An estimated 51,000 new homes are likely to enter the market by 2020; Occupancy levels nearing 90%, putting pressure on rentals
Dubai: With occupancy levels across all available homes in Dubai at a significant 87 per cent, the city will need new homes — and fast.
An estimated 51,000 new homes are likely to enter the market by 2020, but with population growth running at 5 per cent annually, there could soon be a situation where there is not enough supply to take care of all the incipient demand. During the peak years between 2005-08, occupancy levels were estimated at 93 per cent, according to a new report by Colliers International.
What it means is that most of the current projects that are looking at completion timelines of 2016-18 can be easily absorbed by the market, with little or no residual concerns about oversupply. But can more developers be convinced to go in for more projects and targeting their offerings at a wider buyer/user base than just the high-end investors?
“Although the rate of growth in the sales market has slowed, the average two- or three-bedroom unit in Dubai is still beyond the reach of most working families,” said Ian Albert, Regional Director at Colliers International. “With home ownership no longer an option, these families have been pushed towards the rental market where prices remain high.
“As the cost of living and raising a family becomes untenable for your average family, at best they will look to a neighbouring emirate for accommodation and schooling, and at worst they will look to more attractive, affordable countries in the Gulf or further afield. “This is not only a missed opportunity for Dubai developers who should be looking to capture this sizeable market by creating affordable communities that cater to its needs, but it also directly affects the economy as productivity levels are lowered when a large percentage of the workforce suffers from a long commute.”
In Colliers’ estimates, households earning between Dh15,000-D25,000 a month can afford rentals of Dh54,000-Dh90,000 annually. This situation is applicable to around 35 per cent of total households in Dubai. The highest income bracket — those with income of Dh25,000 and above a month — made up a “limited” 15 per cent of the total. Rental affordability for this tier starts at Dh90,000 a year, the report said.
But half — 50 per cent — of the residential space is taken up by households earning between Dh9,000-Dh15,000, with the likely rentals at Dh32,500-Dh54,000 annually.
And it is Dubai’s tenants who faced the brunt of the sudden and steep hike in rentals, with the citywide average up by 22 per cent over the 12 months to end June. Again, those living in the mid-tier residential buildings or clusters — such as Jumeirah Lake Towers, Discovery Gardens, International City and Deira — witnessed the highest increases in rental rates year-on-year (30-35 per cent), according to Colliers.
It is from this tenant base that Dubai’s developers should try and persuade buyers to emerge for their new projects. But they should bring in some changes to the property mix in their projects.
According to Colliers’ numbers, there were around 120,000 freehold apartments in Dubai, of which 59 per cent are priced below Dh1 million and typically studios and one-bedroom apartments. But given that the average household in Dubai has more than four members, the need then would be for two- and three-bedroom formats, of which there is a supply deficiency.
Two-bedroom apartments below Dh1 million represent 5 per cent of current freehold supply, and those below Dh2 million also make up a rather “limited” 9 per cent.
Developers would be off on a good footing if they rolled out projects that looked to plug this gap.