The launch of more affordable housing in Dubai is a sign of a maturing market. But is it really affordable?
Cityscape Global in Dubai is traditionally accompanied by a flurry of announcements from big name developers keen to show off their high end projects at the show – and this year was no exception. Dubai holding, Emaar, Nakheel, DAMAC and all the usual suspects were out in force with giant booths displaying models of their glitzy developments in minute detail.
The star of this years show was undoubtedly the $20bn Jumeirah Central project, announced by Dubai Holding on the eve of the show. Occupying 436 hectares in a prime central Dubai location along Sheikh Zayed Road opposite Mall of the Emirates, news of this city within a city will have been music to the ears of the construction industry. The project will involve 250 individual building projects and be home to 35,000 residents, three shopping malls, 7,200 hotel rooms and space for 45,000 cars.
Nakheel, one of Dubais busiest developers so far in 2016, also featured strongly with a pair of new twin tower projects located on Palm Jumeirah and Ibn Battuta Mall respectively. These added to a string of announcements in the months leading up to Cityscape for projects in every corner of the city such as Jebel Ali, Deira Islands and Dragon City.
DAMAC Properties unveiled a number of new villa and apartment projects during the show under its AKOYA brand, taking its year-to-date tally to 10 projects worth a combined AED 13bn. Emaar was on hand to display a spectacular model of the Santiago Calatrava-designed tower monument that will landmark the Dubai Creek Harbour mega development. The Mohammed Alabbar-led firm also unveiled its latest offering in Dubai South near the new Al Maktoum International Airport. Emaar South will be a mixed use development with 15,000 homes, community retail, an 18-hole championship golf course & clubhouse, hotels, schools, and leisure amenities.
Separately, master developer Dubai South launched The Villages and The Pulses, the first of many communities that will make up the $25bn residential component of a development that will eventually be home to 1 million people.
These are just a handful of projects, some of them on an unprecedented scale, to launch in Dubai in recent months. What do they tell us about the general wellbeing of Dubais real estate market, bearing in mind that property values have been flagging for the best part of two years and are apparently set to fall until at least the tail end of next year?
Faisal Durrani, head of research at Cluttons, says a phased introduction will help the market absorb these developments. In the three days leading up to Cityscape we saw 30,000 units announced which isnt unprecedented but there is sometimes a danger when such large projects are announced that the market might react badly, particularly when it is softening.
But when it comes to such big projects, particularly with all of them concentrated in three developments, you need to remember that a lot of these are going to be phased and might be built over a much longer period of time than the initial first phase delivery of these things which is expected in 2020.
Were not going to include these things in our pipeline until contracts have been awarded and tenders have been put out. So these are all part of the vision that Dubai has to double the population and to bring in 20 million tourists by 2020 which is why all announcements are anchored around that date.
Who lives in a place like this?
One high end project that is hitting the market right now is the exclusive $2bn Alef Residences and accompanying hotel on the Palm Jumeirah. General contractor Al Futtaim Carillion has topped out both buildings and is on track to complete construction in the second quarter of 2017. The ultra-high end residential component consists of eight mansions and a total of 104 homes with an average price tag of AED 24mn ($6.5mn). A penthouse duplex will set you back a cool AED 51mn while an entire mansion retails at a whopping AED 268mn.
With such a small pool of potential buyers its perhaps not surprising that units are not exactly flying off the shelf. The project is still only 20 percent sold and the developer says it is close to selling another 20 percent. But Matthew Bate, executive manager of Al Sharq Investment, a joint venture of Qatars Al Mana Global and Saudi Arabias Al Sharq Group, says sales, which began in November 2018 long after construction started, are on track.
Its a very bespoke product where youre dealing directly with very high net worth individuals, he says. Typically weve found that the people that would buy into this already have an association with Dubai, perhaps because they holiday here and like it. But we also have people that will use it as a home.
It helps to have nice market conditions and the market hasnt been in our favour, theres no doubt about it. When we first started looking at this product we knew we were somewhat isolated from typical market conditions. Youve always got high net worth individuals and theres nothing else like this in Dubai so it fills that market niche.
Though this is the JVs first project Bate says it definitely wont be the last although the company is in no rush to go out and start aggressively building.
Its not just a matter of selling the rest of these apartments before we start another, its also a matter of leveraging what youve done, he says. We didnt sell off plan because this is the first development so we wanted people to know that this was real and that we would deliver.
We only went to market 18 months before opening which is quite unheard of in Dubai. If you look around Cityscape people are going to market with a delivery time of four to six years but thats not what we wanted to do. We want to get this right and get the confidence in the market and build the Alef brand. When we go to do another development people will know us as the company that did the Alef residence on the Palm.
Market evolution towards affordable housing
Even for Dubai, the Alef Residences is a somewhat extreme example of luxury. But at the opposite end of the scale new developers are emerging to meet rising demand for more affordable homes. One of these is Danube Properties, which has launched six residential apartment projects to date, all of which are sold out.
Danube started off with villas in Al Furjan then a project in Studio City next to Mall of the Emirates. It returned to Al Furjan with an apartment building and is about to launch a new project in Arjan next to Miracle Garden. The first of its six projects is due to be delivered this month, several months ahead of schedule.
