Affordable housing: how to get there

We look at affordable housing models around the world and what’s in store for the UAE

Affordable housing has again made headlines this year. In March, a new policy was approved to provide housing for low-income groups and renovate some old areas in Dubai. In August, the Abu Dhabi municipality announced an initiative targeting fixed-income groups to meet their residential needs. Musabbah Mubarak Al Murar, acting general manager of Abu Dhabi City Municipality, said the initiative aims to provide proper and legal residential options for low-income individuals, while creating an investment opportunity for property owners.
It’s also clear that there is sustained demand for affordable housing in the UAE. Apartments in districts that command lower rents are providing good yields compared with well-known luxury areas. Property consultancy Cavendish Maxwell says that yields in International City are around 9 per cent and in Discovery Gardens it is 8.85 per cent. Mid-tier housing in places such as International Media Production Zone (IMPZ), Barsha Heights, Jumeirah Village Circle and Dubailand offers yields of 8 per cent and above.

“For apartments, starting prices of Dh700,000 in emerging locations such as Dubai South and Dubai Sports City are driving demand from first-time buyers,” according to Cavendish Maxwell Q2 Dubai report.
However, noting that the term affordable is being “loosely used” in the market, a Core Savills report points out that the current new supply is catering largely to the middle- income segment, while affordable living remains out of reach for the lower-income members of society.
The Dubai formula

To be considered affordable, housing typically includes market-quality accommodation within reach of lower-income groups, usually measured as a society’s bottom income quartile with their housing expenses not exceeding 30-35 per cent of the household income, according to the Core Savills report. Additionally, long-term models of such housing work if there is no stigma attached to them, e.g. inhabitants don’t feel they are second- class citizens.

Indeed, in some markets, such housing ultimately becomes highly sought after due to its design quality and low cost. In Dubai, the government defines affordable housing as living space for households with an income between Dh3,000 and Dh10,000 per month. Much of the emirate’s service-class executives, such as accountants, administrative staff, entry-level architects and engineers, with income levels ranging from Dh9,000-Dh20,000, fall in this category, representing almost a quarter of the population who struggle to find quality accommodation at feasible rental and sale prices, according to Core Savills.
Analysts agree there is a dearth of affordable family homes for this income bracket. Faisal Durrani, global head of research at Cluttons, tells PW, “If the average household income is Dh200,000 a year, the best you can hope to afford is a home costing Dh600,000- Dh800,000. There are no properties available for a family home in that price range. You can buy a studio or a one-bedroom apartment. The potential for growth in the low or mid-in come sector is tremendous.”
Most governments tend to find a solution along the lines of public-private partnership. “In an emerging market, the government is conscious of balancing between too much interference and a free market,” says Durrani. “Some guidance and in this instance a formal definition of what is affordable is needed.”
Durrani cites examples of world cities, which have created such provisions. “It can depend on income, housing allowance or length of job contracts. Singapore has specific buildings that are built for purchase by locals and they are different from what international investors can invest in. Construction costs are lower, making it more accessible.”
Under Dubai’s initiative for low-income housing and renovation of some old areas will provide separate programmes for Emiratis and non-Emiratis. The policy will also consider families’ income levels, place of residence and public benefits.
A report by McKinsey Global Institute says that globally a third of urban dwellers—1.6 billion people— could struggle to secure decent housing by 2025. It suggests a four-way approach to tackling the problem. The first step is unlocking land supply by releasing government land or providing density bonuses to developers in return for affordable units.
Global problem

Reducing construction costs is another approach. “Project costs could be reduced by about 30 per cent and completion schedules shortened by about 40 per cent if developers make use of value engineering [standardising design] and industrial approaches, such as assembling buildings from prefabricated components manufactured off-site,” the McKinsey report states.
Reducing operational and maintenance costs by energy-efficient fittings is another way of becoming more cost efficient. These, combined with lower financing costs for developers and buyers and controlling risk by streamlining tenancy systems, is the final step.
Abu Dhabi’ affordability matrix

The initiative launched by Abu Dhabi will offer “high-quality and affordable accommodations for low-income groups at rents ranging from Dh917-Dh1,563 per month”. The municipality also expects the initiative to deliver high annual returns of 21-28 per cent to property owners, while saving about Dh4 million in total building cost. It also seeks to reduce the construction period by as much as eight months.
Among other things, the move will redesign, assess and modify commercial buildings to accommodate more families with a fixed income. The targeted buildings under this initiative include existing buildings that had been divided casually in a way that falls short of the licensing conditions. It also applies to divisible buildings under extensive maintenance, those occupied by bachelors and new buildings.
There are two targeted categories of occupants: the low-income segment earning Dh4,000-Dh6,000 per month (Dh48,000-Dh72,000 per year) and bachelors with fixed incomes. The rent for the low-income segment will range from Dh1,400-Dh2,100 per month or Dh16,800-Dh25,000 per year.
For bachelors with fixed incomes, the rent will be Dh700-Dh1,400 per month (Dh8,400-Dh16,800 per year) for those earning Dh2,000-Dh4,000 monthly or Dh24,000-Dh48,000 per year. The rent is calculated at a rate not exceeding 35 per cent of total income, with consideration given to the number of occupants.
Planning, interior design and operational standards are key to the success of such an initiative. The building has to overlook a main road. It is permissible to convert all floors into residential units, including the mezzanine, except the ground floor.
Landlords may be exempted from the providing parking if the building is intended for bachelors. The property owner is also entitled to re-divide the interiors in line with the technical and civil defence conditions.
The minimum area of a residential unit must be 26 sq m for a studio, 40 sq m for a one-bedroom apartment, 60 sq m for a two-bedroom apartment and 80 sq m for a three-bedroom apartment.

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