Few of the homes being built by the private sector in Dubai branded as affordable are actually within reach of lower-income families, according to a new study.
The research paper from Core, the UAE associate of Savills, argues that Dubai Municipality defines affordable housing as living space for households whose income is between Dh3,000-Dh10,000 per month. Typically, for homes to be considered affordable those paying for them should spend no more than 30-35 per cent on housing expenses.
Most homes being branded as affordable by private sector developers are therefore out of reach in price terms, with even the cheapest properties tending to start at prices of around Dh500,000.
Even if they weren’t, lower-income households would struggle to raise the necessary borrowing from banks. Lower loan-to-value ratios introduced in 2013 to stabilise the market would mean that a buyer requires a deposit of 25 per cent before gaining a mortgage — so they have to save Dh125,000 to afford a Dh500,000 home.
Even then, most local banks operate an income threshold of at least Dh15,000-20,000 per month before granting mortgages. A few will grant mortgages to households with income of Dh10,000, but these come with strict lending terms.
David Godchaux, the chief executive of Core, said: “We are witnessing a surge of off-plan properties which are being marketed as ‘affordable’ options. Some of these projects have tried to achieve the intent through innovative construction, marketing strategies and flexible payment plans, yet many don’t fit the economics of a lower income end user.
“Buyers would be subject to higher down payment in the case of an off-plan property in addition to their current rent. With delayed project deliveries, they cannot risk this scenario and hence continue to rent.”
He argued that a proposed law by Dubai Municipality which would force private developers to include up to 15-20 per cent of affordable housing within new projects might provide impetus to the affordable segment of the market, as would public-private partnership schemes where government provides land for free in a bid to lower housing costs.