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After years of discussion and rental hikes outpacing wage increases, Dubai looks poised to get serious about affordable housing — and it could have far reaching consequences for its people.
Following Dubai Municipality's proposal to the Executive Council to implement an affordable housing quota on developments, Assistant Director-General of Planning and Engineering Abdullah Rafia says the time is right given the city's rapid growth, traffic and congestion issues.
''The city at the moment feels like it's larger than it is because of all the vehicle movement,'' he says. ''It is [not just] people commuting from outside but even within Dubai. What matters is mobility — immobile cities kill themselves.''
Rafia says too many people live in one corner of Dubai and commute across town, as there is not enough housing for all brackets in all areas of the city. ''Developers only look at the financial side of things. What happens [as a result] is usually upper end housing.''
The proposal, which Rafia expects back from the council in the next few months, would mandate developers to allocate one-fifth of their developments to affordable housing, which would then be set aside for people earning between Dh4,000 and Dh12,000 a month. While it is for the Executive Council to decide, Rafia says he would like the proposal to become mandatory for government or semi-government developers and optional for private developers.
''We're thinking of introducing this in a gradual way... [For] plans [that are] already set, we will not alter them much. We want the backing of the private sector.''
Since the plan was announced last month, Rafia says there has been much interest from overseas low cost building developers. The government has also identified three areas in Dubai — Muhaisnah Fourth, Al Quoz Third and Al Quoz Fourth — where about 50,000 low-cost units could be built ''as soon as possible'' for people earning between Dh3,000 and Dh10,000 a month.
Faisal Durrani, International Research and Business Development Manager of property consultant Cluttons, says there is a pent-up demand for affordable housing options in Dubai. ''It is something that has been discussed during previous property cycles, but this is the first time we've seen it being given serious consideration by the government,'' he says.
Cluttons has compiled figures using International Monetary Fund estimates, which show that salaries in the UAE have probably risen by less than 1.5 per cent a year on average since 2008.
Meanwhile, a report from commercial property advisers CBRE last year showed that rents had been growing in Dubai by about 20 per cent each year.
Cluttons estimates the average salary for expatriates in the country this year to be around Dh16,600 per month or Dh199,200 for the year. ''If you compare it to average rents in the city, you'll see people committing a large proportion of their income towards rent,'' says Durrani.
Last year, average rental costs in Dubai were reported to be hovering at about Dh66,000 for a studio, Dh106,000 for a one-bedroom apartment and Dh172,000 for a two-bedroom unit. Durrani says most people are spending more than one-third of their income on rent, which is significant. ''It's quite clear salaries have not kept pace with the level of house prices and rental increases and highlights the fact that there's a huge demand for affordable housing.''
The policy's timing is good given the property market's stability ''at the top end of the second property cycle'', and considering freehold ownership was only introduced in 2002.
''The introduction of affordable housing as an asset class boosts the appeal of real estate for global investors and it will also pave the way for institutional funds to enter the market.''
Benefits for developers
While residential property sales are buoyant, rental demand will stay high, says Durrani, as the introduction of stiffer mortgage caps and the doubling of the registration fee is pushing home ownership out of reach.
For seasoned developers, the benefit of creating affordable housing would be twofold. ''For developers such as Emaar and Nakheel, given demand for rented accommodation is still high, it's probably a good thing to do and it also helps diversify their asset portfolios, because everything that's built at the moment is sold,'' says Durrani.
The announcement by developer Nshama of three bedroom villas for under Dh1 million in its newly announced Town Square development, which is aimed at the middle-income sector, has created a buzz in an industry typically set on luxury. ''One of the things that makes Dubai different from more global markets such as New York or London is the fact that the diversity of offering in the residential market seems to be skewed towards luxury,'' says Durrani.
With the majority of developers crowding into the luxury development segment, has the market reached saturation? ''There will always be demand for the luxury high-end market. Regionally, people view Dubai as a safe haven and globally it's an interesting market for investors who are looking to diversify their portfolios,'' he says.
This creates affordability issues that ensure much of the domestic demand is concentrated in the rental market. ''It does make sense for developers to tap into mid priced or affordable housing options... it's not surprising we're seeing developers such as Nshama coming out with more affordable schemes,'' says Durrani.
''This is creating ready development that's just at a different price point. The municipality is trying to encourage developers to include affordable housing in each scheme.''
The advantages of affordable housing do not stop with end users and developers, he adds. ''There are tremendous economic benefits [as well].''
These are in the form of efficiency and decongestion of roads as people spend more time on other things than on long commutes that are de rigueur for many segments of Dubai's workforce.
''You see people moving between Dubai and Sharjah or Abu Dhabi, taking advantage of wherever rent is cheapest... people get out-priced from Sharjah and move even further north,'' says Durrani.
''To create a sustainable society, you can't put individuals in a place where they're being forced further away from their workplace.''
While cities such as New York and London have had a head start as global cities, Durrani says there's no reason Dubai can't catch up.
''In order to create world class societies you need to have accommodation available to people in every salary bracket, and at the moment that's an area that needs some attention.'' Durrani also cites figures from Dubai's Roads and Transport Authority that show car crashes are costing the economy Dh1.8 billion each year. ''That's a tremendous shame given that we have such advanced road infrastructure, among the best in the world.''
The proposed affordable housing quota will also boost the city's attractiveness to a highly skilled expatriate workforce, to whom the UAE owes much of its success. ''If we're talking about incomes in the region of Dh15,000 or Dh16,000 a month, you need affordable housing for the country to remain competitive on a global level.''
Cluttons has warned that Dubai should heed the valuable lessons learned from other affordable housing experiments around the world. For example, London authorities have been blamed for creating clusters of lower income neighbourhoods in various parts of the city.
''During the course of expansion of any city, affordable districts often tend to spring up on the fringes of the main commercial districts,'' Durrani says. ''But we would strongly argue against deliberately creating affordable areas through the sanctioning of off-site affordable housing provisions as there are social implications to consider alongside the impact it can have on the urban fabric of a city.''
It could be difficult to avoid adding to the certain amount of ghettoisation that already exists within areas of the city, says Durrani. Many of Dubai's suburbs, such as Deira or Dubai Marina, can be characterised by residential areas that tend to be of a homogenous type and price range.
''It's hard to move away from this segregation that already exists in the city's landscape... [but] over time that's likely to change.''
Creating public transport links up and down the city is one way to do this. It's important that people believe that all parts of the city are accessible by everybody, regardless of how much they earn or where they live. Durrani says it could also be tough to ensure affordable housing stays affordable, especially when many investors are in pursuit of high returns.
It will take strong government collaboration with responsible developers to ensure the vision of an ideal city plays out.
''It's just a question of creating property at different price points in every area and then also making sure it's close for people to get to their areas of work,'' Durrani says. ''It's a big challenge, but I don't think it's something that's insurmountable. It can be achieved.''
Source: Amanda Fisher, Special to Property Weekly