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According to a report in 2015 by global property consultant JLL, demand for middle-income housing accounts for about 40 per cent of households in Dubai. The potential of this segment has been recognised for some time and there have been efforts by private developers to supply more affordable housing.
However, market speculation and onward sales in the secondary market have led to the prices of proposed middle-income housing projects being propelled to levels that are beyond the household expenditure bud get of the targeted market. It therefore becomes important to further explore the obstacles and constraints facing the lower middle-income segment, the government and private developers in Dubai so that a solution can be found.
Given that urban, centrally located sites in Dubai are already limited, one of the most significant constraints on the delivery of more affordable housing is the rising cost of suitable land. If private developers are being pressured to build middle-income housing without subsidies from the government, then it follows that they will seek to construct in areas where the cost of the land is least expensive for them, and these sites will naturally tend to be in Dubai’s mostly desert suburbs.
This further gives rise to the challenges of ensuring that such middle-income housing, if and where constructed, has access to advanced infrastructure. On the one hand, improvements on roads, water and sewerage in suburban areas equate to an increase in overall cost for the developer. On the other hand, a lack of advanced infrastructure jeopardises the retention of employees and their families, who will continue to commute from neighbouring emirates if middle-income housing in Dubai is unable to offer vital facilities.
The supply of affordable housing therefore needs to involve an element of government intervention. It has been widely suggested that the Dubai government should be encouraged to consider partnerships with private developers, whereby subsidised land could be provided to local developers, creating an incentive to construct middle-income housing, which is otherwise marred by the aforementioned financial constraints.
It has also been suggested, and indeed proposed by the Dubai Municipality in 2015, that private developers should consider allocating 15 per cent to 20 per cent of their new residential projects towards middle-income housing. Whilst the move has been welcomed as a step towards the Dubai government and private developers reconsidering their business models, the proposal is constrained by the unwillingness of private developers to essentially “compromise” on the quality of their projects - the ones that may have otherwise been a high-end luxury development, as opposed to a middle-income housing development. Furthermore, it must be taken into account that private developers are profit-oriented businesses, which are ultimately answerable to shareholders, who in turn will prefer to support high-margin and often more profitable luxury projects.
Another way forward is for the Dubai government to consider master planning a middle-income housing development, as opposed to allocating a portion of a project to middle-income housing. This has seen success with projects such as Discovery Gardens and International City. Alternatively, the government could consider redeveloping older areas of Dubai, which are serving as housing for lower middle-income families, such as Deira, Bur Dubai and Karama.
Dubai Municipality could assist developers in this regard by amalgamating sites in older areas in order to redevelop the area into a middle-income housing development and release it for freehold land ownership. This would, of course, separately give rise to the challenge of tackling the heavy concentration of existing buildings and the divided nature of the ownership of land in these older areas of the city.
Even if there are other areas designated for freehold land ownership, an obstacle preventing a middle-income family from seeking to purchase property in Dubai is the registration fee required to be paid to the Dubai Land Department in order to reg ister the purchaser’s interest in the property. The registration fee has increased two-fold in recent years and is currently assessed at 4 per cent of the property value, an amount which would no doubt fall beyond the means of a lower middle-income family. Equally, developers are required to pay this registration fee when seeking to register their interest in the plot of land, which is to be developed.
A straightforward solution could be for the Dubai government to consider reducing or possibly waiving the payment of the registration fee for developers and purchasers of a middle-income housing development.
Legitimate concerns about the efforts being made to address the demand for quality middle-income housing in Dubai are getting louder. However, there needs to be a general understanding that any effort to supply affordable housing does face obstacles, such as the high cost of land, lack of infrastructure, the need for some sort of government intervention, the preference of private developers for higher margin projects, challenges of redevelopment, and the financial drawbacks of purchasing a property.
Whilst possible ways forward have been identified and considered, the facilitation of these potential solutions will no doubt require stakeholder involvement across the board. However, the government would certainly be a driving force; for example, a requirement for a fixed portion of new residential projects to be allocated to middle-income housing or a proposal for master planning a middle-income housing development are likely only to be effective by way of decree.
At the same time, even where the issue of middle-income housing is legislated upon, the existing contractual frameworks and mechanisms utilised in sale and purchase and leasing documentation by developers would first need to be reevaluated and revised, before we can expect the direction of any legislation to effectively be implemented.
Hence, it is clear that unless greater effort is made towards fostering partnerships between potential buyer, developer and the Dubai government, the shortage of quality middle-income housing in Dubai will continue to rise.
Source: Philip Corfield Smith and Nayab Aziz, Special to Property Weekly
The authors are associates of international law firm Pinsent Masons.