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Almost half of households in the UAE are candidates for affordable housing, while the regional shortfall for such homes possibly runs into millions. These are the findings of a recently released report on affordable housing centred on the UAE, Egypt and Saudi Arabia by real estate and investment management firm JLL. The report is a follow-up to a wider eight-country report from 2011 that identified a shortage of 3.5 million affordable properties in the region.
Craig Plumb, Head of Research — Middle East and North Africa for JLL, says the report “was the first attempt by anyone to quantify if there was a housing shortfall for middle-income housing”. There were two primary questions to answer: what affordable means and which best practices will help to address the shortage of affordable housing, or middle income housing as JLL defines it.
“The problem has always been coming up with a definition of what is affordable,” says Plumb.
In the UAE, JLL defines affordable housing as properties with a rental price of around Dh78,000 a year or a sales price of around Dh850,000 for a two-bedroom unit. These properties mainly target middle-income households with salaries between Dh10,000 and Dh30,000 per month. There are around 820,000 households that fall into this category, or 40 per cent of the country’s total.
Plumb says monthly payments for affordable housing must not exceed 30 per cent of a household’s income.
More talk than action
There are four main reasons identified in the 2011 report about why affordable housing has traditionally fallen by the wayside: expensive land and infrastructure costs; a paucity of automation in the construction process; developers’ fixation with the luxury segment; and a lack of mortgage finance providers.
Plumb says some of these things have changed in the intervening years, making affordable housing more attractive for developers.
“Until 2008 you could sell as much luxury as you could build. Ever since the financial downturn the market has been much more limited, therefore, some developers realised [with] the oversupply of luxury products you’re better off coming down a notch or two. The dynamics of the market are now one of the reasons developers are looking at this segment.”
However, Plumb says while the UAE in particular has experienced a lot of hype around affordable housing, much has amounted to not more than lip service. Shortages persist primarily in Abu Dhabi and Dubai.
“There’s been a lot of talk about it, but there hasn’t been as much product delivered as perhaps we would have liked. The developers have realised there is a shortage and at some mark are trying to respond to that, but the actual amount of stock that has been delivered has not been that high.”
However, the latest report does not attempt to requantify the shortfall in the sector. “I don’t know whether [the 3.5 million shortfall in affordable housing has] gotten bigger or smaller.
“This time we haven’t addressed the issue of shortage, but [of what’s being done] about it.”
Plumb says the report identifies a UAE developer that is setting a standard in the sector. “One development that is a good example of a developer meeting that price bracket is Town Square by Nshama.”
In March Nshama, established last year, announced unprecedented prices in the sprawling community project, including Dh350,000 for a studio apartment and Dh700,000 for two-bedroom apartments. The developer has done two things to achieve the ambitious price points, says Plumb.
“One, they’re being very aggressive in their design and procurement [with] more automated buildings and only two or three shapes. It’s economies of scale.”
Plumb says contractors are willing to cut their margins to get the volume of business the development promises to yield. “And two, they’re more willing to develop the lower margins than other developers.”
Again, this is possible because of the scale of the development. “I think it looks really good. Quite a few people have bought in this development, and it’s [surprising] to me developers haven’t done this before. There’s a clear need in the market and I suspect we will see a lot more of this product.”
There has been speculation Nshama also got a good deal on the price of land, one of the major barriers to affordable housing that JLL’s 2011 report identified.
Plumb says there are signs the government is committed to supporting affordable housing projects. “An established, recognised means of delivering cheaper housing is for the government to provide the land at some form of subsidised rate,” he says, noting that such schemes are being implemented in countries such as Turkey.
While Plumb applauds the Dubai Municipality’s earlier proposal to impose a mandatory quota for affordable housing on residential developments, he sounds a note of caution. “If not controlled properly, [it] could [create a] negative [impact on] the affordable housing sector. So I think there needs to be some intervention in the market to ensure there is sufficient supply of affordable housing.”
To make such a scheme work, there needs to be a regulation in place that is properly enforced, which is likely to be met with initial resistance from developers used to the flexibility of the market, an important cornerstone of Dubai’s lucrative property sector.
“It’s a good initiative from the municipality to be trying to do this. While I wish them well, I can see it’s going to be an uphill battle.”
But market forces combined with effective governance will see the steady rise of middle-income offerings, in Dubai at least, he says.
“Partly it’s [caused by] an oversupply in the luxury sectors, so it makes more commercial sense to do a threestar product. And partly it is government pressure and a genuine recognition that there is a real need. If [middle-income households] aren’t provided with housing, it makes the place less attractive.”
Plumb says the homeowner- tenant ratio of middle- income families is estimated to be about 30:70. A successful affordable housing drive could reverse the ratio in the future.
“There is a general recognition of a shortage [in affordable housing], and we should be encouraging more people to address the problem in the future.”
Source: Amanda Fisher, Special to PW