From exclusion to action: making housing affordable

From exclusion to action: making housing affordableImage Credit: Supplied

Affordable housing has become an important topic in the Middle East for both social and economic reasons. In the UAE, urban planners are cognizant of the importance of providing mixed housing options to avoid the segregation of lower-income groups and the formation of ghettos.

''Although people always think of luxury when they talk about the UAE, the majority of the population is from average, middle-income groups,'' points out Saeed Obaid Al Maktoum, Chairman of Dubai-based investment firm AJSM Investments, which has stakes in low and mid-range property developments such as Nakheel's Al Furjan and parts of Jumeirah Village Circle.

He says a growing number of real estate companies have committed to develop more multisectoral community projects.

''Affordable and comfortable housing options are crucial in maintaining a strong UAE economy and ensuring the cities remain popular among expats and locals,'' says Al Maktoum, pointing out that providing cheaper housing options will encourage people to stay in the UAE longer. Furthermore, he says that while affordable housing could result in reduced rents, investors could still enjoy good yields because of lower house prices.

During Dubai's pre-2008 real estate boom, the focus was more on higher-income homebuyers rather than middle and lower-income groups. Furthermore, the boom was also mainly driven by the private sector that lacked any incentive to provide housing for the low-income earners.

Affordable housing options were mainly in suburban clusters such as Nakheel's International City and Discovery Gardens, Dubai Properties' Al Khail Gate in Al Quoz, Wasl Properties' Samari Residences in Ras Al Khor and the Muhaisnah and Gusais communities.

Ideal rates

According to property experts, housing expense, whether rent or purchase, should ideally not exceed 30 per cent of a household's income. ''When running calculations on household incomes between Dh10,000 and Dh30,000—which is 40-60 per cent of the population in Dubai — one must be paying either Dh72,000 per year in rent or Dh700,000 as a sales price for a unit to be considered affordable,'' says Dana Salbak, Associate Partner at property consultancy Knight Frank.

''Some of the projects being marketed as affordable are meeting these price points. Over the past 18 months, there have been several announcements for affordable projects, which is good news for the market.''

The push for affordable housing started to gather pace after the 2008-09 downturn. In 20013, EY Mena presented a study, The growing crisis of affordable housing in Mena, and noted an ''increasingly marked imbalance between rising wealth creation on the one hand and delivery of new homes and desirable living environment on the other''. The study urged governments to address the issue quickly.

The Dubai Municipality, meanwhile, announced plans to encourage developers to build houses targeting households with incomes between Dh3,000 and Dh10,000 per month. In Abu Dhabi, affordable housing projects were aimed at households with an income of less than Dh6,000 per month, but not blue-collar workers who usually stay in company-provided labour accommodations.

Real estate consultancy Cluttons' Abu Dhabi Spring 2016 PropertyMarketOutlook states that ''the lower end of the spectrum'' for housing rents in Abu Dhabi, where rents are generally the highest in the UAE, is between Dh100,000 and Dh150,000 annually or Dh8,300-Dh12,500 per month.

''We expect areas perceived to be more affordable to continue to outperform the wider market,'' says Edward Carnegy, Head of Cluttons Abu Dhabi.

Answering the call

Other developers are now jumping on the affordable housing bandwagon. Danube Properties, a relatively new player in property development, has been targeting residents who can pay anything between Dh5,000 and Dh10,000 in monthly instalments, according to Rizwan Sajan, Founder and Chairman of Danube Group. Sobha Group says it will unveil a new affordable housing project in the coming months. P.N.C. Menon, Chairman of Sobha, says the project will comprise smaller apartment units priced from Dh1,000 per square foot.

MAG Property Development's MAG 5 Boulevard in Dubai South will offer houses with prices starting from under Dh400,000, while Wasl Properties, a unit of Wasl Asset Management, an investment arm of the Government of Dubai, says it has provided more than 7,000 affordable houses with its projects in Muhaisnah and Karama.

The question remains whether these initiatives are enough to satisfy the demand and whether all income brackets are sufficiently taken care of.

Maysa Sabah Shocair, GCC Managing Director at US-based Affordable Housing Institute, a global nonprofit consulting company focusing on housing issues, says Dubai alone will need up to 100,000 new affordable housing units by 2020. This is a manageable target, she says, compared with other Middle East and North African countries such as Saudi Arabia and Egypt, where the shortfall is much more substantial and exceeds one million units.


According to real estate firm CBRE, around 55,000 residences across all segments will be delivered next year. Less than 20 per cent are in the affordable bracket.

''Private developers can only develop affordable housing if their costs are minimised, otherwise it does not make sense for them financially,'' says Salbak. ''There needs to be more private-public partnerships, whereby the government provides the land and ensures economies of scale when it comes to building costs, while the developer proceeds with construction.

''The price of land is the largest determinant of how affordable a project can be, and unless the developer already owns the land, it's costly to acquire especially in Dubai where land prices are expensive and may be held for speculative purposes.''

She says infrastructure and amenities are equally important for any affordable housing development. ''Roads and public transport need to be created, especially when projects are being developed outside the city,'' says Salbak. ''This is particularly true in Dubai, where land prices are cheaper on the outskirts and a lot of the affordable housing is being built there. Road networks need to be ensured.''

In a study released in March, property services firm Core, a local associate of global real estate services provider Savills, notes that the term ''affordable housing'' is ''being used very loosely'' and new developments do not always clearly address the target groups.

Most of the projects currently under way cater largely to the middle-income segment, says David Godchaux, CEO of Core, leaving out the lower-income groups. The exorbitant land cost is the main hurdle, according to the Core report, which urged governments to step in and present incentives for developers to build affordable housing projects.

Reducing construction costs through cost-conscious designs and standardisations and using prefabrication construction methods or 3D printing techniques are other proposed solutions.

Finance options

Financing, meanwhile, should be made more accessible to lower-income groups. ''Finance options for the lower-income segment are currently limited as banks operate at an income threshold of Dh15,000 to Dh20,000 per month for granting mortgages, which again limits almost 20 per cent of the target population,'' says Godchaux, who adds that banks should provide mortgages for income levels as low as Dh10,000 per month for select properties, ''but only with strict eligibility criteria''.

Overall, public opinion suggests that affordable housing is still seen as a relatively new concept in the UAE. ''But the affordable segment should be considered a critical part of the future of Dubai's residential market [and for it] to perform well over time, because it requires social stability and mature domestic demand,'' according to Core study.

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Source: Arno Maierbrugger, Special to Property WeeklyPW


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