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Affordable housing: finding the right balance

While many developers are catching on, there remain challenges to creating a sustainable business model

Image Credit: Supplied
Town Square Dubai caters to first-time homebuyers
Property Weekly

Almost 82 per cent of residential transactions last year involved properties below Dh2 million, according to the Dubai Land Department (DLD). Nearly half of these transactions were for properties with prices under Dh1 million. Furthermore, 85 per cent of all transacted units were apartments. These figures provide clues to the profile of homebuyers in the market: budget-sensitive families and bachelors.

“The market has certainly moved towards lower-priced units in recent years, with developers recognising this is currently the sweet spot in terms of demand,” says Craig Plumb, head of research at JLL Middle East and North Africa, noting how prices could remain attractive to the mid-income segment within the next several months.

Historically, Dubai has lacked affordable housing options for low and middle-income families who have sought cheaper residential accommodation in the northern emirates, particularly in Sharjah and Ajman. However, Simon Townsend, senior director and head of strategic advisory and consulting at CBRE, notes that many developers have started focusing on this segment.

Young professionals

According to a conservative estimate, the UAE has over 820,000 middle-income households representing about 40 per cent of all households in the country, says Fred Durie, CEO of Nshama, which has launched Town Square Dubai, which targets the affordable housing market. Armed with this information, Nshama looks to address a pent-up demand from young professionals and entrepreneurs who earn around Dh15,000 per month.

“Our strategy is to shift demand pattern by encouraging investors to move from rental homes to owning residences with all amenities nearby,” says Durie.

The World Expo 2020 has served as catalyst for the wider involvement of small and large developers in the affordable housing movement. “Evidence dictates that demand for affordable housing will increase due to the considerable additional workforce requirements for Expo 2020, where 277,000 jobs are expected to be created,” says Cian Farah, CEO of Aurora Real Estate Development, which is developing a rent-only project called Lyra by Aurora in Warsan 4, between Dubai Silicon Oasis and Academic City, targeting young professionals in the affordable market segment.

Lyra targets renting young professionals

Expecting the demand for affordable housing to outstrip supply in the short term, Farah adds: “We have entered the affordable housing segment as there is a clear demand and requirement in the UAE market.”

Dubai-based Sun and Sand Developers Group (SASD) handed over a pilot project, SunBeam Homes, in Dubai Industrial Park in May, where the company attempted to further stretch the limits of affordability. The result: ticket prices of Dh395,000 for a one-bedroom apartment and Dh475,000 for a two-bedroom apartment.

“Now that the threshold for affordability is achieved, we think a lot of new customers will buy into such projects,” says Sailesh Israni, managing director of SASD. “We were able to rent out a one-bedder for Dh39,000 and two-bedders for Dh47,000.”

Overcoming challenges

While there is an increase in availability in the affordable housing segment, Farah says it is often the case that properties in good, accessible locations are not affordable. Furthermore, citing examples in Europe, he says that residential developments with smaller rooms but more generous public spaces are often more successful than those with only larger rooms.

“A design aspect associated with affordable housing projects is that customers are happy with smaller units, as long as rental costs are minimised,” says Farah.

This is a strategy SASD has adopted with SunBeam, which Sailesh says has worked well, noting how the project has attracted a number Emirati buyers looking for a second home near their work places or as an investment asset.

Keys to affordability

Dubai’s low-income housing policy announced last year highlighted the government’s commitment to addressing affordable housing shortages. However, for affordable housing projects to truly succeed, different stakeholders have to cooperate with the government.

“We need to understand what people want,” says Mahmoud Al Burai, vice-president of the International Real estate Federation (FIABCI)-Arab Countries. “The government needs to have affordable zones in the city, not in a way that segregates, but integrates them within the city fabric.”

Another key challenge is the price of land, although Townsend points out that the significant infrastructure work across Dubai has opened up newer residential areas where land prices are less of a barrier to developing affordable housing.

Sustainable model

A key question faced by the industry is how to make affordable housing a sustainable business model. Al Burai says developers need to think of the life cycle cost of a development, as well as value-added services, connectivity to public transport and affordable facilities such as education, health care and retail within the neighbourhood.

Plumb says developers also have to strike a balance between price and size. “There are two major ways that developers can increase the affordability of their products: reducing the unit size and cutting the price per square metre,” he says. “There has been a definite shift towards smaller units as these can clearly be sold at a lower ticket price.”

Ultimately, developers must also be mindful of their limitations. “They must not overextend themselves as this may impact deliverability, and potential investors are heavily focusing on developers who can meet their promised delivery dates,” says Farah.

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