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A lot has been written about the Dubai property market opening up to middle-income residents who earn at least Dh15,000 monthly, offering them a healthy opportunity to buy their own homes in the emirate. This has led to a new shift in buyer profile. It offers a strong platform for residents, particularly expatriates, to shift from renting to owning their homes at very competitive rates.
Credit for this transformation goes to all the different stakeholders in the industry. While regulatory agencies have set impactful measures to curb unhealthy speculation, the government has also been highlighting the need for the market to have affordable homes that meet the needs of the majority. Developers have responded with projects that fit the pockets of the middle income residents.
This is indeed a sign the Dubai property sector is maturing. Let us look at the historic trends. When the freehold era commenced in Dubai, there was an overwhelming demand from residents and overseas investors. But the higher price range meant that these projects appealed mostly to high-income investors. Over the years, strong regulatory measures were introduced that weeded out unhealthy speculation. Secondly, with the streamlining of mortgage finance, Dubai's property sector emerged stronger and came to be regarded as a safe investment haven.
However, the supply line continued to be in favour of luxury projects. Hamptons International estimates that approximately 10,000 new residential units will have entered the supply pipeline this year, taking the total number of housing supply to about 450,000 by the end of the year. However most of these units are still within the luxury bracket.
The market trend for luxury projects has been relatively static in the past months. There is no heavy spike in demand nor is there is a dramatic dip. This is because the investment decisions of high-net-worth individuals differ from those in the traditional market, mainly due to their ability to ride out short-term market fluctuations. They see long-term value in investing in Dubai, which is today regarded as a safe investment destination. They will continue to invest in Dubai, given the city's strong economic fundamentals and ongoing preparations for the World Expo 2020.
For the middle-income professionals and families, there is an opportunity to make a long-term investment with the launch of several affordable projects such as the ones launched by Nshama. The highly competitive price points offered by such developers appeal to professionals and families who want to own a home.
With a salary of Dh20,000 monthly, a middle-income professional can now pay a total mortgage of approximately Dh1 million with payments of just below Dh5,000 per month, based on current mortgage rates and regulations. For nearly a quarter of their income — a significant part of which already goes into paying rent — a small family can make a judicious investment. Based on feedback from our customers, we have observed that investor preference for affordable communities currently being developed is led by several factors, including the integrated community approach.
People thoroughly research the projects and they study the developer's reputation, project location, surrounding communities, access, public transport links, design, amenities, price and payment plans before making an investment decision. Developers are now assured of a bigger pool of end users or long-term investors, while customers have greater freedom and flexibility in their purchase decision. For finance providers, a mature market means less risk as they deal with serious, long term investors.
The benefits of a stronger, affordable property market are multiple. There will be strong influences on both retail and hospitality sectors as people will have greater disposable incomes. It will bring sustainable returns for the economy in addition to giving investors a sense of belonging to the city.
Today a large portion of the salaries of middle income professionals goes into rent, which ultimately does not help their financial wellbeing. But shifting to home ownership will mean that money spent on mortgage will turn into an asset as well.
The shift to affordable homes will also potentially influence rental patterns in the long run. While rents continue to hold firm in key locations, an increasing share of property ownership — particularly by the middle-income professionals — will influence rental patterns in due course. This will become more evident once the mid-income projects are delivered, with several of them expected to come online in the next two years. Several developers are looking at entering the affordable segment to reach a wider audience. But we believe this will not potentially lead to a supply glut. Today, the property market is clearly streamlined. Every developer, no matter the price range of its development, has to abide by all regulations, including the opening of escrow accounts and adhering to transfer fees. This has already deterred speculators from entering the fray.
Furthermore, Dubai's population growth, particularly among middle-income professionals, will continue to sustain the demand for affordable homes. While the new trend is positive, it is important that potential buyers do their research on the property market before making an investment decision. There is a great opportunity to own a home in Dubai that fits their budget. They must take advantage of it wisely and make an informed decision that will assure them of long-term returns.
Did you know beyond promises, Dubai brings tangible benefits
Source: Ranju Kapoor, Special to Property Weekly
The author is General Manager of Hamptons International, a real estate services company based in Dubai