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This year has seen bold moves by many developers who are convinced that small sized projects are more or less recession-proof and can be fully funded by equity. These projects generally require low maintenance cost as they can use natural light, need lower air-conditioning and fire-fighting specifications, don't have elaborate façades and do not often require basement parking.
Not only does a smaller scale project cost significantly less over its lifespan, it is also environment-friendly and sustainable, according to Sun and Sand Developers (SASD), which is planning a residential project for lower income segments.
An imminent need to create quality, affordable homes has been rising in the GCC, especially in the UAE, as economies shift from a resource-based to an information-and services-based model, leading to large-scale job creation.
The rent increases witnessed in the UAE early this year also led many to move to the northern emirates, pushing up prices in those markets and exerting pressure on the housing stock.
''A constantly swelling population on the back of robust economic and business activity will inevitably place pressure on the residential stock and this will be particularly acute at the lower, more affordable end of the property spectrum,'' says Faisal Durrani, International Research and Business Development Manager at Cluttons.
John Stevens, Managing Director of Asteco, adds: ''Budget-sensitive residents will look at outlying communities as they search for more affordable housing options, but this is also pushing up prices in communities such as International City in Dubai, which recorded the second-highest year-on-year annual growth in the third quarter at 40 per cent.''
According to Stevens, budget-conscious investors are shifting interest to less-established communities along Shaikh Mohammad Bin Zayed Road, such as Jumeirah Village, Dubai Sports City and Dubai Silicon Oasis (DSO).
In Abu Dhabi, Aldar Properties launched two off-plan projects in the second quarter — Al Hadeel in Al Raha Beach and Ansam on Yas Island. All 223 Al Hadeel apartments and town houses have been sold. Apartment prices range from Dh1,350 to Dh1,450 per square foot.
Approximately 300 out of 540 units were sold off-plan at the Ansam launch, with sales prices between Dh1,450 and Dh1,550 per square foot.
The growth of low-end and mid-end apartment developments, such as Reef Downtown, has been stable in the past two quarters.
While the northern emirates have had relatively low occupancy rates, increasing residential property prices in Dubai and Sharjah have led many tenants to consider locations further north such as Ras Al Khaimah.
The overall positive market sentiment at the start of the year has seen the revival of a number of stalled residential projects and the launch of several new projects in the northern emirates, says Stevens.
The surge in the development pipeline is a positive reflection of the UAE's long term real estate prospects.
''We are seeing investor confidence return as the country pushes ahead with the next wave of infrastructure projects that will create opportunities to build new communities, supported by the requisite facilities and services long-term residents would expect,'' says Stevens.
However, as pressure on rates was witnessed in Dubai in the third quarter, Steven notes that the rental rates in the northern emirates could be reaching their peak, as the number of relocations is reducing, leading to a stabilization of demand and a potential reduction of prices in the medium term.
''There is no doubt the rapid rate of increase in house prices and rental values across the UAE over the past 18 months has been significantly higher than the growth in average incomes, which has undoubtedly put household finances under tremendous strain,'' says Durrani. ''With the services sector growing at a rate not seen since the 2007-08 boom, there has never been a greater need for more affordable accommodation options.
Durrani says there is a growing requirement for affordable housing across the UAE, not just for the workers in the services sector, but also for middle-income households. This is also the case across the GCC.
''The recent doubling of property registration fees in Dubai and the implementation of the federal mortgage caps have meant that affordability is once more a central issue for homebuyers, with many being left with no choice but to rent for longer before making the transition to owner-occupation,'' says Durrani. ''Greater access to affordable housing would go some way to alleviating this.''
It should be noted that the last official household income survey in the UAE was carried out in 2009, when average monthly income was found to be around Dh18,250.
According to Durrani, there is a very fine line between operating a free market and heavy-handed regulation. Creating, sustaining and fostering what is perceived to be reasonable house price growth and rent increases is a difficult challenge. The latter is one that both governments of Dubai and Abu Dhabi have attempted to address.
''Dubai, for instance, has its rental index slab system that is evolving and improving with time,'' says Durrani. ''This is also something that the government of Abu Dhabi is working on following the removal of its 5 per cent rent cap.''
Rent to own
To create more affordable housing, developers should be encouraged and given incentives to build more of this asset class.
''In the UK, for example, residential schemes need to include provisions for on-site affordable homes,'' says Durrani. ''This could be a model for the UAE to adapt.''
Durrani says a scheme that was previously used by developers during the first few years after the market was opened up to international buyers was the rent to-own scheme. The scheme encouraged and assisted mid-income households to buy their own homes.
