Escalating home prices in Dubai’s affordable communities are making it even more difficult for residents to get on the property ladder, real estate experts have warned.
February data from property consultancy ValuStrat shows the highest annual growth in apartment values was recorded in the emirate’s more budget-friendly neighbourhoods.
Prices in Discovery Gardens and The Greens climbed around 30 percent – the highest increase for apartments in Dubai.
The rise is more than 7 percentage points higher than the average growth across the city and about 12 percentage points higher than the average for apartments.
Square foot rates in less central neighbourhoods such as Town Square and Dubai Production City also increased by about 23 percent.
Haider Tuaima, ValuStrat’s director of real estate research, told AGBI that apartment prices were making home ownership “unattainable” for most potential buyers.
With more than half the population earning about AED10,000 ($2,722) a month, the majority find a mortgage increasingly out of reach, he said. This is exacerbated by the high interest rate environment.
Only one-quarter of transactions involves mortgages, indicating a heavy reliance on cash savings.
The strain on affordability is being fuelled by a growing population, attractive golden visa incentives, the dominance of high-net-worth investors and a shortfall in the construction of reasonably priced units.
But John Lyons, managing director of Espace Real Estate, said the shortage would not be tackled without making mortgages more accessible with higher loan-to-value ratios.
Most banks in the UAE set a minimum salary threshold, excluding individuals who earn less than AED15,000 a month, he said.
Rizwan Sajan, founder and chairman of Danube Group, the parent company of Dubai-based real estate developer Danube Properties, said he expected no cooling in the market. He predicts a 20 to 30 percent rise in property prices for 2024, further complicating the affordability equation.
He attributed this increase to higher land costs.
“There’s definitely a shortage of good quality affordable homes,” Sajan said.
“By good quality I mean without any smells and with a proper lobby and amenities.”
Suchit Odhrani, senior client manager at Betterhomes, one of the largest real estate agencies in Dubai, said increased land prices in prime locations were pushing developers to build luxury projects that will sell at higher prices, sidelining affordable housing.
A 2023 report from consultancy Knight Frank found Dubai’s housing prices rose more than 19 percent last year, making it the fourth-highest climber in the world after Ankara, Istanbul and Warsaw.
However, Odhrani argues that affordable housing is still “readily available” in Dubai, contrasting this with other cities with large expatriate populations such as New York, London and Mumbai.
ValuStrat’s Tuaima said Dubai’s property market was caught between the threat of oversupply and the reality of project delays.
He estimates that about half of off-plan developments in Dubai are likely to undergo delays stretching from six to 18 months.
But this also acts as a temporary shield against any glut in supply.
Ziad El Chaar, CEO of Dar Global, said developers in Dubai were keen to prevent affordability challenges.
“It’s in the advantage of a market to slow down after a period of high growth,” he said.
“We all hope it slows down so we don’t reach a place where we have an affordability problem – and then have a much harsher slowdown instead.”
For a detailed perspective on the property market, visit: Dubai - VPI Residential Capital Values - March 2024