Our policy is very simple, says Rizwan Sajan, CEO of Danube. To start one project at a time. We make sure we sell it and award the construction contract for the project before starting a new one. If you invest in Danube youre sure to get delivery on time. We dont overstretch ourselves. Other developers start two or three projects at a time. Our projects are not big, just AED 300-500mn each is the maximum.
So why is now the right time to invest in the more affordable, mid-market property segment?
Prices in Dubai are very low, Sajan says. You can own a furnished studio apartment for AED 450,000 AED 500,000 and the rent for that is AED 50,000 AED 60,000 per year. So instead of paying the rental I would rather put my money towards owning my own apartment, and with the flexible payment plans which we have, we are only charging you 1 percent per month which is a very good way of investing your money. Today is a good time to invest because Dubai is almost at the bottom, you cant go much cheaper than this.
Though he plans to take it one project at a time, Sajan says he hopes to launch three to four projects per year. The market looks very good now and I can only see it going up over the next four to five years. If you havent already bought I would strongly recommend buying anywhere in Dubai. You dont have to buy from Danube, but do buy now because in a couple of years you wont be able to buy at these prices.
Higher up the scale is Azizi Developments, which currently has a pipeline of 20 projects also very focused on the up and coming Al Furjan neighbourhood near Ibn Battuta Mall in the south of Dubai. Its two-tiered stand is one of busiest at Cityscape. Though its not allowed to sell on site, Azizi has an office within walking distance of the venue at Dubai World Trade Centre.
The company has already handed over two residential projects and expects to handover one or two new projects every month. By the end of the year the Azizi will have handed over a total of 856 apartments in five developments, all in Al Furjan.
Farhad Azizi, chief executive officer of the company, says there has been a clear shift in the market, with more people wanting to get on the property ladder. Two years ago Azizi was selling 25 homes a month but in August it sold 263 apartments and many of the buyers are end users rather than investors.
Azizi believes it can manage 15 to 20 projects in a year and plans to launch 15 in 2017 and the same again the following year. A typical two bed residential apartment in Al Furjan costs around AED 1.3 to AED 1.4mn. A one bed is AED 1mn and a studio is around AED 500 to 550,000. All of its properties come fully furnished.
People initially plan to come to Dubai for a short time but they end up staying longer and that encourages them to buy, Azizi says. That demand has grown significantly. Ive been speaking to some of our customers and theyre saying Ive been renting for ten years and now I wonder why. In those ten years they could have bought and paid for a property and resold or rented it out for a higher price.
The trend towards more end user ownership has also changed with the help of the banks and more flexible payment plans, Azizi says. Our payment plan is 30 percent during construction and 70 percent at handover. We have a very strong mortgage department to help the client get financing through the banks which makes everything simpler. That facility has been great for us.
Though Azizi has projects in other areas of Dubai, notably the Palm Jumeirah, the bulk of its developments are in Al Furjan. Azizi explains the appeal of the area: Al Furjan is an up and coming area with a lot happening, he says. Nakheel is building and Danube and many other private developers are there. Its close to Ibn Battuta Mall, Sheikh Zayed Road, Discovery Gardens and The Gardens. The new metro is coming close to our projects and the Expo site is not far away. The area has a big future and is affordable. In five years it will be even better. Emirates Hills used to be very affordable but not anymore.
But is it really affordable?
There seem to be wildly differing definitions of the term affordable and some developers may be stretching it to the limit. Many of the properties dubbed affordable may in fact be beyond the reach of the average buyer.
People are struggling with the definition of affordable housing, says Cluttons Faisal Durrani. From our perspective all we can do is look at average incomes and an average household makes about AED 200,000 per year. If youre looking for a mortgage you might get three to four times that which means something priced between AED 600,000 and AED 800,000. As a family home, thats unavailable in the market right now.
Youve got Nshamas Town Square which has three bed townhouses priced at AED 1.2mn which is the cheapest townhouse on the market today. However when compared to what people can secure as a mortgage against an average household income its still twice that. Theres a danger that the word affordable is being lost because every developer is announcing schemes they claim are affordable but in reality are probably not.
Durrani says it would be helpful to have some guidance from the Federal government which in the past stepped in to introduce mortgage caps to limit speculative activity. Options for government intervention in the UAE housing market include the UK route of having quotas of affordable housing. Alternaively theres the Singapore model of having a housing development board.
Dubai Municipality has sectioned off parts of the city which they say are going to be used for affordable housing, however Durrani says we still havent seen very much in the way of development going into those areas. He says developers need to be given an incentive to build affordable housing on their plots.
Its not a question of the land price being too expensive or build costs being too high but theres no talk about it at a federal level so its not at the front of developers minds, he says.
Another issue is that there may be a bit of a stigma attached to affordable housing in a market best known for high end developments.
Right now affordable is almost like a dirty word, Durrani says. There are a lot of developers in this market whove built substantial portfolios of glitzy projects earlier on and there might be a reluctance to focus their attention on something thats less shiny and perceived to be of lower quality.
That mind shift has yet to happen. They need to understand that this is a vastly underserved segment of the market and there are huge opportunities to cater to local and domestic demand from people struggling to get on the property ladder. People are staying longer in Dubai and in order to put down roots you need to be able to afford to buy and right now thats a distant dream for many.