Dubai holds the potential for affordable housing: developers

Affordable housing is the need of the hour in the emirate as developers seek government intervention for subsidised land, utilities and refinement of laws.

Emirates Business spoke to Amir Giga, Managing Director, Goldcrest Properties, Define Properties Chief Executive Tarek Kandil, Abuali Malik Shroff, Chairman of Sheffield Real Estate, and Behrouz Javaheri, Chairman, Saba Properties, who all agreed that Dubai holds the potential for affordable housing and they were ready to enter the sector.


How do you classify affordable housing? Do you plan to enter this segment?

Giga: Dubai lacks low-cost housing. The building boom gripping Dubai holds a plethora of offers for modern living, with prices to match. We have realised this at an early stage and that is why our portfolio of real estate developments has always been very diversified. While we were selling penthouses for Dh15 million in high-end developments of Dubai such as Jumeirah Lake Towers, we have also launched the freehold affordable homes in Ajman starting from Dh1,999 per month. Recently we have launched the Goldcrest Smart Towers, which is another complex of eight residential buildings. With this project we have launched the concept of affordable housing without compromising any of the luxury aspects available in the high-end properties of Dubai.

Kandil: As per the latest research by Colliers International, only 10 per cent of the country's workforce can afford to purchase a house. In principle, affordable housing is defined by the satisfaction of another 40 per cent of the residents in the UAE, including those who mostly reside in remote areas. We are planning for a diversification of our activities, by which we can satisfy different market segments and one of those segments will be the middle class earners. As the latest studies show that although there is an economic frailty, this segment is still demanding affordable housing in Dubai, especially rentals are continuously increasing and that monthly rentals are fairly close to the monthly installments in mortgage payments.

Shroff: Affordable housing can be classified as property in the range of approximately Dh950 to Dh1,200 per sq ft in Dubai. The rate can vary in different emirates. What is of significance is also the area where the property is being built or sought to be built. It is safe to say that we are already into affordable housing or catering into middle-income categories of the population through our presence in the International City. We are certainly keen to expand our presence in this sector because Dubai and the UAE as a whole need affordable housing to accommodate the rising class of professionals who may not be looking at the premium luxury-end.

Javaheri: Affordable housing could be categorised as homes with prices ranging from Dh200,000 to less than Dh500,000. This range of prices will allow the prospective buyers to acquire mortgages with monthly payments instead of taking homes on rent, thereby encouraging people to buy instead of taking on rent.

Does the UAE need affordable housing as cost of living increases?

Giga: Absolutely. The market is at a point where affordable housing is a huge requirement, and we are witness to it through the increase in demand we have seen over the past few months for our affordable developments.

Kandil: The cost of living is increasing but so is the income per capita. The UAE is currently ranked in the top 10 list of countries with the highest gross domestic product per capita. But as I mentioned the monthly rental costs are starting to equal the monthly installments in mortgages and it is just a matter of time before a large number of residents will realise that it is a better deal to own rather rent a house.

Shroff: Yes, UAE needs affordable housing as this segment of the housing is not available at the mass level. This is particularly true in a rising-rent scenario because we believe that the working class are looking at owning home with the intention of living and as a long-term investment. This will help them convert money, which would have otherwise gone into rent without return.

Javaheri: Absolutely. The bulk of the UAE labour force consists of lower middle class income people, who could not otherwise afford to buy most of the UAE properties, which target primarily the upper middle class income groups. If the UAE is to become a truly cosmopolitan environment with major business sectors operating efficiently and at high gear, then providing affordable housing to the major portion of its population would be mandatory. Because if the envisaged incentives for this group to sustain an appropriate and required level of population influx is eroded (due to the high cost of living), then the ensuing population imbalance may ultimately result in a detrimental labour shortage that will hinder future progress.

Are the returns more lucrative in this segment for developers?

Giga: The returns of course cannot be matched with the returns that developers have seen so far in markets such as Dubai. But they are consistent and as the returns in Dubai start to reduce due to the increase in the land prices and construction costs, very soon there will not be much variance in terms of return on investment.

Kandil: Developers and investors mainly direct their attention towards return on investments. Once the stabilisation of prices in the market takes place, the profit margin of the medium class citizen will still be attractive compared to the increasing end products, especially taking into consideration that construction requirements and costs relative to affordable housing are low and reasonably priced for the average middle class citizen. Therefore, even though the prices are dropping, the costs of construction are also dropping in parallel, which increases the margin of profitability.

