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Dubai is known for its dynamic skyline and its expatriate population. But is it truly financially viable to live here? Maysa Sabah Shocair, GCC Managing Director of Affordable Housing Institute (AHI), a Boston-based consulting company that develops sustainable housing financial ecosystems worldwide, explains the situation.
- Tell us about AHI's projects in the region?
In the GCC, we have worked for the Mohammed Bin Rashid Housing Establishment, with whom we have a long-term association agreement, as well as with a government entity in Abu Dhabi, the Saudi Real Estate Development Fund and a Saudi-based family conglomerate.
From laying out long term business strategies and structuring public-private partnerships to designing housing programmes, assessing the market demand and supply, and developing customer strategies, AHI offers a wide range of services in the GCC.
To give its best, AHI draws on its global experience — from having worked on projects across Latin America, Asia, Africa and North America.
When it comes to research and information sharing, we have been actively participating in regional conferences on affordable housing. For instance, as part of the annual Gulf Research Meeting at Cambridge University, we organised the inaugural Housing Markets and Policy Design in the Gulf Region workshop, along with Ernst & Young Middle East. The papers presented at the workshop were recently published as a book.
- What is the demand like for affordable housing in the UAE?
In Dubai and Abu Dhabi, the demand for affordable housing is mainly fuelled by investments, economic growth and new job opportunities for mid- to low income earners in large construction projects. The demand for such housing in the northern emirates is driven by the migration of residents from other emirates owing to rising rents, in addition to employment opportunities.
- What are the challenges and opportunities you face in this sector?
On the supply side, the main challenge in Dubai and Abu Dhabi is the shortage of affordable units. Most developers are catering to high-end buyers as they believe that returns are higher in this sector. Given the increasing demand for affordable housing, sale prices and rents for projects that were being touted as affordable have been increasing. That said, recent data in property markets indicate that prices and rents have been stabilising across the UAE.
On the demand side, mid to low-income earners do not have access to finance for housing because they cannot meet lenders' criteria and are, therefore, constrained to the rental market without any opportunities to benefit from home price appreciation.
However, since economic growth will continue to create demand for affordable housing and with some of these constructs already delivering higher yields than high-end projects, developers must get creative to profit while meeting this need.
Strategies to consider include developing mixed income communities that benefit from cross subsidisation, building transit-oriented communities to mitigate the negative impact of affordable land in suburban locations, securing bulk off take commitments, increasing density, experimenting with new construction methods, and developing large communities to benefit from economies of scale.
- What should policymakers do to drive growth in the sector?
Policymakers must get the private sector more involved in delivering affordable housing by offering incentives, which include easing government processes, relaxing planning regulations and offering government concessionary packages to help reduce production-related costs.
Governments must also introduce inclusionary zoning to all residentially zoned land, which mandates that all residential projects must reserve a certain percentage of residential units as affordable housing, or inclusionary banking, which mandates that all banks must reserve a certain percentage of their business for affordable lending. These initiatives have proven successful in increasing the delivery of affordable housing in other countries.
Moreover, developments related to the Expo 2020 and future urban regeneration projects in central locations present opportunities for the public and private sectors to work together to weave much needed affordable housing into these prime land parcels.
We are confident that policymakers and stakeholders will address the shortage of affordable housing, given that an increasing number of developers are interested in the segment.
The government's recent announcements to address this issue such as Dubai Municipality's affordable housing policies, guidelines, and detailed land use plan in the upcoming phase of Dubai's Urban Master Plan and the expected Abu Dhabi rental index will better regulate the rental market in the emirate and pave the way for growth in the sector.
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Source: Chiranti Sengupta, Features Writer, Property Weekly