Affordable housing quotas for Dubai developers long overdue, says Cluttons

Local🕔 8 March 2015

Dubai, 8 March 2015: The proposal by Dubai Municipality to introduce mandatory affordable housing quotas for all new residential developments in Dubai is long overdue and is expected to bring a wide range of benefits to the emirate, while driving further maturity in the market, according to leading international real estate consultants, Cluttons.

With the residential market in Dubai now meandering through the second half of the current property cycle and with values stabilising following the tremendous growth recorded in 2013 and the first half of 2014, the timing for the introduction of such legislation is ideal.

Steven Morgan, CEO of Cluttons Middle East commented: “The issue of affordability has been one that has been quietly bubbling away in the background for some time. With the introduction of the Federal Mortgage caps and the doubling of property registration fees, we saw genuine end users in the market forced into a holding pattern as they attempted to make the transition from rented accommodation to owner occupation. The surging rents, driven by the exceptionally strong underlying demand, which was linked to the robust economic growth, meant that household finances were coming under tremendous pressure on several fronts.

“Now of course, with rents starting to show greater stability, households have a window of opportunity to consolidate their finances and make that leap to owner occupation. The prospect of those on monthly incomes of between AED 4,000 and AED 12,000 being able to control their rental outgoings will no doubt go some way to aiding the speed at which deposits can be amassed. It is important to remember that there is a huge pent up demand for affordable housing in the UAE and with rental affordability thresholds being breached in many cities, we welcome the news on this key issue.”

According to Cluttons, the idea of affordable housing is not a new concept and it has served cities such as London well, where developers are liable to provide affordable housing for developments starting with as little as ten units. In particular it has aided in the creation of diverse communities, while allowing people from all financial backgrounds to live alongside one another.

There have of course been exceptions to the rule, where developers have been permitted to build off-site affordable housing, with land costs being cited as the primary driver for this. Dubai stands to learn a valuable lesson from this as the authorities in London have often been criticised for effectively creating lower income neighbourhoods through this method.

Cluttons’ international research and business development manager, Faisal Durrani added, “Dubai is clearly not short of affordable neighbourhoods. Karama and Satwa are two key stand out areas that evolved organically at the edges of the Deira-Bur Dubai and Jumeirah districts, respectively. During the course of expansion of any city, affordable districts often tend to spring up on the fringes of the main commercial districts and this has been the case with Dubai as well. Karama and Satwa have over time been absorbed into the city, 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.

“In Singapore for instance, the Housing Development Board (HDB) owns and operates all public housing estates, which are in effect self-contained satellite towns that house four out of every five households. These HDB developments are meant to house the vast majority of Singaporeans in good quality homes, which can later be purchased by existing tenants. This does in effect create a two tiered residential market; one for the domestic buyers and one for more affluent and international buyer pool. It is perhaps not an ideal model for Dubai, but one that the authorities ought to look at given its success.”

Cluttons highlights that the affordable housing asset class is growing in significance to investors, due to the perceived ‘safe-investment’ badge it carries worldwide.

Durrani explained: “The introduction of this asset class in Dubai is likely to bring a surge in interest, especially if the affordable quotas are reasonably high; say in the region of 20% to 30% of the total number of units being built. The interest is likely to be highest from institutional funds, which should then pave the way for partnerships between local developers and large multinational funds, effectively catapulting the emirate’s real estate market to the next stage of its evolution”.

Local🕔 8 March 2015

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