Shroff: It could be more favourable as the cost of entry is very low and the returns could be higher in percentage terms. Plus there could be latent demand for this segment of housing since there are not many in this category available. The returns can also be better in terms of higher volume of sales in this category.

Javaheri: It may very well be since this sector covers a large portion of the population. It provides a bigger market size than the luxury properties. However, the key to success lies in the volume and not the pricing. Property developers will do fine if they take on large size projects with reasonable margins, as the competition in the luxury property sector has intensified and getting tougher each day.

Which emirates do you believe hold the potential for affordable housing?

Giga: Ajman offers buyers affordable housing options. In spite of the global financial crises, the UAE is registering impressive growth in all spheres of developmental activity. Rapid urbanisation and industrialization have triggered a population boom in the country that is expected to grow by seven per cent in 2009. According to a release by the UAE Ministry of Economy, the country's population, estimated at 4.48 million at the end of 2007, is projected to climb 6.12 per cent to 5.06 million by 2009. In addition, the per capita income of residents has more than doubled from Dh76,000 in 2006 to Dh162,000 in 2007, indicating a steep rise in personal incomes despite inflation. As real estate prices and rents soar in Dubai and neighbouring Abu Dhabi, Ajman with its moderately priced offerings is drawing considerable investor interest. The recently issued realty law legalising freehold ownership in the emirate has heightened buyer confidence in the market. Property prices in Ajman now average between Dh550 and Dh650 per sq ft as compared to Dh2,500 and Dh3,000 per sq ft in Dubai.

Kandil: Dubai is a demanding market, and in fact a large portion of the work force employed in Dubai resides in Sharjah, Ajman or remoter areas. So when affordable housing will be offered to them, they will prefer to own homes. Also it is important to mention the lack of residential units in Abu Dhabi both freehold and for rent, there is huge demand right now and it will need a few years to be able to meet the market requirements.

Shroff: Dubai holds the potential for affordable housing, as the infrastructure will be ready soon. Having said other emirates are also looking up with cheaper alternatives, Dubai being the business hub housing a large number of companies, the need for affordable housing would be more in Dubai since working professionals would ideally like to stay closer to the work place.

Javaheri: Obviously Abu Dhabi and Dubai as they represent the majority of UAE population and have the most business, working opportunities. And they need affordable housing more than other emirates.

Will it be easy for you to avail bank loans if you enter this segment?

Giga: So far end-user finance is not readily available in Ajman mainly because the developers are offering very attractive interest and free in-house schemes, which makes these projects affordable for everyone. We are however one of the first developers to get our projects approved for end-user finance from both local and international lending companies.

Kandil: Because of the fact that the government is supporting the banking sector, we started to witness flexibility in Dubai, for an example, RAK Bank recently announced that it was offering finance up to 95 per cent. This in turn will help a lot in bringing the confidence back in the market in general and in the real estate sector in particular.

Shroff: This is for the banks to take a call, particularly in tight money condition. But in our viewpoint, depending on the buyers criteria the banks should be more flexible to give small loans to salaried employees.

Javaheri: Since one of our main business objectives has always been to maintain a solid financial standing at all times, obtaining the bank loans to converge on new businesses such as this one should not be a difficult task. However as mentioned earlier, we have no plans at this time to enter this sector.

What kind of sops do you require from the government?

Giga: To support such developments, the government has to offer subsidised land, utilities and other facilities to developers so that all segments of the market can be covered.

Kandil: The government's role is pivotal in these circumstances. The government has already started to support the banking sector, but what would be ideal at this point is for the government to support master developers, to help them out, and they in turn, will support the serious developers within the emirates. In that respect, the government and authorities would need to refine and finetune the laws that govern the sector, to see how applicable they are given the new economic circumstances.

Shroff: Infrastructure implementation is the only support required so that we can construct and hand over as soon as possible.

Javaheri: For this sector to be successful, government involvement is of utmost importance in issues that require special handling. There must be specific rules and regulations implemented by the government to ensure that the affordable housing sector remains affordable at all times.

Otherwise, prices will quickly escalate to higher levels, and the housing will no longer be affordable for the people. For example, regulations for off-plan sales could prohibit selling the units until they are actually completed, and once they are completed, they should not be allowed to be re-sold more than once every two or four years; with further stipulations attached to prevent speculators and short-time investors to artificially inflate the prices for quick profits.

Government should implement rules that protect the potential end-users of the property in the long term, and curtail any elements that create artificial demand and buyers for this sector.

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