Bridging the affordability gap in Dubai realty

Bridging the affordability gap in Dubai realtyImage Credit: Supplied

Addressing the current shortage of affordable housing for middle-income families is one of the greatest challenges currently facing the real estate industry, not just in Dubai but across the Middle East region.

Research conducted by JLL in 2011 estimated this shortage at more than 3.5 million homes across the region and this gap may well have widened since that time. While there has certainly been increased awareness of the problem over the past five years, more needs to be done as only 20 per cent of all residential projects announced in the last 12 months are considered affordable to the 39 per cent of all households in the UAE earning between Dh10,000 and Dh30,000 per month.

Government agencies and developers have recognised the need to address this issue as the continued shortage of affordable housing poses both social and economic challenges to the ongoing competitiveness of the city. The Dubai Municipality announced its intention to introduce new regulations requiring developers to deliver a certain proportion of their units within pre-agreed price or rental ranges.

A similar initiative was implemented by the Abu Dhabi Urban Planning Council in 2010, but this has yet to deliver a significant number of new affordable units (defined as those with annual rentals of between Dh25,000 and Dh82,000). The success of the Dubai initiative will depend on its ability to learn lessons from the experience of Abu Dhabi and address developers' concerns about the impact of these affordable units on the overall viability and attractiveness of their new communities.

While there has been much discussion on affordable housing in the Dubai market in recent months, relatively few of the new residential projects launched in 2015 are actually affordable to middle-income families. Those that are affordable include Town Square by Nshama, Glitz 3 by Danube, Remram (Phase 2) by Dubai Properties Group and MAG 5.

The launch of these projects shows that developers are increasingly adjusting their business models to target this growing segment of the market and address the shortage of affordable middle-income housing.

While the details of each scheme vary, there are a number of common themes that have been applied to keep units affordable. These include creative means of accounting for the cost of the land, standardising unit types and designs to reduce construction costs, tight cost controls and tough negotiations with contractors, offering flexible payment terms for purchasers and acceptance of the fact that developer margins may have to be reduced from levels previously enjoyed in the Dubai market.

While these schemes only account for a small percentage of total projects launched recently, it is certainly encouraging to see greater attention is now being paid to this historically neglected sector of the residential market.

JLL will be releasing further research on the topic of middle-income housing at Cityscape Global Summit in Dubai on September 7. The outcome of this research is that despite recent moves in the right direction, there is a need to do far more to address the current shortage of affordable housing.

There are five areas where we would like to see further progress, the most important of which are measures to reduce land, infrastructure and development costs, and measures to extend housing finance to more middle-income families.

For these initiatives to succeed, more co-ordination will be required between government agencies and private developers, with neither group being able to address this problem in isolation.

Read more on Dubai realty awaiting return of Iranian buyers

Source: Alan Robertson, Special to

The writer is CEO, JLL MENA


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