Sales of affordable housing in Dubai declined over the past six years as a share of total transactions amid changing developers’ preferences and broader cost-of-living increases, industry professionals say.
Properties below AED1 million ($272,000) peaked at 46 percent of all residential deals in the emirate in the third quarter of 2018.
That figure has steadily dropped since, bottoming out at 29 percent in the third quarter of this year, data that the real estate company Fäm Properties shared with AGBI showed.
Meanwhile, sales of homes between AED1 million and AED3 million went from 39 percent of all transactions in Q3 2018 to 49 percent at the end of September.
There are a number of reasons for this, Fäm Properties’ chief executive, Firas Al Msaddi, says: “Many developers who have enjoyed success in the affordable housing sector have turned their attention to the upper market segments in order to expand, and boost their brand.”
Imran Sheikh, a partner at BlackOak Real Estate in Dubai, says developers have found they can achieve better returns by building mid-range or mid-high-end properties in increasingly prime areas. Danube and Binghatti are among the companies that have made the shift, he says.
In January Danube launched a 101-storey tower in Business Bay, where studios would start at AED1.2 million. By the end of September, 80 percent of units in the still-under-construction Bayz101 high-rise had been sold.
Binghatti has embraced the branded residence trend, and its million-dollar prices, through partnerships with the high-end car manufacturers Bugatti and Mercedes-Benz and the watchmaker Jacob&Co.
Surging land prices and the limited resources of lower-income residents have also played a role.
“Even though, in some cases, mortgages are cheaper than rent, many in this segment struggle to qualify for mortgages due to their financial circumstances,” Sheikh says.
The rising cost of the emirate’s increasingly scarce undeveloped plots has hit consumers through higher property prices.
Fäm Properties’ Firas Al Msaddi says: “For instance, land in the Dubai Canal area that was previously selling for AED400 per sq ft is now up to AED2,000 per sq ft,. Landowners raised their prices when they saw that developers were shifting from mid-market property to high-end and branded residences.”
Al Msaddi says this is common throughout Dubai and also affects smaller villa plots in previously affordable areas such as Jumeirah Village Circle, Al Furjan and Maritime City.
An influx of wealthy new expats exacerbates the problem by creating a growing audience for higher-end development. ValuStrat found that in August this year the average price for residential real estate in Dubai was at a record high of AED1,490 per sq ft, while the average size of homes sold was at a record low of 1,450 sq ft.
“The working class in Dubai is not being pushed out primarily due to a lack of affordable housing, but rather because of the broader rising cost of living,” says BlackOak’s Sheikh.
In an interview with AGBI, Emirati lawyer Habib Al Mulla agreed that “ridiculously, ridiculously high” school fees and government levies, and landlords’ ability to charge outsized rent increases, are prompting some people to leave.
“It's very difficult to bring them back again,” Al Mulla said. “It’s not enough to say we are attracting millionaires. That’s one class. But we also need to maintain the middle class.”
Not all is lost, however, at least on the real estate front.
Some developers continue to focus on building accessible properties in new areas of Dubai, such as Dubailand, Al Yufrah 1, Dubai Investments Park, Jebel Ali Industrial Area and Dubai South, according to sources.
“Together this should lead to many more affordable housing projects,” says Al Msaddi.
Dubai authorities are expected to address the issue of affordable housing as part of their new Real Estate Strategy 2033, unveiled earlier this month.
For a detailed perspective on the property market, visit: Dubai - VPI Residential Capital Values - September 2024
