Expo 2020: Addressing affordability concerns

Dubai’s successful bid for the 2020 World Expo had a positive effect on the city’s real estate market and general market sentiment. Hosting one of the world’s largest exhibitions not only confirms Dubai as a global city with world-class infrastructure but also immediately boosts demand in the emirate’s property market.

The event will run for six months from October 20, 2020, until April 10 the following year. Dubai, which is planning for an extra 25 million visitors, is expected to spend around $6bn on infrastructure-related projects creating an estimated 277,000 new jobs. Yet, current property prices are already well beyond the reach of your average resident. Four or five star hotels also account for more than 60 per cent of the total hotel supply (as of August 2015). Dubai needs to develop affordable accommodation options for new residents and those visiting during the World Expo and beyond.

When we talk about affordable hous- ing, we refer to homes that are affordable for a household in relation to its income, rather than low-income housing. Colliers International recently conducted a study of affordability levels within the housing market. The findings indicate that over 50 per cent of households earn between Dhs 9,000 and Dhs 15,000 per month. Following internationally accepted standards of what a household can ‘afford’ to spend every month on accommodation, this limits rental or mortgage repayments to Dhs 32,500 to Dhs 54,000 per annum – significantly less than the average family home in the emirate.

Although a number of mid-market developments have been announced over the first half of this year, unfortunately we do not anticipate that it will have a significant impact on the current demand/ supply gap in the market. In order to make any real headway in addressing the current housing gap that Dubai is facing, we need to see another mid-market residential development of a comparable size to Discovery Gardens (approximately 25,000 units).

There are net gains to be made by developing affordable communities as part of creating a layered economy. Especially with each income bracket contributing towards the overall development of the economy and its real estate market. When developed effectively, affordable housing can provide attractive returns for both retail investors and developers. Mid-income housing outperformed other sectors in rental growth during the last 12 months. Developers can also include additional revenue components such as schools, medical, leisure and retail facilities – adding to overall project returns.

Similarly, within the hospitality seg- ment, there is an opportunity to develop mid-market hotels even in areas where the land price is expensive. These assets tend to perform with less operating expenses and staff costs than upmarket and higher hotel categories.

Mid-market hotels are an essential component of the wider Expo 2020 plan and are critical in attracting a more price sensitive audience. They also add value to mixed use schemes where retail is the dominant component. Colliers research reveals that guests staying in budget and mid-market hotels tend to spend a greater amount of money in local retail outlets than guests staying in five-star hotels. Capturing and maintaining this share of the market is vital, particularly considering around 70 per cent of retail demand in Dubai is generated by non-residents.

The real issue is not just whether the city is ready for Expo 2020 but what hap- pens beyond it? This is being addressed by the launch of new theme parks and world class mixed-use leisure and retail develop- ments that are scheduled to come online leading up to and immediately after Expo 2020. This coupled with affordable housing options, will ensure that the location continues to maintain its position as a leading destination to live, work and visit.