Abu Dhabi leads the UAE in affordable accommodation

Real estate authorities in Dubai should follow Abu Dhabi’s lead in providing rental options for low earners or risk areas becoming as unaffordable for the average population as parts of London, according to Cluttons’ head of research.

In August, the Department of Municipal Affairs and Transport at the Abu Dhabi City Municipality announced a workshop to encourage developers to build accommodation for those earning Dhs4,000 ($1,090) to Dhs6,000 ($1,634) a month, and bachelors earning Dhs2,000 ($545) to Dhs4,000.

Rents for each group would range from Dhs1,400 ($381) to Dhs2,100 ($572) and Dhs700 ($191) to Dhs1,400 a month respectively.

Read: Abu Dhabi initiative to provide Dhs700 accommodation for lower earners

“It’s good the authorities have stepped in”, said Faisal Durrani, adding that a similar approach would be beneficial in Dubai.

“Developers are launching things branded affordable and the municipality is trying to set land aside for affordable housing. But it’s important to have a unified strategy as to what it means, who qualifies, and how long you can stay there. Any grey areas need to be cleared up.”

Durrani warned that overlooking affordable housing issues could lead some sectors of the regional real estate market to echo London’s “in the medium-to-long-term”.

The firm recently found in its Autumn 2017 study that average annual rents of circa GBP73,000 ($94,000) in prime central London were almost 75 per cent higher than the average annual household income.

To date, several developers in Dubai, including Danube and Nshama, have launched projects dubbed ‘affordable’, with prices from Dhs350,000 ($95,287) for apartments. But there is a lack of affordable rental accommodation in both emirates outside of that built specifically for corporates.

This has led to instances where multiple workers in the Dhs2,000 to Dhs6,000 bracket share studio and one-bedroom apartments to make ends meet.

Durrani said one reason developers have been reluctant to cater to this segment was high land values, which would require “substantial density” for an affordable project to make sense.

He also suggested a change in mind-set would be needed in a market that has largely been focused on luxury property.

“Developers here perhaps do not find it attractive to have an affordable housing development sat in the middle of high profile prestigious developments,” he said.

“It doesn’t look attractive on their books and that’s probably just a mind-set. A change in mentality is needed around that because it is one of the few asset classes that would actually attract international institutional investment because the yields tend to be very high.”

Abu Dhabi Municipality said affordable rental buildings would offer a return on investment of between 21 and 28 per cent a year to developers, save Dhs4m in total building costs and reduce construction periods by up to eight months.

In order to be applicable, buildings must overlook the main road and meet size requirements of 26 square metres for a studio, 40 square metres for a one-bed, 60 square metres for a two-bed and 80 square metres for a thr