''The scheme was quite successful and probably one that developers should be encouraged to revisit and reintroduce,'' says Durrani. ''Of course, there are barriers, chiefly project financing.''
He says a happy medium could be where a certain proportion of units in all new schemes are classed as rent to-own, which could go some way into injecting more accessible and affordable stock into a market that would greatly benefit from an increased focus on this area.
Developers across the UAE appear to concur and are coming up with innovative solutions to cater to the needs of the mid-segment.
''With the creation of new jobs across all sectors due to Dubai's investor-friendly policies and the emirate being one of the safest and most promising cities to do business in, there is definitely a huge opportunity for affordable housing,'' says Rizwan Sajan, Founder and Chairman of Danube Group. ''Following the UAE's historic win to host the World Expo 2020 in Dubai, the real estate sector has clearly rebounded with investors returning to the market in large scale.
''With property prices returning to a level that is ideal for both developers and investors, we feel the time is very appropriate for the launch of new projects.''
Other developers share the same sentiment, particularly when it comes to affordable housing.
''There is demand for affordable housing in the UAE,'' says Raymond Khouzami, CEO of real estate development firm Al Thuriah. ''We are currently focusing on plugging that gap with all the perks of affordable, yet high-end projects.''
Affordable communities need robust physical and social infrastructure to become self-sufficient and sustainable, says Sailesh Israni, Managing Director of SASD. He claims the methodology his company uses to determine the affordability index, development size, unit size and target market was tried and tested during the downturn.
''It is our vision to create affordable housing in Dubai, targeting families with monthly disposable income of Dh10,000 to Dh15,000,'' says Israni. ''We consider the end user always before designing a project. We take the definition of affordability to a broader spectrum.
''There must be affordability across all segments that we are catering to.''
Trying to leverage its strength as UAE's largest building materials supplier, Danube has forayed into the real estate market with the recent launch of Danube Properties, a wholly-owned subsidiary of the group.
Dreamz by Danube and the soon-to-be-launched Glitz Residence by Danube are its first developments.
''The launch of our projects has been done following a careful study of the needs of the UAE property market, where the combination of quality, affordability, developer's commitment and timely delivery is a rarity,'' says Sajan. ''Being in the building materials business, we can offer the best prices and that value will be offered to the customer.''
The Dh500-million Dreamz project comprises 171 three- and four-bedroom luxury town houses in Al Furjan, with prices starting from Dh2.5 million. With a built-up area between 2,500 and 3,000 square feet, the residences have their own gardens and water features.
Sajan says Dreamz offers a right balance between price expectations and ideal location, as it targets both end users and investors.
Glitz Residence, on the other hand, is similarly designed and is also aimed at the mid-market segment. The 300-apartment project, currently in the final stages of design, will be a mix of studios and one-, two- and three-bedroom apartments. Danube said the project will deliver exceptional features at reasonable prices.
SASD's upcoming project in DSO, Sunshine Residences, also adopts the same strategy of targeting the mid-income market through ''affordable luxury''. The residential tower will feature three-bedroom duplex apartments, with sizes starting from 2,500 sq ft and prices upwards of Dh2.2 million.
''Here we are looking at families earning Dh25,000 monthly,'' says Israni. ''We have a tie-up with a bank for end-user financing. We believe there must be affordability across all segments that we are catering to.''
SASD has also drawn up certain guidelines for the location of its future developments: connectivity with one or more metro stations, commercial area to constitute 30 per cent of the master development, of which at least 10 per cent is to be allocated for medical facilities, and last-mile connectivity from a metro station.
Gateway to Sharjah
Al Thuriah is also making a significant push towards this emerging segment with the Sahara Complex in Al Nahda, Sharjah, near the Dubai-Sharjah border. The developer claims the project is a promising investment for households with a monthly income of at least Dh20,000.
Being close to the border, the property can easily attract both buyers and tenants. The price per square foot starts at around Dh550.
The project is a network of residential high-rises that offer modern amenities, 24/7 security and round-the-clock maintenance. Sahara Towers 4 and 5 are expected to be complete and handed over by 2016 and 2017 respectively.
George Khouzami, Operations and Commercial Manager of Al Thuriah, says: ''We have created a home and not just an investment project. This is our family business and how people relate with Al Thuriah directly reflects on how they think of us.''
Khouzami contends that although his projects are at the high end of the market in Sharjah, compared to the UAE market ''we are currently in the mid-segment, offering all the perks and attributes of high-end property''.
''Customers get the best value for money,'' he says.
Renting in Dubai - what you need to know
Source: N.P. Krishna Kumar, Special to Property Weekly