Lux­ury seg­ment top choice for in­vestors in Dubai; dearth of af­ford­able hous­ing op­tions

HT Estates - - HTESTATES - Ash­winder Raj Singh

Dubai has al­ways been an ex­cit­ing desti­na­tion for em­ploy­ment – for In­di­ans as well as the rest of t he world. The petrodol­lar en­sured t hat t he coun­try grew in leaps and bounds, and pro­vided ex­cel­lent em­ploy­ment and liv­ing con­di­tions. This ex­plains the swanky high-rises, glit­ter­ing malls and com­mer­cial cen­tres sprawl­ing all over the coun­try. In­vestors with deep pock­ets have shown mar­ket pref­er­ence to in­vest in res­i­den­tial projects cater­ing to the lux­ury seg­ment, thus prompt­ing de­vel­op­ers t o come up with projects that cater to af­flu­ent.

This re­sulted in a short­age of af­ford­able hous­ing for the ser­vice class which is liv­ing on rent and can­not af­ford to buy homes in Dubai. The av­er­age house­hold in­come of ser­vice class cit­i­zens is be­tween 10,000 and 30,000 UAE Dirham ($2,720$8,170). At this in­come, given the cost of liv­ing, they can af­ford to pay an­nual rentals of Dh72,000 ($19,600) and maybe to buy a prop­erty cost­ing around Dh800,000.

How­ever, as per the UAE mort­gage re gu­la­tions, a prospec­tive buyer needs to de­posit 25% of the prop­erty’s cost in ad­vance. If a prop­erty costs Dh800,000, the buyer needs to de­posit Dh200,000, which is not an easy amount for a nor­mal ci­ti­zen to raise im­me­di­ately. In the case of off-plan sales, the loan-to-value is 50% max­i­mum, which means that a bor­rower has to pay 50% us­ing his or her own re­sources in sav­ings, eq­ui­ties or other sources.

In ar­eas like Dubai Ma­rina and Dubai Down­town, a twobed­room apart­ment sells for ap­prox­i­mately Dh4 mil­lion.

Even though Dubai’s prop­erty prices and rentals have sta­bilised in the past year or so, they are still higher than two years ago and look set to rise again by 2017, ow­ing to Expo 2020 be­ing hosted by Dubai. Also, de­vel­op­ers are cur­rently not in­vest­ing in build­ing projects cater­ing to the middle-in­come seg­ment. As per the records till the 3rd quar­ter of 2015, out of the 19,500 projects launched in the coun­try, a mere 22% meet af­ford­able to middle-in­come hous­ing cri­te­ria, de­spite the sub­stan­tial de­mand in this seg­ment.

The pri­mary rea­son is the low mar­gins in this seg­ment, com­pared to the very high mar­gins in high- end prop­er­ties. Some big de­vel­op­ers in Dubai have as much as 50% gross mar­gins in their projects, thanks to govern­ment- pro­vided land banks and other tax ben­e­fits.

The so- called surge i n af­ford­able hous­ing projects de­vel­op­ment in the past yearand- a half is not mak­ing much of a dif­fer­ence, as th­ese are be­ing sold on free­hold ti­tle and mainly to in­vestors in bulk. This way, the prices of such prop­er­ties are sub­ject to mar­ket in­flu­ences and do not nec­es­sar­ily reach the tar­geted middle-in­come group.

This has re­sulted in more and more peo­ple mov­ing away from the cen­tre of the city for more the more af­ford­able homes on the fringes. How­ever, it has also led to an in­crease in rentals in th­ese ar­eas, as well as a longer com­mute for em­ploy­ees.

he fac­tor that has led to a higher de­mand and lower sup­ply of af­ford­able hous­ing in Dubai is non-com­pli­ance with the govern­ment’s reg­u­la­tions, one of which cat­e­gor­i­cally states that de­vel­op­ers build­ing high- end lux­ury projects should re­serve a cer­tain per­cent­age of the prop­erty for mid-hous­ing seg­ment. This rule has largely re­mained on pa­per only.

That said, reg­u­la­tors and de­vel­op­ers alike re­alise that the de­mand for af­ford­able hous­ing in Dubai is es­ca­lat­ing. This has re­sulted in a flex­i­ble pay­ment plan, which has met with some suc­cess. Un­der this plan, de­vel­op­ers ei­ther pro­vide fi­nance to buy­ers them­selves or en­sure that buy­ers pay a fixed monthly amount in­stead of a huge ini­tial lump sum.

The au­thor is CEO - Res­i­den­tial Ser­vices, JLL

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In ar­eas like Dubai Ma­rina and Dubai Down­town, a two-bed­room apart­ment sells for ap­prox­i­mately Dh4 mil­lion

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