The goal of owning a roof over their head continues to gain traction among millennials in the UAE despite a series of challenges that include growing affordability issues and poor planning.
Despite property prices falling last year, 64 per cent of millennials who don’t own a home in the UAE say they need a higher salary before they can buy, according to a report by HSBC in March.
The country’s property prices have declined in the wake of anaemic job growth and new supply. Average property prices in the UAE fell 5.4 per cent in 2016, shows the IMF’s Global House Price Index. Salaries in real terms are expected to grow by only 0.5 per cent as slowing growth forces companies to tighten budgets, reports recruitment consultant Korn Ferry Hay.
The affordability challenge is highlighted by the fact that 45 per cent of millennials intending to buy have not yet saved enough for a deposit, and that 18 per cent are being held back because they cannot afford the type of property they would like, the HSBC report found.
“The major reason for this is the size of the deposit required, not the income required to make the mortgage repayments,” says Paul Borg, Mortgage and Wealth Manager at Dubai-based financial firm Globaleye. Under the regulations introduced by the UAE Central Bank, expatriates buying a property for under Dh5 million must produce a minimum deposit of 25 per cent, rising to 35 per cent for properties above Dh5 million. For second properties, the minimum deposit is 40 per cent. Emiratis need a 20 per cent deposit for homes under Dh5 million, rising to 30 per cent for homes over Dh5 million, and 30 per cent for secondary properties.
In the UAE, an average studio costs about Dh723,916 and taking into account all deposits and fees, buyers are required to put down around 32 per cent.
“This equates to a minimum budget of Dh231,653 before they’ve even considered furnishing the property or setting up utilities,” says Hamzah Shalchi, Regional Manager at Guardian Wealth Management. “With the average salary of a millennial below Dh20,000 a month, it would take a number of years to save up this figure without any outside help from say, family.”
The HSBC survey, in which more than 1,000 respondents in the UAE participated, including Emiratis and expatriates, found that the proportion of millennial homeowners in the Emirates was the lowest of nine countries analysed by HSBC. Just 26 per cent of people aged 18-36 own their own home, but among those who don’t, four in five intend to buy in the next five years
China topped the list at 70 per cent of millennials saying they were homeowners, while 46 per cent of Mexican millennials own their own homes and 41 per cent of French millennials saying the same.
Millennials in the UAE also do not have their house in order when it comes to financial planning for their home purchase. Of millennials intending to buy a home in the next two years, 21 per cent have no overall budget in mind and another 60 per cent have only set an approximate budget, HSBC found.
“While we appreciate that the market conditions today are challenging, there are clearly areas where people can make improvements,” says Kunal Malani, Head of Customer Value Management, Middle East and North Africa (Mena), Retail Banking and Wealth Management, HSBC Middle East.
“By getting a full view of your finances and remaining committed to a budget, you can go a long way towards reducing existing and future pain points. For example, we always advise people budget at least 35 per cent for costs and fees that arise.”
Access to affordable housing is not just an issue for millennials in the UAE, it applies to all age groups, says Craig Plumb, Head of Mena Research at JLL. Almost 40 per cent of families in the UAE earn between Dh10,000 and Dh30,000 a month, research by JLL suggests. These families can afford a home costing up to Dh790,000 or to rent a home costing up to Dh73,000 per annum, explains Plumb.
“While developers have recognised the importance of catering for this segment of the market, only around 20 per cent of new projects released into the market over the past two years offer two-bedroom units at these price points.”
For people looking to buy a home, now is the right time, says Plumb. “The market is close to the bottom of its cycle, with some increases possible in the second half of 2017.”
Tips for millennials looking to buy a place
This can help make home ownership a reality sooner. Include saving for the deposit, usually the first payment you’ll need to make. Find a competitive mortgage for the rest.
Think about the things that will make the house you buy the home you want to live in, and make sure to include them in your home purchase budget.
Consider cutting back on day-to-day spending. Think outside the box about what could help you to buy a home, such as buying with a family member or friend.
A full view of finances
Look at a mortgage as part of your long-term financial plan, not as a one-off transaction. Different types of home loan suit different needs and situations.