Dubai Municipality’s quota plan for new developments a boon to middle-income residents.
A proposal by the Dubai Municipality to introduce mandatory affordable housing quotas for all new residential developments promises to be a boon to middle-income residents struggling to cope with the relentless surge in rents and real estate prices.
The proposal, once put into action, will be a watershed in Dubai’s booming real estate sector, while catapulting it into the next stage of its evolution as a mature market.
Affordable housing quotas, a regulatory step initiated by most developed economies, typically force builders to set aside a proportion of new building units, say 20 to 45 per cent, as affordable homes for people who are otherwise priced out of the market.
The move will have far-reaching positive implications for the middle-income residents who are finding the current prices unaffordable for owner occupation, say market analysts.
Real estate consultants Cluttons said the introduction of such a legislation is long overdue and is expected to bring a wide range of benefits to the emirate, while driving further maturity in the market.
“The issue of affordability has been one that has been quietly bubbling away in the background for some time,” said Steven Morgan, CEO of Cluttons Middle East.
With the introduction of the Federal Mortgage caps and the doubling of property registration fees, the market has seen genuine end users forced into a holding pattern as they attempted to make the transition from rented accommodation to owner occupation.
“The surging rents, driven by the exceptionally strong underlying demand, which was linked to the robust economic growth, meant that household finances were coming under tremendous pressure on several fronts,” said Morgan.
“Now, of course, with rents starting to show greater stability, households have a window of opportunity to consolidate their finances and make that leap to owner occupation. The prospect of those on monthly incomes of between Dh4,000 and Dh12,000 being able to control their rental outgoings will no doubt go some way to aiding the speed at which deposits can be amassed. It is important to remember that there is a huge pent-up demand for affordable housing in the UAE and with rental affordability thresholds being breached in many cities, we welcome the news on this key issue,” he said.
The idea of affordable housing is not a new concept and it has served cities such as London well, where developers are liable to provide affordable housing for developments starting with as little as ten units. In particular, it has aided in the creation of diverse communities, while allowing people from all financial backgrounds to live alongside one another.
There have, of course, been exceptions to the rule, where developers have been permitted to build off-site affordable housing, with land costs being cited as the primary driver for this. Dubai stands to learn a valuable lesson from this as the authorities in London have often been criticised for effectively creating lower income neighbourhoods through this method, said Cluttons.
In Dubai, Karama and Satwa are two key stand-out affordable areas that evolved organically at the edges of the Deira-Bur Dubai and Jumeirah districts, respectively. During the course of expansion of any city, affordable districts often tend to spring up on the fringes of the main commercial districts and this has been the case with Dubai as well.
“Karama and Satwa have over time been absorbed into the city, but we would strongly argue against deliberately creating affordable areas through the sanctioning of off-site affordable housing provisions as there are social implications to consider alongside the impact it can have on the urban fabric of a city,” said Faisal Durrani, Cluttons’ international research and business development manager.
“In Singapore, for instance, the Housing Development Board (HDB) owns and operates all public housing estates, which are in effect self-contained satellite towns that house four out of every five households. These HDB developments are meant to house the vast majority of Singaporeans in good quality homes, which can later be purchased by existing tenants. This does, in effect, create a two-tiered residential market: one for the domestic buyers and one for more affluent and international buyer pool. It is perhaps not an ideal model for Dubai, but one that the authorities ought to look at given its success,” said Durrani.
Cluttons said the affordable housing asset class is growing in significance to investors, due to the perceived ‘safe-investment’ badge it carries worldwide.
“The introduction of this asset class in Dubai is likely to bring a surge in interest, especially if the affordable quotas are reasonably high, say in the region of 20 per cent to 30 per cent of the total number of units being built,” said Durrani.
What is affordable housing quota
Affordable housing quotas, a regulatory step initiated by most developed economies, typically force builders to set aside a proportion of new building units, say 20 to 45 per cent, as affordable homes for people who are otherwise priced out of the market
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