Salary Dh15,000: 'Affordable' housing within your budget?

Pay only Dh5,000 per month and own your apartment in Dubai!

Such property-sale pitches look appealing, but are these houses really ‘affordable’ for residents who earn Dh15,000, or less, per month in the UAE?

Take for example John Garcia (named changed). He has been living in Dubai for the past six years and works as an accountant with a monthly salary of Dh15,500. Though 'one day' he hopes to buy a house here, his (monthly) savings are not enough to fulfill his dream.

On a monthly basis, he pays Dh4,000 in rent for his one-bedroom apartment in Sharjah; Dh3,500 in school fees for his two children and about Dh5,000 on groceries, etc. His savings - just Dh3,000.

“I live pay cheque-to-pay cheque,” he says, admitting, owing a property in the emirate really seems difficult.

The only option, he thinks, could help achieve his dream is the ‘rent-to-own’ scheme, provided developers stick to ‘affordable’ prices.

Cases have been reported previously with financial institutions seeking a far higher price than the existing market price (2009-2010 when prices had dropped significantly), leaving renters as ‘renters’ and not converting them into unit owners.

“I hope someone will offer us ‘affordable’ units with the rent-to-own option, thereby using our rent as down payment,” Garcia adds.

Real estate experts agree that flexible payment plans are playing a major role in attracting middle-income earners to the property market, but challenges still persist.

‘Big’ deposits needed

Erik Volkers, Senior Consultant, Research, CBRE Middle East, admits there has been a surge in the number of ‘affordable’ developments launched over the past 18 months, but most of these developments fail to address the actual affordability issue as they are sold on freehold title, mainly to investors, often in bulk, and are open to the influence of market speculation and volatility.

Erik Volkers, Senior Consultant, Research, CBRE Middle East

For the mid-income UAE residents earning Dh15,000 to Dh25,000 (estimated 14 per cent of UAE population) it is quite a challenge to buy property in Dubai, he asserts.

CBRE has drawn the following conclusions, based on their research.

A UAE household earning Dh15,000 a month can afford a ready-to-buy property of Dh800,000 maximum, but needs to deposit Dh200,000 (25 per cent) as per the UAE mortgage regulations.

A UAE household earning Dh25,000 per month can afford a ready-to-buy property of Dh1.35 million maximum, but needs to deposit Dh335,000 (25 per cent)  as per the UAE mortgage regulations.

In the case of off-plan sales, the loan-to-value is 50 per cent maximum, requiring buyers to provide a 50 per cent deposit using savings/equity/other sources.

“The key driver for the residential off-plan market is currently the availability of flexible payment plans, which have become an increasingly important consideration in the wider investment decision, and in some cases appears to be outweighing the consideration for price per square foot,” says Volkers.

Fix monthly payments

Craig Plumb, Head of research for Mena region, JLL, echoes the same view, as he opines that flexible payment plans have become one of the key differentiators used by developers to attract middle-income households to purchase residential property in the UAE.

Craig Plumb, Head of research for Mena region, JLL

Based on JLL’s assumption that households allocate up to 30 per cent of their gross income on housing, a family earning Dh20,000 a month can afford to pay around Dh6,000 a month on either renting, or buying their unit. “For developers to attract this sector of the market, they need to ensure that monthly payments are fixed at this level.”

With many middle-income households finding it difficult to attract mortgage finance from banks, Plumb says, developers are seeking to fill the void in the market by offering finance themselves.

“Either way, the critical issue is to ensure access to affordable housing finance for middle income families,” he adds.

A report issued by JLL, earlier this month, reveals only 22 per cent of 19,500 residential units launched in 2015 to date in Dubai fall in the affordable to middle-income housing criteria.

Moreover, households earning between Dh10,000 and Dh30,000 per month are the main source of demand for middle-income housing, accounting for around 40 per cent of all households, which equates to 820,000 households across the country.

Expenses make the difference

Robin Teh, Country Manager, Chestertons UAE, views payment flexibility does ease financial burden on investors.

“For the mid-income residents, the flexibility of paying every month will be more beneficial than paying a lump sum, however, ease of payments for every family will differ as expenses for every family differs. But in general a small payment will be welcomed first than paying a lump sum amount.”

Robin Teh, Country Manager, Chestertons UAE

Considering the UAE is a very attractive real estate investment zone, which provides a good return on the investment, Teh says the need for developers to structure their payment plans to target a wider audience is becoming increasingly demanding in the market.

“Although in today’s market, developers have altered their payment structure to a great extent to provide payment flexibility to their customers, a payment plan extended 10 to 15 years post hand-over will not be healthy for the market and not financially feasible for the developer as well,” he mentions.

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