Affordability tag creates confusion

Affordability tag creates confusionImage Credit: Supplied

Investors and homebuyers in Dubai continue to take advantage of competitive off-plan prices that are up to 30 per cent lower than completed secondary stock, sustaining the upward momentum of off plan property sales, according to a recent report by real estate consultancy Cluttons.

''We've seen the popularity of off-plan property sales persist, partly fuelled by the fact that off-plan residential property prices are often 20-30 per cent lower than completed secondary stock, which in essence might allow buyers to bypass some of the stringent lending criteria and also possibly avoid the need for a mortgage altogether,'' said Steven Morgan, CEO of Cluttons Middle East.

However, despite competitive prices and an ongoing push towards more reasonably priced homes, the issue of affordability and accessibility remain a big challenge in the market.

''Several developers have brought schemes to the market that they present as being affordable, but true affordable housing remains a vastly underserved segment of the market,'' said Faisal Durrani, Head of Research at Cluttons. ''The authorities need to formalize the definition of affordable housing, in terms of those who could qualify and the type of housing that needs to be created, otherwise there is a real danger that the term affordable will be permanently diluted.''

According to analysis carried out by Cluttons on the UAE Ministry of Economy's 2008 Household Income Survey, average annual expat incomes in the UAE stand at around Dh199,000. Average residential rents in Dubai's freehold areas at the end of the third quarter stood at Dh181,000 per year, revealing the disparity between incomes and housing cost.

Furthermore, the Cluttons report revealed that average mortgage multipliers in the region are around three to four times the average income. ''In the UAE this is approximately Dh600,000 to Dh800,000, which would typically buy a studio or one-bedroom apartment in peripheral submarkets such as International City, IMPZ, Dubailand or Dubai Silicon Oasis, leaving many people little option but to continue renting,'' said Durrani. ''The rent-to-own model has been successful in the past and has the added advantage of helping developers build an income generating portfolio that could potentially be traded as investment grade stock. Such tenanted asset sales are common in the city's commercial market, but we are yet to see this in the Dubai's residential market.''

Rents, however, have stabilised, with no growth in the third quarter. Average rents in freehold areas are 3.2 per cent down on the same time last year, with the biggest declines recorded by low-end three-bedroom villas in the Springs, Jumeirah Village, Al Reem, Falcon City and The Villa, where rents slipped by nearly 6 per cent between January and September.

The report also noted that the Dubai Real Estate Regulatory Agency's rent calculator, which will now be updated annually, shows signs of being out of sync with market reality.

''It has served as a useful barometer for tenants and landlords since 2009, but the increasingly complex nature of Dubai's residential market suggest the city may need to find an alternative to maintain transparency and investment volumes into the buy to-let sector,'' said Durrani.

Have a look at the affordability gap for Dubai's tenants

Source: Property WeeklyPW


For Rent


View more properties

For Sale


View more properties