “The high price of land in Qatar has led to it being the most expensive property market in the GCC and this has impacted on its affordable housing sector,” says Hesham Al Qassim, chief executive of wasl Asset Management Group.
Governments across the Gulf are being moved to take action. Bahrain has introduced public private partnership housing developments, while Saudi Arabia has launched an initiative to create more affordable homes for nationals. In May, the Omani government announced that it is embarking on a large-scale construction plan to provide affordable, modern residential areas for nationals in the country. In Abu Dhabi, regulations have been put in place that require developers to include a percentage of affordable homes within master plan developments. JLL says similar plans are being drafted in Dubai, where more affordable housing is expected to drive further maturity in the property market.
In the UAE, particularly Dubai, developers’ longstanding focus on the higher end of the property spectrum has created a market imbalance, says Sanjay Chimnani, managing director for
Raine & Horne Dubai. “I think we have way more luxury than any city in the world. But even for this city it [is excessive] so there is clearly a demand-supply mismatch there,” he says.
This oversupply has contributed to a slowdown in the country’s property market and helped to focus investors’ attention on previously underserved segments where returns are greater, says Richard Paul, head of residential at Cluttons UAE. “Prices got beyond their investment value,” he says. “If prices get too high then it offers no return for an investor because there is very little capital growth to be achieved in the near future.” In such a market, rental yields for luxury properties can be as low as 3.5-4 per cent, compared to around 9 per cent for affordable homes, Paul says.
Some developers are seeing the UAE market’s increased interest in affordable housing as a long-term trend. On top of existing demand, forecast economic growth through to 2020 should be accompanied by growing numbers of potential buyers at the lower end of the market, says Martyn Crook, sales director at Al Barari, a luxury developer in Dubai. “The volumes of people who are going to be living in, renting, buying, investing in smaller properties are greater than the clients so therefore there is going to be potentially a higher return rate,” he says.
Dubai-based SPF Realty is among the many real estate agencies devoting greater attention to the affordable end of the market. The company is adapting its payment protocols to suit: On two of the developments it handles the company is offering to accept part-payment following handover as a sweetener to potential buyers. “On the first one we sold 300 units in two months during Ramadan and the summer, so we thought that was a very attractive selling point,” says Kalpesh Sampat, a director at SPF Realty.
For Khalid Bin Kalban, managing director and chief executive of Dubai Investments, the rise of the affordable housing market in the emirate is to be welcomed as a sign of Dubai’s growing maturity. “The new residential investment class will go a long way in catapulting Dubai’s real estate market to the next stage of its evolution, considering the huge demand-supply gap and rising rentals in Dubai and neighbouring emirates,” he says.
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