Affordable homes warning for Dubai private developers

Samana

• Housing supply still trying to catch up with demand
• Mid-market segment expected to boom this year
• ‘Direct government intervention is never healthy’, says developer

Private developers in Dubai must build enough affordable housing or the government may be forced to step in, a prominent business leader has warned.

Nasser al Shaikh, who served as director-general of Dubai’s Department of Finance until 2009 and held senior roles at real estate finance firm Amlak Finance and property developer Deyaar Development, said in an interview with Reuters that there is a risk Dubai will become too expensive for mid-income workers to live in.

“If private developers cannot provide that, then the government and GREs [government-related entities] could play a bigger role to do that and keep prices reasonable,” he said.

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Dubai’s real estate market continues to record strong growth, with the number of transactions in May up 76.6 percent year on year.

Average home prices rose 15.9 percent in the first five months of this year, and rental rates are up an average of 24.2 over the same period. But industry experts believe prices are still reasonable and that rises will subside once supply catches up with demand.

Richard Waind, group managing director at real estate brokerage Betterhomes, said that while Dubai’s luxury projects attract all the headlines, he believed there were still plenty of more affordable developments being built. He pointed to areas such as Dubai South, Jumeirah Village Circle and Silicon Oasis. 

“In terms of affordability, Dubai has not seen the double digit inflation that much of the world has experienced in recent years. However, rental costs have increased significantly from their very low Covid-era levels,” he said.

Faisal Durrani, head of Middle East research at property consultancy Knight Frank, pointed out that Dubai residential values remain around 15 percent below the last market peak of 2014. Average apartment rental rates are 13 percent cheaper than 2015, he added.

Durrani and his team said they are currently tracking 37,000 homes that have been launched but have yet to start construction. Some 94,000 homes are under construction and due to be delivered by the end of 2026.

He believes that Dubai developers have been slow to respond to rising demand and that at current construction levels supply is unlikely to catch up for at least another four years.

Ali Hussain Sajwani, managing director of Damac Properties, one of the largest private developers in Dubai, said in December that while recent focus has been on luxury, the mid-market section would come flourish in 2023.

“We now expect to see the mid-segment really boom,” he told AGBI.

Some developers are already following this trend.

Samana Developers last week launched the AED 510 million ($138.8 million) Skyros residential project in Arjan, and its CEO Imran Farooq said he believed the Dubai market as a whole was still “undervalued and underpriced”.

He said it would be a mistake for the government to dictate market dynamics.

“A direct government intervention is never healthy for any market. And so, the Dubai government is not making any intervention in the market to stop the growth of property prices.”

The UAE has seen an influx of more wealthy expats and last year 5,200 more high net worth individuals with wealth of more than $1 million (HNWIs) relocated to the Gulf state than left, according to the Henley Private Wealth Migration Report.

The study forecasts a net inflow of 4,500 HNWIs to the UAE in 2023, with many coming from India, the UK, Russia, Lebanon and Pakistan.

Knight Frank’s Durrani said that just over half of the HNWIs they surveyed want to buy completed property in Dubai, and are prepared to pay to secure a second home.

The arrival of more affluent expats has played a role in the UAE’s rising inflation, a leading economist warned last year.

“I think it has contributed to inflation in housing. In particular, we’ve seen the rents going up much faster than we were expecting coming out of the pandemic,” Khatija Haque, chief economist at Dubai’s largest bank Emirates NBD, said last October.

This is a concern for many mid-level executives according to Vladimir Vrzhovski, financial services lead at consultancy firm Mercer Middle East.

Mercer’s latest Cost of Living 2023 report, published this month, ranked Dubai 18th globally, 13 places higher than it was last year. Rising rental rates a major contributing factor to its rise up the global rankings.

“For the Middle East, cost of living is the highest concern for business executives,” Vrzhovski said.

Recruitment agents told AGBI earlier this month that the rising cost of living had so far not dented the number of workers moving to the region, but Vrzhovski said if this continued to rise at pace it could become difficult to attract top talent.