Affordable rents a mirage in dubai

Increasing prices drive middle-income households to Dubai suburbs or neighbouring emirates, writes Deepthi Nair

Recent reports have pegged affordable rents for an average Dubai household at Dh72,000 annually. However, the ground reality can be quite different.
With salaries remaining stagnant and the cost of living on an upward spiral, middle-income households feel the pinch of paying exorbitant rents. Despite industry talk of rents stabilising or falling, it is common knowledge that landlords are racking up rents during every lease renewal.
According to data from the Dubai Statistics Centre, 64 per cent of the population in the city earns a salary between Dh3,000 and Dh10,000 per month. Excluding the labour class, the number of households falling in the middle income bracket drop to 40 per cent.
Affordable housing is defined as that which makes up 30 per cent of your median income. By that rule, affordable annual rent for a middle income household should be pegged at Dh30,000 at the maximum. However, there is sparse real estate you can rent for this amount in Dubai or Sharjah.
Meanwhile, rent in the range of Dh55,000 to Dh60,000 per annum can only fetch you a studio in premium locations such as Dubai Marina, Jumeirah Beach Residence, Jumeirah Lakes Towers, Business Bay or Downtown Dubai.
Moving away from the heart of the city, you could rent a two-bedroom apartment in older parts of Dubai such as Abu Hail, Al Twar, parts of Deira, Al Ghusais, and in freehold areas such as International Media Production Zone (IMPZ), Liwan, Dubai Residential Complex, Dubai Silicon Oasis, Remraam and International city (Commercial Business District) for this amount.
Quality of life
Unaffordable rents often make working professionals opt for sharing arrangements (despite being illegal) and force families to shift to neighbouring emirates such as Sharjah and Ajman, willing to brave the hour-long commute to and from work and compromise on their quality of life.
"The trend of 'suburbanisation' is currently under way in Dubai. This explains the migratory effect to satellite cities such as Sharjah and Ajman, given the lack of sufficient alternatives in Dubai at the moment. Developers, however, have taken cognisance of this shortage and have responded by offering a number of alternatives. These are expected to hit the market from 2017 onwards, exerting a downward pressure on rents," said Hussain Alladin, head of research at GCP Properties.
"The most undersupplied housing segment is for expatriate households with an annual housing budget under Dh60,000. This number does not include utilities and housing fees, which usually add another six to eight per cent on the rent paid to the landlord," said Jesse Downs, managing director and co-founder of Phidar Advisory.
A few prominent developers that have launched affordable housing schemes in the recent past include Danube Properties and Nshama.
"Given the substantial land bank that exists along the Shaikh Mohammed Bin Zayed Road corridor, it is more than likely that more affordable options will be created in the next five to seven years, given that affordability is now the new zeitgeist in real estate. However, this housing sector will develop over time, and until it presents itself as a viable alternative, there will be some migratory pressure to Sharjah and Ajman," added Alladin.
Owning a home
Meanwhile, a recent report issued by the consultancy JLL said Dh790,000 is an affordable price for a mid-income family to buy a home in Dubai.
However, there is a catch here. Transaction costs will amount to about seven to eight per cent of the overall ticket price for a mortgage buyer. This implies that on a down payment of 30 per cent, the initial amount to be paid is Dh300,000. This makes owning a home out of reach for a majority of Dubai expatriates.
"For those who want to purchase, the real challenge is access to mortgages. Most buyers earning between Dh15,000 and Dh20,000 per month will not qualify for a mortgage, based on current mortgage policies in banks surveyed," informed Downs.
Also, an amount of Dh790,000, for instance, cannot buy an expat properties in well-established neighbourhoods. Currently, the options for this ticket size include communities such as International City, Discovery Gardens, IMPZ, Liwan, Dubai Residential Complex and in the off-plan space, Nshama and a few others.
Despite the acute need for affordable housing, Dubai developers have recently launched a spate of luxury projects since they provide high margins. To abide by a Dubai Municipality directive on a quota for affordable housing, some developers have opted for a smart strategy - lower sales price by reducing the unit size while per square foot costs remain the same.
"Average unit sizes in freehold Dubai have reduced by 25 per cent in the last five years. While this gives the illusion of affordability, it does not really present a realistic alternative for the end-user, and as such, there has not been much demand by the end-user mid-income community," explained Alladin.
- deepthi@khaleejtimes.com

• Dubai