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|15 January, 2019

Affordable housing to remain mainstay of Dubai property market

Developers, banks and regulators can join hands to create an eco-system to support salaried employees to buy homes

Image used for illustrative purpose. Looking along Sheikh Zayed road towards the business district.

Image used for illustrative purpose. Looking along Sheikh Zayed road towards the business district.

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I believe the fundamentals of any real estate market is based around innovation, driven by the changing needs of the consumer and general economic prosperity. This then is governed by the demand and supply curve and however volatile it becomes, there is money to be made in the long run. In fact, I have always believed one must maintain a long-term expectation to be able to fully mature the profits that can be made in real estate.

It is no different for Dubai and the market over the last two years seems to have swung towards buyers. The customer now holds the key in the bargain. This in turn means it's a win-win situation for property buyers if a wise investment product is shortlisted.

The real estate market has also shifted to where it should have - the affordable segment. It has become the most important part of the market and we believe it will drive the growth of the real estate market. As demand for such real estate surges, policy makers and developers need to focus on the affordable housing market more intensely as I believe it is not just here to stay, but it will remain the mainstay of this developed and matured real estate industry.

The good thing is that Dubai's real estate market is one of the most efficiently regulated market where things are very transparent and investors' rights are well-protected.

Dubai's real estate market is still dominated by the leasehold market and the majority of the emirate's population remains tenants. If part of the tenants start buying and moving into their freehold homes, the market will witness a massive boom. The leasehold will then maintain its demand from new migrants to the country served by the consistently growing population.

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The mid-market is the most important segment of the real estate industry. Middle-income families could be attracted and encouraged to buy properties that they could call a 'home'. However, the key to this is affordability and making home acquisition less painful to their pockets.

A 25 per cent down payment, coupled with the 4 per cent property registration fees and 2 per cent brokerage commission, makes home acquisition a costly affair for the middle income group. For a two-bedroom apartment that is priced at an average of Dh900,000, the 31 per cent initial acquisition cost adds up to Dh279,000. Most middle-income households will feel the pinch in their hard-earned savings with such a down payment.

This is where developers, banks, real estate regulators and in some cases, large corporations could join hands to create a proper eco-system to support salaried employees to buy homes.

Most public sector and private sector employees have a house rent allocation between 25 to 40 per cent of their monthly salary. For an employee earning Dh15,000 per month, they could easily earmark Dh6,000 as house rent allowance or equated monthly installment for a home. This could help him buy a two-bedroom apartment in Dubai - if this amount is invested in a monthly scheme, guaranteed by the employer and put in an escrow account.

If the house rent allowances of some of the well-established corporate entities and large private businesses are placed in a structured arrangement with banks and credible developers with an agreed and guaranteed price and payment plan, hundreds of thousands of well-paid employees of these organisations could then check into their freehold homes.

These arrangements are not new and have been in practice for ages in different parts of the world. Since the market is dominated by expatriates, it is impossible to expect government housing schemes. However, with the new immigration laws offering long-term residency visa schemes, I am confident the volume of people who would want to never leave the UAE will increase.

The writer is director and partner of Danube Properties. Views expressed are his own and do not reflect the newspaper's policy.

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