Welcome to the seventy-first issue of Market Insight, your weekly guide to what's happening in the Dubai real estate market.
Dubai's booming real estate sector has done wonders for the UAE's economy but residents in the country have begun to express their displeasure at the skyrocketing rents. Many Dubai residents have looked towards Sharjah, Ajman and even as north as Ras Al Khaimah for affordable housing options. The decline in demand for luxury property has begun to have its affect on the market with developers recognising the need to meet the demand of residents in the city.
A new study from Colliers International has found that nearly half of all households in the emirate earn only between AED9,000 to AED15,000 a month. The report titled 'Addressing the Housing Gap' finds that based on the salaries residents earn, they can afford to spend between AED32,500 and AED54,000 per annum as rent or mortgage payments, as per international standards. This works out to only AED2,700 a month for those at the lower end of the average salary band. It is more than apparent (from a quick look at any property listing website) that very few options exist for people looking for properties in this price-range.
“When we talk about affordable housing in Dubai, we are not referring to low-income housing, but rather housing that is affordable for a household in relation to its income. What this means in the Dubai market is mid-market properties that are suitable for young working families or professionals,” says Ian Albert, regional director at Colliers International. “Owing to the recent growth in rental and sales prices in Dubai, this market segment has chosen to live in neighbouring emirates such as Sharjah and Ajman, where greater options are available to them,” he says.
“This is not only a missed opportunity for Dubai developers who should be looking to capture this sizeable market by creating affordable communities that cater to its needs, but it also directly affects the economy as productivity levels are lowered when a large percentage of the workforce suffers from a long commute,” Albert adds. A survey conducted by MoveSouq.com found that 65% of respondents planned on moving on their next lease renwal.
Market Insight is aimed at examining the emirate's dynamic market and forecasting industry trends. It is clear that there is a demand from residents for affordable housing options. However, the one good thing is that as a result of government-imposed regulations, the luxury market in the city has become more sustainable. Moreover, leading developers have announced plans to cater to the mid-level segment. "The UAE market is headed for broader stability. Over the next few months, there will be a correction in areas seen as overvalued while at the same time there will be pockets that will maintain their upwards climb," said Haider Khan, CEO of UAE real estate portal Bayut.com.
Developers in the region are missing out on a market opportunity as they fail to capitalise on the sizeable affordable housing market in Dubai, a new study has found.
According to the latest report from research firm Colliers International, almost 50% of the households in Dubai earn between AED9,000 to AED15,000 per month and can only afford rents ranging from AED32,500 to AED54,000 per annum.
“When we talk about affordable housing in Dubai we are not referring to low-income housing, but rather housing that is affordable for a household in relation to its income,” said Ian Albert, regional director at Colliers International. “What this means in the Dubai market is mid-market properties that are suitable for young working families or professionals.”
When it comes down to it, Dubai's residents are looking to move when faced with sharp hikes in rent, Gulf News reported.
A survey conducted by MoveSouq.com, a comparison site for moving and household service companies, found that 65% of respondents planned on a move upon their next lease renewal. And, not surprisingly, those keen to do so increased among those tenants hit by strident demands from landlords for even higher hikes. (The poll was conducted between October 1 to 26.)
Within this category, 75 % of the respondents who faced more than a 10% increase year-on-year are planning to move, the survey finds. Of those hit with a hike of between 6-10 per cent, 62% said they were amenable to a move.
High cost of land in Dubai is one of the main reasons that developers have little choice in changing their pricing scheme.
Ideally, land related costs should make up between 20-30% of the overall project value, but in Dubai this tends to be between 25-35%. Even a small percentage difference can have a telling impact on the eventual end-user pricing set by the developer.
“The government is putting infrastructure in place — such as Mohommad Bin Zayed Road or Dubai Bypass — that is opening up new areas and allowing developers to access land further out from the more mature — and higher priced — locations,” said Ian Albert, regional director at Colliers International. “This could potentially solve some of the pricing issues related to land."
As a result of government-imposed regulations, oversupply is no longer a dire concern in the UAE and the luxury market has become much more sustainable, a Forbes article said.
“The UAE market is headed for broader stability. Over the next few months, there will be a correction in areas seen as overvalued while at the same time there will be pockets that will maintain their upwards climb,” said Haider Khan, CEO of UAE real estate portal Bayut.com.
Thanks to tighter regulations by the U.A.E. government and a more conservative business plan from property developers, the residential real estate market of Dubai in particular is becoming more stable. Although property prices skyrocketed 35% in 2013 and rang all sorts of alarm bells at the International Monetary Fund and World Bank, 2014 has seen Dubai real estate investors take their collective heads out of the clouds.
With demand for luxury property falling, Dubai no longer features in the top 10 rankings of cities worldwide.
Prices of premium properties in the emirate actually dropped by a marginal 0.2 per cent in the three months between June to September, according to Knight Frank, the consultancy. Dubai was placed 21st among cities worldwide on this count.
Dubai had figured consistently at the top of the rankings in the last two years, after investors went into a frenzy of buying activity for premium properties, especially completed ones or those close to completion during that period. That surge also helped some of the off-plan launches held last year to see substantial investor interest. But in the three months between July to September, luxury real estate in most of the key global cities failed to attract sufficient investor interest.
Dubai's developers are now starting to use completion timelines as a unique selling point for off-plan projects, Gulf News reported.
“Based on feedback we have had over the last three months, there’s a lot of demand build-up for ready properties, especially mid-tier ones,” said Juwaad Beg, CEO of Al Madinah Al Raeda Real Estate, a developer. “They are selling faster by attracting cash buyers and at the expense of pricier off-plan developments. This is where the action is, and it will get more so with the steady increase in resident visas being issued in Dubai.”
Beg’s company is set to launch a project at Dubai Sports City, which will create another 750 units. More importantly, completion is scheduled for 24 months from the start of construction - serving as a hook to attract potential buyers.
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