What homes are affordable for the salaried class?

Dubai - We do the math to know how much mid-income residents must shell out to buy a home

Around 85 per cent of units in Dubai's freehold areas were below the Dh2 million mark in 2005, according to a recent report by Reidin.com. A decade later in 2016, this dynamic has inverted as these units only accounts for 12 per cent of freehold supply. However, a larger portion of upcoming supply (32 per cent) is below the Dh2 million purchase price, with developers claiming they are increasingly catering to the mid-market segment at this price.

We examine whether property worth Dh2 million is truly affordable for the salaried class in Dubai.

According to Oxford Economics, the lower-mid income segment of Dubai's population represents approximately 37 per cent of all households in 2015. For housing to be affordable, it should not represent more than 30 per cent to 35 per cent of a household's annual expenditure.

The UAE Central Bank has stipulated that a UAE expat buying a first property worth up to Dh5 million must pay a 25 per cent deposit while it is 35 per cent for a property over Dh5 million.

A Dh2 million purchase of completed property requires an upfront cash deposit of 25 per cent plus up to seven per cent for purchase fees. That's Dh640,000 in cash. Plus, you'll need to show an income of over Dh30,000 per month to get approved for a loan. This would mean a monthly minimum mortgage payment of Dh8,250. This is not for the average wage earner.
 
"In order for a bank to sanction a loan this size, they would want to see a minimum salary of Dh16,250 without any other bank borrowings at all. This isn't at a level to match lower salary income brackets. This twinned with the fact the client would need to find a cash lump sum in the region of Dh650,000 for the deposit and associated costs. The reality is the market isn't providing enough quality units at Dh500,000 to Dh800,000," says Warren Philliskirk, director, mortgagefinder.ae.

Market demand
According to Lukman Hajje, chief commercial officer, propertyfinder.ae, the bulk of market demand falls into the Dh500,000 to Dh1.5 million range. "If developers want to offer affordable housing, they need to provide viable options in this range," he informs. An affordable sales price, taking into account service charge and finance cost, would start from around Dh250,000 and be capped at under Dh1 million for the lower-mid income household bracket.


This price can fetch you studio and one-bedroom apartments in areas such as Jumeirah Village, Dubai Sports City, International Media Production Zone (IMPZ), Dubailand, etc. A few of the projects qualifying as affordable that launched in 2015 included Midtown by Deyaar in IMPZ, apartments at Town Square by Nshama and Glitz by Danube.

"Although in terms of pricing, these projects fall into the 'affordable' bracket, it should be remembered that they are offered on an off-plan basis, which means the buyer will need to finance this property while at the same time paying for their current accommodation until the new community is ready," warns John Stevens, managing director, Asteco.

Mortgage cap
A little over 30 per cent of the Dubai workforce earn an average income of Dh15,000. "Based on current bank loan-to-value restrictions, this enables them to afford a property worth no more than Dh675,000. This is assuming they have the 25 per cent down payment and related fees ready. In order to afford a property worth Dh2 million, the household monthly income would be estimated at Dh45,000," says Haider Tuaima, research manager at ValuStrat.

For those with the funds to spare, it's a buyer's market right now.

"We have noticed increased interest in townhouse acquisition mainly by the young, growing middle income population. Some end-users have seen the correction of prices as a good opportunity to buy property instead of renting," says Cheryl McAdam, manager of residential valuation at ValuStrat.

"Smaller units are in more demand - studios, 1- and 2-bedroom apartments and townhouses. Buying makes more sense than renting considering the rent and cost of mortgages," advises Ahmet Kayhan, CEO of Reidin.com. "Affordability levels have improved. We believe we are close to the bottom phase of this cycle. The rental market has been resilient. This makes the current market a very strong investment market, offering rental yields at the median range of eight per cent across Dubai," he adds.

- deepthi@khaleejtimes.com