Understanding Dubai’s housing demand and supply

Dubai’s real estate market recorded a high-transaction volume during the last ten days of 2018 with a value of more than Dh 19 billion through 2,081 transactions. Sultan Butti Bin Mejren, director general of the Dubai Land Department, confirmed a healthy demand from buyers and investors who are benefitting from legislation and investment incentives recently announced by the government. However, when it comes to understanding housing demand in Dubai, we must also acknowledge other factors. Dubai has a unique demographic mix that is rarely found in any other city in the world. Valustrat reports saynine out of 10 of the registered 4.4 million Dubai residents are expats. About 1.22 million of whom reside outside Dubai, mostly in neighbouring Sharjah, which leaves the city of Dubai with 3.18 million residents.

According to Haider Tuaima, head of real estate research at ValuStrat, almost half of the workforce living in Dubai (46.9 per cent) earn less than Dh2,500 a month. These people cannot afford to rent a house and therefore either live in labour or staff accommodations or find a bed-space within shared rooms. Another 18.2 per cent earn between Dh2,500 and Dh5,000; barely affording to rent a studio apartment, most in this segment live in shared rooms. The rest (35 per cent) who earn anywhere between Dh5,000 and Dh35,000 (and above), with a median income of Dh12,000, have the financial capacity to rent, if not purchase, private homes.

The last five years saw an average net migration of almost 200,000 people a year, so about one million more residents now reside in Dubai since 2013. The population also grew 7.6 per cent on average each year during the same period. Assuming that 30 per cent of the current Dubai population of 3.18 million residing in labour or staff accommodations, Tuaima estimates the housing demand for 2018 at around 557,000 residential units.

Official Dubai housing supply data for 2017 points to a total of 432,278 apartments and 96,222 villas, or 528,500 residential units.

This is not counting villa attachments, Arabic houses, labour accommodation rooms, collective households and others.

At the start of 2018, ValuStrat reported that 45,000 housing units would be completed by the end of the year, however, as with previous years, not all projects were completed as scheduled. Only an estimated 21,417 units (17,766 apartments and 3,651 villas), or 43 per cent of the original estimate, was completed, making the estimated total residential supply as of the end of 2018 at 549,917 units. So, if we use the estimated demand number above, Dubai would have a shortage of 7,083 homes.

But what about the next few years? Tuaima says that because of project delay backlogs from the last three years, next year is estimated to add no less than 78,000 units; this figure is based on completion dates announced by the developers, contractors, etc. If we assume that 40 per cent of projects are to be completed without delay, we can then expect 31,200 units for 2019, which should cover the shortage from 2018, and add another 24,117 homes, which may not be enough for the next 200,000 Dubai residents.

So as more projects are completed, and units handed over, it is expected that downward pressure would be applied to the rental market. However, Tuaima says that since Dubai has a unique demographic mix (92 per cent of the population are expats) and on account of the city’s safe-haven, tolerant and income tax-free status, approximately 200,000 people a year would be added and registered as residents in Dubai.

Additionally, with a significant number of developers stretching their project schedules, potentially reducing the risk of oversupply, absorbing the new stock becomes a medium-term rather than a long-term matter.